<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 91.1%
Aerospace -- 1.3%
503,800 Allied Signal Inc 30,857,754
35,700 General Dynamics Corp 2,249,103
85,800 Lockheed Martin Corp 3,174,603
112,900 Northrop Grumman Corp 8,185,254
---------------
44,466,714
---------------
Automotive -- 3.6%
33,100 Eaton Corp 3,243,803
736,100 Ford Motor Co 38,369,217
785,500 General Motors Corp 51,941,192
180,100 General Motors Corp, Class H* 9,275,154
130,100 Genuine Parts Co 3,756,641
253,700 Goodyear Tire & Rubber Co 14,238,917
---------------
120,824,924
---------------
Banking and Financial Services -- 8.2%
140,300 American General Corp 9,961,304
70,000 Amsouth Bancorp 1,531,253
649,609 Bank of America Corp 39,301,349
68,400 BB&T Corp 2,291,403
326,633 Bear Stearns Cos Inc 13,596,103
876,400 Charles Schwab & Co Inc 34,617,804
94,300 Chase Manhattan Corp 7,891,735
543,860 Citigroup Inc 24,167,783
162,200 Comdisco Inc 3,416,341
153,900 Countrywide Credit Industries Inc 4,944,041
37,100 Dime Bancorp Inc 681,716
182,600 Fannie Mae 11,344,029
102,700 First Union Corp 4,262,053
695,600 Firstar Corp 18,650,779
9,300 Fleet Financial Group Inc 370,259
220,300 Franklin Resources Inc 7,917,035
344,000 Freddie Mac 17,716,004
7,100 Golden West Financial Corp 644,772
57,100 Greenpoint Financial Corp 1,477,466
26,900 Huntington Bancshares Inc 805,322
55,900 J.P. Morgan & Co Inc 7,221,584
258,300 Lehman Brothers Holding Inc 13,883,629
2,600 M & T Bank Corp 1,206,403
454,700 MBNA Corp 11,225,410
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services-- continued
39,900 Merrill Lynch 2,977,541
148,900 MGIC Investment Corp 6,467,847
66,112 Morgan Stanley Dean Witter & Co 5,673,239
89,200 National City Corp 2,464,153
55,100 Old Kent Financial Corp 2,176,453
73,400 Paine Webber Group Inc 2,880,953
26,500 Republic New York Corp 1,838,441
89,400 Rowe (T) Price & Associates Inc 2,765,816
37,600 Suntrust Banks Inc 2,418,153
28,900 U.S. Bancorp 892,291
71,500 Unionbancal Corp 2,743,816
46,800 Wells Fargo & Co 1,863,228
50,300 Zions Bancorporation 2,502,428
---------------
276,789,936
---------------
Chemicals-- 1.3%
55,100 Air Products and Chemicals 1,873,403
126,500 Eastman Chemical Co 5,874,347
120,000 PPG Industries Inc 7,207,503
273,200 Praxair Inc 12,840,404
219,041 Rohm & Haas Co 8,186,661
162,700 Union Carbide Corp 9,253,567
---------------
45,235,885
---------------
Computer and Office Equipment-- 3.0%
972,800 EMC Corp* 58,368,004
62,000 Gateway Inc* 6,010,128
82,100 Hewlett Packard Co 8,651,292
220,800 IBM Corp 27,503,404
---------------
100,532,828
---------------
Construction-- 1.7%
303,200 Georgia-Pacific Corp 12,544,904
732,000 Home Depot Inc 44,743,504
---------------
57,288,408
---------------
Consumer Goods-- 1.6%
122,000 Eastman Kodak Co 8,959,379
296,600 Fortune Brands Inc 11,122,504
173,600 Hasbro Inc 4,242,353
20,900 Johnson Controls 1,429,041
63,400 Jones Apparel Group Inc* 1,644,441
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods-- continued
401,900 Mattel Co 8,565,498
39,800 Maytag Corp 2,492,478
112,500 Nike Inc, Class B 5,203,128
98,500 VF Corp 3,546,003
110,200 Whirlpool Corp 7,789,766
---------------
54,994,591
---------------
Electronic Equipment-- 2.4%
199,700 Cooper Industries Inc 10,359,442
31,100 Emerson Electric Co 1,947,641
259,000 General Instrument Corp* 12,739,567
88,100 Harris Corp 2,312,628
68,700 Litton Industries* 4,396,803
45,200 Motorola Inc 4,169,703
252,900 Raytheon Co, Class B 17,228,817
215,600 Texas Instruments Inc 17,692,679
138,100 Xilinx Inc* 9,658,373
---------------
80,505,653
---------------
Food and Beverage-- 2.7%
293,100 Anheuser Busch Cos Inc 22,568,704
486,764 Archer Daniels Midland Co 6,327,938
10,400 Brown Forman Corp Class B 611,003
113,100 Coca Cola Enterprises Inc 3,216,284
180,200 ConAgra Inc 4,414,903
36,400 Heinz (HJ) Co 1,699,428
286,000 McDonald's Corp 11,833,254
596,100 Nabisco Group Holdings 10,580,779
383,500 Seagrams Co Ltd 20,349,473
68,500 Sysco Corp 2,234,816
122,500 Unilever NV 8,437,192
---------------
92,273,774
---------------
Health Care-- 3.7%
62,700 Becton Dickinson & Co 1,763,441
731,700 Columbia HCA Healthcare Corp 18,018,117
518,300 Healthsouth Corp* 4,243,584
591,600 Johnson & Johnson 60,491,104
154,700 Pharmacia & Upjohn Inc 8,083,079
557,900 Tenet Healthcare Corp* 9,728,385
245,500 United Healthcare Corp 14,929,473
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care-- continued
108,400 Wellpoint Health Network* 7,899,654
---------------
125,156,837
---------------
Insurance-- 5.4%
94,231 Aegon N.V. ADR 8,180,433
239,100 Aetna Life and Casualty Co 18,590,029
474,000 Allstate Corp 15,553,129
120,500 AMBAC Inc 6,363,909
190,700 Chubb Corp 10,905,660
261,100 Cigna Corp 23,450,048
119,800 Cincinnati Financial Corp 4,747,078
66,400 CNA Financial Corp* 2,415,303
473,636 Conseco Inc 11,367,268
136,300 Equitable Companies Inc 8,416,529
147,000 Hartford Financial Services Group Inc 6,679,316
56,000 Jefferson Pilot Corp 3,738,003
190,500 Lincoln National Corp 8,929,692
192,300 Loews Corp 15,095,554
139,000 MBIA Inc 7,210,628
108,700 Old Republic International Corp 1,684,853
100,000 ReliaStar Financial Corp 4,506,253
132,800 Safeco Corp 4,731,003
263,500 Saint Paul Cos Inc 8,448,473
132,100 Torchmark Corp 3,764,853
199,300 Travelers Property Casualty Corp, Class A 7,075,153
---------------
181,853,167
---------------
Machinery-- 1.3%
49,000 American Standard Co* 2,009,003
337,400 Applied Materials Inc* 23,976,492
397,200 Baker Hughes Inc 13,504,804
88,800 Deere and Co 3,452,103
---------------
42,942,402
---------------
Manufacturing-- 2.0%
96,800 Corning Inc 6,437,203
126,100 Leggett & Platt Inc 2,789,966
185,800 Minnesota Mining and Manufacturing Co 17,558,104
288,700 Owens Illinois Inc* 7,145,328
283,600 Rockwell International Corp 16,767,854
77,900 Temple Inland Inc 4,829,803
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing -- continued
120,300 Tenneco Inc 2,421,041
166,100 United Technologies Corp 10,983,367
---------------
68,932,666
---------------
Metals and Mining -- 0.9%
263,000 Alcan Aluminum Ltd 8,646,129
156,700 Allegheny Teledyne Inc 2,928,334
182,800 Phelps Dodge Corp 10,225,379
135,900 Reynolds Metals Co 8,604,173
---------------
30,404,015
---------------
Oil and Gas -- 6.2%
138,800 Amerada Hess Corp 8,614,279
159,000 Apache Corp 7,234,503
240,000 Atlantic Richfield Co 21,105,004
251,400 Burlington Resources Inc 10,511,667
73,300 Chevron Corp 6,761,928
91,250 Columbia Energy Group 5,389,456
131,600 Consolidated Natural Gas Co 8,381,279
370,400 Diamond Offshore Drilling Inc 14,167,804
320,500 Enron Oil & Gas 7,651,941
254,800 Exxon Corp 20,097,354
133,300 Mobil Corp 13,646,592
325,400 Occidental Petroleum Corp 7,057,116
242,700 Phillips Petroleum Co 12,377,704
150,400 Sonat Inc 5,433,203
295,700 Texaco Inc 18,776,954
733,700 Union Pacific Resources Group 13,160,748
343,500 Unocal Corp 14,384,067
347,600 USX - Marathon Group 10,819,054
38,000 Vastar Resources Inc 2,531,753
---------------
208,102,406
---------------
Paper and Allied Products -- 1.1%
148,000 Champion International Corp 8,140,004
288,411 International Paper Co 13,573,347
189,200 Mead Corp 7,059,528
51,400 Weyerhaeuser Co 2,891,253
106,300 Willamette Industries Inc 4,212,141
---------------
35,876,273
---------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals -- 5.5%
1,137,500 Abbott Laboratories 49,339,067
161,900 Allergan Inc 16,169,767
292,600 American Home Products Corp 12,142,904
857,000 Amgen Inc* 71,291,692
164,900 Merck & Co Inc 11,079,223
208,800 Pfizer Inc 7,882,204
254,500 Schering Plough Corp 13,377,160
119,300 Sigma Aldrich Corp 3,847,428
---------------
185,129,445
---------------
Primary Materials -- 0.3%
288,300 Crown Cork & Seal Inc 7,657,972
37,900 Vulcan Materials Co 1,615,491
---------------
9,273,463
---------------
Primary Processing -- 0.4%
78,200 Alcoa Inc 5,048,791
41,400 Dow Chemical Co 4,704,078
112,700 Nucor Corp 5,247,597
---------------
15,000,466
---------------
Printing and Publishing -- 0.1%
4,500 Washington Post Co, Class B 2,425,503
---------------
Refining -- 0.6%
116,800 Ashland Inc 4,504,103
130,800 Royal Dutch Petroleum Co 8,093,254
289,100 Tosco Corp 7,372,053
---------------
19,969,410
---------------
Retail Trade -- 4.5%
224,152 Albertsons Inc 10,745,291
221,400 Autozone Inc* 5,272,091
120,700 Best Buy Co Inc* 8,479,179
189,000 Dillard's Inc 4,441,503
137,100 Federated Department Stores Inc* 6,306,603
149,300 Food Products Lion Inc 1,203,734
581,587 Gap Inc 22,754,595
877,100 Kmart Corp* 11,018,573
172,800 Penney (JC) Co Inc 6,264,003
39,100 Safeway Inc* 1,820,597
190,500 TJX Cos Inc 5,500,691
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
667,800 Toys R Us Inc* 9,223,992
1,081,000 Wal Mart Stores Inc 47,901,817
508,100 Walgreen Co 11,781,573
---------------
152,714,242
---------------
Services -- 1.3%
89,100 Cendant Corp* 1,598,234
234,500 Fluor Corp 9,702,442
78,800 Hertz Corp 3,176,628
150,100 Marriott International Inc, Class A 5,140,928
410,400 Time Warner Inc 24,341,854
---------------
43,960,086
---------------
Technology -- 13.6%
369,900 BMC Software Inc* 19,905,248
1,668,900 Cisco Systems Inc* 113,172,285
107,400 First Data Corp 4,725,603
67,100 Grainger (WW) Inc 2,923,047
916,600 Intel Corp 75,333,067
1,186,000 Microsoft Corp* 109,779,129
1,029,600 Novell Inc* 24,388,654
724,300 Oracle Corp* 26,436,954
610,500 Seagate Technology Corp* 20,260,973
362,700 Solectron Corp* 28,381,279
326,300 Sun Microsystems Inc 25,940,854
128,500 Teradyne Inc* 8,746,035
---------------
459,993,128
---------------
Telecommunications -- 10.1%
93,900 Alltel Corp 6,349,991
242,500 Ameritech Corp 15,307,817
1,941,582 AT & T Corp 87,371,194
542,414 Bell Atlantic Corp 33,222,862
574,300 Bellsouth Corp 25,987,079
160,700 Centurytel Inc 6,317,522
125,700 Cincinnati Bell Inc 2,325,453
655,400 GTE Corp 44,976,829
446,685 MCI Worldcom Inc* 33,836,393
62,600 MediaOne Group Inc* 4,115,953
488,640 SBC Communications 23,454,724
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications -- continued
318,800 Sprint Corp 14,146,754
56,200 United States Cellular Corp* 3,161,253
362,800 US West Inc 18,956,304
535,000 Viacom Inc, Class B* 22,503,442
---------------
342,033,570
---------------
Tobacco -- 1.5%
1,378,300 Philip Morris Cos Inc 51,600,110
---------------
Transportation -- 2.1%
130,800 AMR Corp* 7,668,153
649,400 Burlington Northern Santa Fe Railroad Co 18,832,604
199,300 CSX Corp 8,706,923
98,100 Delta Air Lines Inc 4,984,709
296,300 Norfolk Southern Corp 7,759,359
143,300 UAL Corp* 9,287,635
207,500 Union Pacific Corp 10,102,660
98,200 Viad Corp 2,939,866
---------------
70,281,909
---------------
Utilities -- 4.7%
35,300 Allegheny Energy Inc 1,191,378
97,900 Ameren Corp 3,922,122
108,700 American Electric Power Inc 3,947,172
397,000 Central & South West Corp 8,982,129
46,600 Cinergy Corp 1,415,478
240,700 Coastal Corp 10,425,323
20,600 Consolidated Edison Inc 906,403
180,100 Constellation Energy Group Inc 5,335,466
124,800 Dominion Resources Inc 5,772,003
333,500 DTE Energy Co 13,152,410
45,200 Edison International 1,146,953
179,900 El Paso Energy Corp 6,577,597
713,000 Entergy Corp 21,256,317
132,500 Firstenergy Corp 3,784,534
286,300 General Public Utilities Inc 9,769,992
99,400 Keyspan Corp 2,932,303
125,600 New Century Energies Inc 4,537,303
115,500 Niagara Mohawk Holdings Inc* 1,746,941
92,000 PacifiCorp 1,880,253
136,200 Peco Energy Co 5,533,128
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
144,300 PG & E Corp 4,374,097
20,800 Pinnacle West Capital Corp 790,403
208,400 PP & L Resources Inc 5,835,203
330,000 Public Service Enterprise Group Inc 13,530,004
43,900 Reliant Energy Inc 1,215,484
363,400 Texas Utilities Co 14,694,992
154,200 Unicom Corp 5,955,978
---------------
160,611,366
---------------
TOTAL COMMON STOCKS (COST $2,617,827,799) 3,079,173,177
---------------
SHORT-TERM INVESTMENTS -- 14.6%
Cash Equivalents -- 4.0%
$22,621,862 BankBoston Eurodollar Time Deposit, 5.4325%, due 22,621,862
10/29/99(a)
24,797,463 Merrimac Cash Fund Premium Class(a) 24,797,463
$88,500,000 Prudential Securities Group Inc, Master Note, 5.625%,
due 3/10/2000(a) 88,500,000
---------------
135,919,325
---------------
U.S. Government -- 0.6%
$19,500,000 U.S. Treasury Bill, 4.70%, due 10/21/99(b) 19,292,748
---------------
Repurchase Agreements -- 10.0%
$169,247,316 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $169,269,318
and an effective yield of 4.68%, collateralized by a U.S.
Treasury Obligation with a rate of 8.125%, maturity date
of 8/15/21 and market value, including accrued interest,
of $172,632,262. 169,247,316
$169,247,316 Morgan Stanley Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$169,269,224, and an effective yield of 4.66%,
collateralized by a U.S. Treasury Obligation with a
rate of 5.17%, maturity date of 9/15/99, and market
value, including accrued interest, of $172,636,644. 169,247,316
---------------
338,494,632
---------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $493,790,461) 493,706,705
---------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
---------------
<S> <C>
TOTAL INVESTMENTS -- 105.7%
(COST $3,111,618,260) 3,572,879,882
Other Assets and Liabilities (net) -- (5.7)% (193,327,228)
---------------
TOTAL NET ASSETS -- 100% $3,379,552,654
===============
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
(a) Represents investments of security lending collateral
(Note 1).
(b) Security has been segregated to cover margin
requirements on open financial futures contracts.
10 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $3,111,618,260) (Note 1) $ 3,572,879,882
Cash 7,521,473
Receivable for investments sold 6,394,613
Dividends and interest receivable 4,655,189
Receivable for expenses waived or borne by Manager (Note 2) 63,506
---------------
Total assets 3,591,514,663
---------------
Liabilities:
Payable for investments purchased 74,131,181
Payable upon return of securities loaned (Note 1) 135,919,325
Payable for Fund shares repurchased 108,717
Payable to affiliate for (Note 2):
Management fee 957,251
Shareholder service fee 361,671
Payable for open swap contracts (Notes 1 and 6) 129,975
Payable for variation margin on open futures contracts (Notes 1 and 6) 199,756
Accrued expenses 154,133
---------------
Total liabilities 211,962,009
---------------
Net assets $ 3,379,552,654
===============
Net assets consist of:
Paid-in capital $ 2,530,655,869
Accumulated undistributed net investment income 6,945,132
Accumulated undistributed net realized gain 384,953,785
Net unrealized appreciation 456,997,868
---------------
$ 3,379,552,654
===============
Net assets attributable to:
Class II shares $ 99,313,067
===============
Class III shares $ 1,619,876,964
===============
Class IV shares $ 1,660,362,623
===============
Shares outstanding:
Class II 5,330,778
===============
Class III 86,866,822
===============
Class IV 89,077,834
===============
Net asset value per share:
Class II $ 18.63
===============
Class III $ 18.65
===============
Class IV $ 18.64
===============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $82,920) $ 23,625,342
Interest (including securities lending income of $142,712) 6,432,557
-------------
Total income 30,057,899
-------------
Expenses:
Management fee (Note 2) 5,817,015
Custodian and transfer agent fees 255,420
Legal fees 54,575
Audit fees 24,381
Trustees fees (Note 2) 19,324
Registration fees 910
Miscellaneous 8,103
Fees waived or borne by Manager (Note 2) (362,713)
-------------
5,817,015
Shareholder service fee (Note 2)
Class II 75,086
Class III 1,325,780
Class IV 886,932
-------------
Net expenses 8,104,813
-------------
Net investment income 21,953,086
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 396,266,632
Closed futures contracts 2,524,887
Closed swap contracts (15,304,615)
-------------
Net realized gain 383,486,904
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (155,787,589)
Open futures contracts (2,776,898)
Open swap contracts 4,228,840
-------------
Net unrealized loss (154,335,647)
-------------
Net realized and unrealized gain 229,151,257
-------------
Net increase in net assets resulting from operations $ 251,104,343
=============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------
Six Months
Ended August Year Ended
31, 1999 February 28,
(Unaudited) 1999
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 21,953,086 $ 49,037,379
Net realized gain 383,486,904 624,236,822
Change in net unrealized appreciation (depreciation) (154,335,647) (170,678,257)
------------- --------------
Net increase in net assets resulting from operations 251,104,343 502,595,944
------------- --------------
Distributions to shareholders from:
Net investment income
Class II (398,725) (438,239)
Class III (10,882,777) (32,457,119)
Class IV (10,675,372) (20,082,410)
------------- --------------
Total distributions from net investment income (21,956,874) (52,977,768)
------------- --------------
Net realized gains
Class II (4,464,320) (7,077,306)
Class III (106,222,191) (420,933,348)
Class IV (105,545,990) (249,579,720)
------------- --------------
Total distributions from net realized gains (216,232,501) (677,590,374)
------------- --------------
(238,189,375) (730,568,142)
------------- --------------
Net share transactions: (Note 5)
Class II 59,626,795 27,619,700
Class III (175,106,351) (396,156,147)
Class IV 116,767,543 257,262,203
------------- --------------
Increase (decrease) in net assets resulting from net
share transactions 1,287,987 (111,274,244)
------------- --------------
Total increase (decrease) in net assets 14,202,955 (339,246,442)
Net assets:
Beginning of period 3,365,349,699 3,704,596,141
------------- --------------
End of period (including accumulated undistributed net
investment income of $6,945,132 and $6,948,920,
respectively) $3,379,552,654 $3,365,349,699
============== ==============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class II share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------
Year Ended February 28,
Six Months Ended --------------------------------------------
August 31, 1999
(Unaudited) 1999 1998 (1) 1998 (2) 1997 (3)
---------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.57 $ 19.98 $ 17.65 $ 20.10 $ 20.12
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.11+ 0.25+ 0.04+ 0.24+ 0.25
Net realized and unrealized gain 1.33 2.55 2.29 3.99 2.92
-------- -------- -------- ------- -------
Total from investment 1.44 2.80 2.33 4.23 3.17
operations
-------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.12) (0.29) 0.00 (0.22) (0.30)
From net realized gains (1.26) (3.92) 0.00 (3.90) (2.89)
-------- -------- -------- ------- -------
Total distributions (1.38) (4.21) 0.00 (4.12) (3.19)
-------- -------- -------- ------- -------
Net asset value, end of period $ 18.63 $ 18.57 $ 19.98 $ 20.21 $ 20.10
======== ======== ======== ======= =======
Total Return (a) 7.40% 14.99% 13.20% 23.00% 17.46%
Ratios/Supplemental Data:
Net assets, end of period (000's) $99,313 $ 41,684 $ 16,958 $ 2,037 $ 64,763
Net expenses to average daily net 0.55%* 0.55% 0.55%* 0.55%* 0.55%*
assets
Net investment income to average
daily net assets 1.17%* 1.29% 1.53%* 1.66%* 1.63%*
Portfolio turnover rate 41% 71% 60% 60% 107%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: --(b) $ 0.04 $ 0.01 $ 0.03 $ 0.03
</TABLE>
(1) Period from January 9, 1998 to February 28, 1998.
(2) Period from March 1, 1997 to November 17, 1997.
(3) Period from June 7, 1996 (commencement of operations) to February 28 1997.
(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.
+ Computed using average shares outstanding throughout the period.
* 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 III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1999 ----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45 $ 15.78
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.12+ 0.26+ 0.35 0.36 0.41 0.41
Net realized and unrealized gain 1.32 2.55 5.89 3.58 5.49 0.66
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 1.44 2.81 6.24 3.94 5.90 1.07
----------- ----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.12) (0.29) (0.32) (0.39) (0.42) (0.39)
From net realized gains (1.26) (3.92) (6.05) (2.89) (1.47) (1.01)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions (1.38) (4.21) (6.37) (3.28) (1.89) (1.40)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 18.65 $ 18.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45
=========== =========== =========== =========== =========== ===========
Total Return (a) 7.46% 15.02% 36.69% 22.05% 39.08% 7.45%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 1,619,877 $ 1,780,011 $ 2,317,103 $ 3,051,344 $ 3,179,314 $ 2,309,248
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 1.22%* 1.36% 1.67% 1.78% 2.25% 2.63%
Portfolio turnover rate 41% 71% 60% 107% 77% 99%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: --(b) $ 0.04 $ 0.05 $ 0.04 $ 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) 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. 15
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended August Year Ended February 28,
31, 1999 --------------------------
(Unaudited) 1999 1998*
-------------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 18.58 $ 19.99 $ 17.65
---------- ---------- ----------
Income from investment operations:
Net investment income 0.13+ 0.27+ 0.04+
Net realized and unrealized gain 1.32 2.55 2.30
---------- ---------- ----------
Total from investment operations 1.45 2.82 2.34
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.13) (0.31) 0.00
From net realized gains (1.26) (3.92) 0.00
---------- ---------- ----------
Total distributions (1.39) (4.23) 0.00
---------- ---------- ----------
Net asset value, end of period $ 18.64 $ 18.58 $ 19.99
========== ========== ==========
Total Return (a) 7.50% 15.07% 13.26%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,660,363 $1,543,655 $1,370,535
Net expenses to average daily net 0.435%** 0.435% 0.435%**
assets
Net investment income to average daily
net assets 1.27%** 1.41% 1.67%**
Portfolio turnover rate 41% 71% 60%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amount: --(b) $ 0.04 $ 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) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Period from January 9, 1998 (commencement of operations) to February 28,
1998.
** Annualized.
+ Computed using average shares outstanding throughout the period.
16 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in U.S. equity
securities. The Fund's current benchmark is the S&P 500 index.
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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
17
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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,
1999.
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, 1999, the Fund loaned securities having a market
value of $131,161,948, collateralized by cash in the amount of
$135,919,325, which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. 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. 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 will be no liquid
18
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999.
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 dividends 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 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 .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
19
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund received $282,603 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 .33% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.525% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $19,324. 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, 1999,
aggregated $1,292,691,981 and $1,563,878,955, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and deprecation 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>
$ 3,111,618,260 $ 585,538,492 $ 124,276,870 $ 461,261,622
</TABLE>
20
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1999, 13.5% 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>
Six Months Ended Year Ended
Class II: August 31, 1999 February 28, 1999
------------------------------- -------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 3,192,034 $ 61,586,173 1,137,984 $ 23,036,514
Shares issued to shareholders in
reinvestment of distributions 240,154 4,670,483 394,655 7,372,964
Shares repurchased (345,501) (6,629,861) (137,205) (2,789,778)
------------- ------------- ------------- -------------
Net increase 3,086,687 $ 59,626,795 1,395,434 $ 27,619,700
============= ============= ============= =============
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------------- -------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<C> <C> <C> <C>
Shares sold 6,524,797 $ 127,730,285 7,724,323 $ 155,828,896
Shares issued to shareholders in
reinvestment of distributions 5,802,133 112,943,787 23,463,193 440,891,297
Shares repurchased (21,225,619) (415,780,423) (51,356,934) (992,876,340)
------------- ------------- ------------- -------------
Net decrease (8,898,689) $ (175,106,351) (20,169,418) $ (396,156,417)
============= ============= ============= =============
<CAPTION>
Six Months Ended Year Ended
Class IV: August 31, 1999 February 28, 1999
------------------------------- -------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<C> <C> <C> <C>
Shares sold 3,568,626 $ 71,683,830 22,393,827 $ 428,114,213
Shares issued to shareholders in
reinvestment of distributions 5,936,902 115,504,308 14,303,391 268,384,348
Shares repurchased (3,510,555) (70,420,595) (22,187,638) (439,236,358)
------------- ------------- ------------- -------------
Net increase 5,994,973 $ 116,767,543 14,509,580 $ 257,262,203
============= ============= ============= =============
</TABLE>
21
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ------------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
397 S&P 500 September 1999 $ 130,990,150 $ (1,842,376)
285 Russell 2000 September 1999 61,047,000 (2,291,403)
-------------------
$ (4,133,779)
===================
</TABLE>
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
Swap agreement
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
--------------------- ------------- ----------------------------------------- ------------------
<S> <C> <C> <C>
$ 38,514,144/ 2/18/00 Agreement with Morgan Stanley Capital $ (129,975)
39,637,675 Services, Inc. dated 2/18/99 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 counterparty's notional
amount multiplied by the return on the
Russell 2000 Index (including
dividends) less the counterparty's
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
-----------------
$ (129,975)
=================
</TABLE>
22
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 91.4%
Aerospace -- 1.4%
33,800 Allied Signal Inc 2,070,249
2,500 General Dynamics Corp 157,500
5,900 Lockheed Martin Corp 218,300
7,800 Northrop Grumman Corp 565,500
-------------
3,011,549
-------------
Automotive -- 3.8%
2,300 Eaton Corp 225,400
50,700 Ford Motor Co 2,642,737
54,100 General Motors Corp 3,577,362
12,400 General Motors Corp, Class H* 638,600
9,000 Genuine Parts Co 259,875
17,500 Goodyear Tire & Rubber Co 982,188
-------------
8,326,162
-------------
Banking and Financial Services -- 8.1%
9,700 American General Corp 688,700
4,500 Amsouth Bancorp 98,438
44,764 Bank of America Corp 2,708,221
4,700 BB&T Corp 157,450
22,501 Bear Stearns Cos Inc 936,604
58,700 Charles Schwab & Co Inc 2,318,649
6,500 Chase Manhattan Corp 543,969
22,022 Citigroup Inc 978,603
4,400 Comdisco Inc 92,675
10,300 Countrywide Credit Industries Inc 330,888
2,300 Dime Bancorp Inc 42,263
12,200 Fannie Mae 757,925
8,000 First Union Corp 332,000
47,900 Firstar Corp 1,284,319
14,800 Franklin Resources Inc 531,875
23,500 Freddie Mac 1,210,250
500 Golden West Financial Corp 45,406
3,900 Greenpoint Financial Corp 100,913
1,900 Huntington Bancshares Inc 56,881
3,800 J.P. Morgan & Co Inc 490,913
17,300 Lehman Brothers Holding Inc 929,875
100 M & T Bank Corp 46,400
30,500 MBNA Corp 752,969
2,700 Merrill Lynch 201,488
See accompanying notes to the financial statements. 1
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
10,300 MGIC Investment Corp 447,406
4,445 Morgan Stanley Dean Witter & Co 381,437
6,200 National City Corp 171,275
3,700 Old Kent Financial Corp 146,150
4,900 Paine Webber Group Inc 192,325
1,800 Republic New York Corp 124,875
6,200 Rowe (T) Price & Associates Inc 191,813
2,600 Suntrust Banks Inc 167,213
2,000 U.S. Bancorp 61,750
4,900 Unionbancal Corp 188,038
2,900 Wells Fargo & Co 115,456
3,400 Zions Bancorporation 169,150
-------------
17,994,562
-------------
Chemicals -- 1.4%
3,700 Air Products and Chemicals 125,800
8,700 Eastman Chemical Co 404,006
8,300 PPG Industries Inc 498,519
18,300 Praxair Inc 860,100
14,658 Rohm & Haas Co 547,843
11,200 Union Carbide Corp 637,000
-------------
3,073,268
-------------
Computer and Office Equipment -- 3.1%
67,000 EMC Corp* 4,019,999
4,400 Gateway Inc* 426,525
5,500 Hewlett Packard Co 579,563
15,200 IBM Corp 1,893,349
-------------
6,919,436
-------------
Construction -- 1.8%
20,900 Georgia-Pacific Corp 864,738
50,400 Home Depot Inc 3,080,699
-------------
3,945,437
-------------
Consumer Goods -- 1.6%
8,400 Eastman Kodak Co 616,875
20,300 Fortune Brands Inc 761,250
11,700 Hasbro Inc 285,919
1,300 Johnson Controls 88,888
4,200 Jones Apparel Group Inc* 108,938
27,700 Mattel Co 590,356
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- continued
2,700 Maytag Corp 169,088
3,700 Nike Inc, Class B 171,125
6,600 VF Corp 237,600
7,400 Whirlpool Corp 523,088
-------------
3,553,127
-------------
Electronic Equipment -- 2.3%
13,800 Cooper Industries Inc 715,875
17,800 General Instrument Corp* 875,538
5,900 Harris Corp 154,875
4,700 Litton Industries* 300,800
3,100 Motorola Inc 285,975
17,200 Raytheon Co, Class B 1,171,750
14,800 Texas Instruments Inc 1,214,525
4,400 Xilinx Inc* 307,725
-------------
5,027,063
-------------
Food and Beverage -- 2.5%
20,200 Anheuser Busch Cos Inc 1,555,399
33,536 Archer Daniels Midland Co 435,967
600 Brown Forman Corp Class B 35,250
7,800 Coca Cola Enterprises Inc 221,813
12,400 ConAgra Inc 303,800
2,300 Heinz (HJ) Co 107,381
19,700 McDonald's Corp 815,088
25,700 Seagrams Co Ltd 1,363,706
4,700 Sysco Corp 153,338
8,400 Unilever NV 578,550
-------------
5,570,292
-------------
Health Care -- 3.9%
4,300 Becton Dickinson & Co 120,938
50,400 Columbia HCA Healthcare Corp 1,241,100
34,800 Healthsouth Corp* 284,925
40,700 Johnson & Johnson 4,161,574
10,700 Pharmacia & Upjohn Inc 559,075
38,400 Tenet Healthcare Corp* 669,600
16,900 United Healthcare Corp 1,027,731
7,300 Wellpoint Health Network* 531,988
-------------
8,596,931
-------------
See accompanying notes to the financial statements. 3
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- 5.0%
5,673 Aegon N.V. ADR 492,487
16,500 Aetna Life and Casualty Co 1,282,875
21,900 Allstate Corp 718,594
8,100 AMBAC Inc 427,781
13,100 Chubb Corp 749,156
18,000 Cigna Corp 1,616,624
8,000 Cincinnati Financial Corp 317,000
4,600 CNA Financial Corp* 167,325
31,866 Conseco Inc 764,784
9,400 Equitable Companies Inc 580,450
9,900 Hartford Financial Services Group Inc 449,831
3,800 Jefferson Pilot Corp 253,650
13,100 Lincoln National Corp 614,063
9,600 MBIA Inc 498,000
7,450 Old Republic International Corp 115,475
6,900 ReliaStar Financial Corp 310,931
8,900 Safeco Corp 317,063
18,100 Saint Paul Cos Inc 580,331
9,100 Torchmark Corp 259,350
13,700 Travelers Property Casualty Corp, Class A 486,350
-------------
11,002,120
-------------
Machinery -- 1.3%
3,400 American Standard Co* 139,400
23,200 Applied Materials Inc* 1,648,649
27,400 Baker Hughes Inc 931,600
6,000 Deere and Co 233,250
-------------
2,952,899
-------------
Manufacturing -- 2.1%
6,700 Corning Inc 445,550
8,700 Leggett & Platt Inc 192,488
12,800 Minnesota Mining and Manufacturing Co 1,209,600
19,900 Owens Illinois Inc* 492,525
19,000 Rockwell International Corp 1,123,375
5,200 Temple Inland Inc 322,400
8,300 Tenneco Inc 167,038
11,400 United Technologies Corp 753,825
-------------
4,706,801
-------------
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Metals and Mining -- 1.0%
18,100 Alcan Aluminum Ltd 595,038
10,500 Allegheny Teledyne Inc 196,219
12,600 Phelps Dodge Corp 704,813
9,400 Reynolds Metals Co 595,138
-------------
2,091,208
-------------
Oil and Gas -- 6.2%
9,500 Amerada Hess Corp 589,594
11,000 Apache Corp 500,500
16,500 Atlantic Richfield Co 1,450,969
17,300 Burlington Resources Inc 723,356
5,000 Chevron Corp 461,250
6,300 Columbia Energy Group 372,094
9,100 Consolidated Natural Gas Co 579,556
25,500 Diamond Offshore Drilling Inc 975,375
22,100 Enron Oil & Gas 527,638
11,600 Exxon Corp 914,950
8,400 Mobil Corp 859,950
22,400 Occidental Petroleum Corp 485,800
16,600 Phillips Petroleum Co 846,600
10,400 Sonat Inc 375,700
20,100 Texaco Inc 1,276,350
49,100 Union Pacific Resources Group 880,731
23,300 Unocal Corp 975,688
23,900 USX - Marathon Group 743,888
2,600 Vastar Resources Inc 173,225
-------------
13,713,214
-------------
Paper and Allied Products -- 1.1%
10,200 Champion International Corp 561,000
19,295 International Paper Co 908,071
13,000 Mead Corp 485,063
3,500 Weyerhaeuser Co 196,875
7,300 Willamette Industries Inc 289,263
-------------
2,440,272
-------------
Pharmaceuticals -- 5.7%
78,300 Abbott Laboratories 3,396,262
10,800 Allergan Inc 1,078,650
17,600 American Home Products Corp 730,400
59,000 Amgen Inc* 4,908,062
11,400 Merck & Co Inc 765,938
See accompanying notes to the financial statements. 5
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Pharmaceuticals -- continued
14,400 Pfizer Inc 543,600
17,000 Schering Plough Corp 893,563
8,000 Sigma Aldrich Corp 258,000
-------------
12,574,475
-------------
Primary Materials -- 0.3%
19,900 Crown Cork & Seal Inc 528,594
2,600 Vulcan Materials Co 110,825
-------------
639,419
-------------
Primary Processing -- 0.5%
6,800 Alcoa Inc 439,025
2,800 Dow Chemical Co 318,150
7,600 Nucor Corp 353,875
-------------
1,111,050
-------------
Printing and Publishing -- 0.1%
300 Washington Post Co, Class B 161,700
-------------
Refining -- 0.6%
8,000 Ashland Inc 308,500
8,800 Royal Dutch Petroleum Co 544,500
19,400 Tosco Corp 494,700
-------------
1,347,700
-------------
Retail Trade -- 4.7%
15,276 Albertsons Inc 732,293
15,200 Autozone Inc* 361,950
8,300 Best Buy Co Inc* 583,075
13,000 Dillard's Inc 305,500
9,400 Federated Department Stores Inc* 432,400
10,000 Food Products Lion Inc 80,625
40,037 Gap Inc 1,566,447
60,400 Kmart Corp* 758,775
11,600 Penney (JC) Co Inc 420,500
2,700 Safeway Inc* 125,719
13,100 TJX Cos Inc 378,263
44,800 Toys R Us Inc* 618,800
74,400 Wal Mart Stores Inc 3,296,849
35,300 Walgreen Co 818,519
-------------
10,479,715
-------------
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- 1.4%
6,000 Cendant Corp* 107,625
16,100 Fluor Corp 666,138
5,400 Hertz Corp 217,688
10,100 Marriott International Inc, Class A 345,925
28,300 Time Warner Inc 1,678,543
-------------
3,015,919
-------------
Technology -- 14.4%
25,500 BMC Software Inc* 1,372,219
114,900 Cisco Systems Inc* 7,791,655
7,400 First Data Corp 325,600
4,500 Grainger (WW) Inc 196,031
63,100 Intel Corp 5,186,030
84,000 Microsoft Corp* 7,775,249
69,000 Novell Inc* 1,634,437
49,900 Oracle Corp* 1,821,349
42,000 Seagate Technology Corp* 1,393,875
25,000 Solectron Corp* 1,956,249
22,500 Sun Microsystems Inc 1,788,749
8,900 Teradyne Inc* 605,756
-------------
31,847,199
-------------
Telecommunications -- 10.0%
6,300 Alltel Corp 426,038
16,700 Ameritech Corp 1,054,188
102,532 AT & T Corp 4,613,939
37,386 Bell Atlantic Corp 2,289,892
39,600 Bellsouth Corp 1,791,899
10,800 Centurytel Inc 424,575
8,700 Cincinnati Bell Inc 160,950
45,100 GTE Corp 3,094,987
30,792 MCI Worldcom Inc* 2,332,493
4,200 MediaOne Group Inc* 276,150
33,632 SBC Communications 1,614,335
22,000 Sprint Corp 976,250
3,900 United States Cellular Corp* 219,375
25,000 US West Inc 1,306,250
36,800 Viacom Inc, Class B* 1,547,899
-------------
22,129,220
-------------
See accompanying notes to the financial statements. 7
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- 2.1%
8,700 AMR Corp* 510,038
44,700 Burlington Northern Santa Fe Railroad Co 1,296,300
13,700 CSX Corp 598,519
6,600 Delta Air Lines Inc 335,363
19,800 Norfolk Southern Corp 518,513
9,900 UAL Corp* 641,644
13,900 Union Pacific Corp 676,756
4,100 Viad Corp 122,744
-------------
4,699,877
-------------
Utilities -- 5.0%
2,200 Allegheny Energy Inc 74,250
6,700 Ameren Corp 268,419
7,500 American Electric Power Inc 272,344
27,300 Central & South West Corp 617,663
3,200 Cinergy Corp 97,200
16,600 Coastal Corp 718,988
1,400 Consolidated Edison Inc 61,600
11,800 Constellation Energy Group Inc 349,575
8,600 Dominion Resources Inc 397,750
23,000 DTE Energy Co 907,063
2,700 Edison International 68,513
12,400 El Paso Energy Corp 453,375
47,800 Entergy Corp 1,425,038
9,000 Firstenergy Corp 257,063
19,700 General Public Utilities Inc 672,263
6,800 Keyspan Corp 200,600
8,600 New Century Energies Inc 310,675
8,000 Niagara Mohawk Holdings Inc* 121,000
6,300 PacifiCorp 128,756
9,400 Peco Energy Co 381,875
9,900 PG & E Corp 300,094
1,400 Pinnacle West Capital Corp 53,200
14,400 PP & L Resources Inc 403,200
22,700 Public Service Enterprise Group Inc 930,700
4,400 Reliant Energy Inc 121,825
25,800 Texas Utilities Co 1,043,288
10,800 Unicom Corp 417,150
-------------
11,053,467
-------------
TOTAL COMMON STOCKS (COST $194,688,983) 201,984,082
=============
8 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Short-Term Investments -- 12.5%
Cash Equivalents -- 3.9%
$1,274,858 BankBoston Eurodollar Time Deposit,
5.4325%, due 10/29/99(a) 1,274,858
3,414,662 Merrimac Cash Fund Premium Class(a) 3,414,662
$4,000,000 Prudential Securities Group Inc, Master
Note, 5.625%, due 3/10/2000(a) 4,000,000
-------------
8,689,520
-------------
Repurchase Agreements -- 7.5%
$5,441,089 Morgan Stanley Inc. Repurchase Agree-
ment, dated 8/31/99, due 9/1/99, with a
maturity value of $5,441,793, and an
effective yield of 4.66%, collateralized
by a U.S. Treasury Obligation with a
rate of 5.17%, maturity date of 9/15/99,
and market value, including accrued
interest, of $5,557,980. 5,441,089
$11,067,962 Salomon Smith Barney Inc. Repurchase
Agreement, dated 8/31/99, due 9/1/99,
with a maturity value of $11,069,401
and an effective yield of 4.68%,
collateralized by a U.S. Treasury
Obligation with a rate of 7.25%,
maturity date of 5/15/16 and market
value, including accrued interest, of
$11,289,321. 11,067,962
-------------
16,509,051
-------------
U.S. Government -- 1.1%
$ 2,410,000 U.S. Treasury Bill, 4.68%, due 10/21/99(b) 2,384,386
-------------
Total Short-Term Investments (Cost
$27,593,324) 27,582,957
=============
Total Investments -- 103.9%
(COST $222,282,307) 229,567,039
Other Assets and Liabilities (net) -- (3.9)% (8,584,301)
-------------
TOTAL NET ASSETS -- 100% $ 220,982,738
=============
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $222,282,307) (Note 1) $229,567,039
Dividends and interest receivable 311,745
Receivable for variation margin on open futures
contracts (Notes 1 and 6) 10,075
Receivable for expenses waived or borne by Manager
(Note 2) 13,516
------------
Total assets 229,902,375
------------
Liabilities:
Payable upon return of securities loaned (Note 1) 8,689,520
Payable for Fund shares repurchased 113,750
Payable to affiliate for (Note 2):
Management fee 62,459
Shareholder service fee 28,030
Accrued expenses 25,878
------------
Total liabilities 8,919,637
------------
Net assets $220,982,738
============
Net assets consist of:
Paid-in capital $185,518,260
Accumulated undistributed net investment income 504,966
Accumulated undistributed net realized gain 28,166,706
Net unrealized appreciation 6,792,806
============
$220,982,738
============
Net assets attributable to:
Class III shares $220,982,738
============
Shares outstanding:
Class III 14,736,568
============
Net asset value per share:
Class III $ 15.00
============
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $5,973) $ 1,477,673
Interest (including securities lending income of $10,960) 632,563
-----------
Total income 2,110,236
-----------
Expenses:
Management fee (Note 2) 398,308
Custodian and transfer agent fees 42,643
Audit fees 16,932
Legal fees 3,674
Trustees fees (Note 2) 1,377
Registration fees 364
Miscellaneous 1,563
Fees waived or borne by Manager (Note 2) (66,553)
-----------
398,308
Shareholder service fee (Note 2)
Class III 181,049
-----------
Net expenses 579,357
-----------
Net investment income 1,530,879
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 27,517,183
Closed futures contracts 1,560,366
Closed swap contracts (1,012,894)
-----------
Net realized gain 28,064,655
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (12,578,901)
Open futures contracts (271,638)
Open swap contracts 173,044
-----------
Net unrealized loss (12,677,495)
-----------
Net realized and unrealized gain 15,387,160
-----------
Net increase in net assets resulting from operations $16,918,039
===========
11 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,530,879 $ 1,799,442
Net realized gain 28,064,655 12,285,912
Change in net unrealized appreciation (depreciation) (12,677,495) 2,331,870
------------ ------------
Net increase in net assets resulting from operations 16,918,039 16,417,224
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,456,125) (1,592,308)
------------ ------------
Total distributions from net investment income (1,456,125) (1,592,308)
------------ ------------
Net realized gains
Class III (3,737,249) (15,222,676)
------------ ------------
Total distributions from net realized gains (3,737,249) (15,222,676)
------------ ------------
(5,193,374) (16,814,984)
------------ ------------
Net share transactions: (Note 5)
Class III (17,900,412) 127,633,807
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (17,900,412) 127,633,807
------------ ------------
Total increase (decrease) in net assets (6,175,747) 127,236,047
Net assets:
Beginning of period 227,158,485 99,922,438
------------ ------------
End of period (including accumulated undistributed net
investment income of $504,966 and $430,212,
respectively) $220,982,738 $227,158,485
============ ============
</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 August Year Ended February 28/29,
31, 1999 -----------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 14.26 $ 14.05 $12.98 $ 12.93 $ 10.65 $ 11.07
------- ------- ------ ------- ------- -------
Income from investment operations:
Net investment income 0.10 0.18 0.22 0.24 0.28 0.23
Net realized and unrealized
gain 0.99 1.99 4.07 2.41 3.71 0.50
------- ------- ------ ------- ------- -------
Total from investment
operations 1.09 2.17 4.29 2.65 3.99 0.73
------- ------- ------ ------- ------- -------
Less distributions to shareholders:
From net investment income (0.09) (0.19) (0.22) (0.24) (0.25) (0.28)
From net realized gains (0.26) (1.77) (3.00) (2.36) (1.46) (0.87)
------- ------- ------ ------- ------- -------
Total distributions (0.35) (1.96) (3.22) (2.60) (1.71) (1.15)
------- ------- ------ ------- ------- -------
Net asset value, end of period $ 15.00 $ 14.26 $14.05 $ 12.98 $ 12.93 $ 10.65
======= ======= ====== ======= ======= =======
Total Return (a) 7.57% 16.29% 37.82% 22.76% 38.64% 7.36%
Ratios/Supplemental Data:
Net assets, end of period $220,983 $227,158 $99,922 $66,260 $57,485 $47,969
(000's)
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 1.27%* 1.35% 1.66% 1.83% 2.25% 2.52%
Portfolio turnover rate 66% 77% 70% 131% 81% 112%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: --(b) $ 0.03 $ 0.04 $ 0.04 $ 0.03 $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* 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, 1999 (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 high total return through investment in U.S. equity
securities. The Fund's current benchmark is the S&P 500 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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, 1999 (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, 1999.
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, 1999, the Fund loaned securities having a market
value of $8,392,063, collateralized by cash in the amount of $8,689,520,
which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. 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. 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 will be 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. As of August
31, 1999, there were no open swap agreements.
15
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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 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. For the six months ended August 31, 1999, the Fund
received $49,719 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
16
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .33% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total operating expenses
(excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $1,377. 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, 1999,
aggregated $139,720,135 and $136,269,353, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<S> <C> <C> <C>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
--------------------- ----------------------- ----------------------- -----------------------
$222,282,307 $17,336,801 $10,052,069 $7,284,732
</TABLE>
4. Principal shareholders
At August 31, 1999, 74.5% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
17
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements--(continued)
August 31, 1999(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:
Six Months Ended Year Ended
Class III August 31, 1999 February 28, 1999
--------------------------- --------------------------
Shares Amount Shares Amount
----------- -------------- ----------- -------------
Shares sold 2,296,873 $ 35,513,807 8,174,912 $ 118,663,463
shares issued to
shareholders in
reinvestment of
distributions 304,249 4,741,118 1,181,509 16,525,109
Shares repurchased (3,790,695) (58,155,337) (544,280) (7,554,765)
----------- -------------- ----------- -------------
Net increase (decrease) (1,189,573) $ (17,900,412) 8,812,141 $ 127,633,807
=========== ============== =========== =============
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------- ------------ ---------------- --------------- ---------------
16 S&P 500 September 1999 $ 5,279,200 $ (227,491)
31 Russell 2000 September 1999 6,640,200 (264,435)
---------------
(491,926)
===============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 99.2%
Advertising -- 0.2%
4,400 TMP Worldwide Inc* 243,650
--------------
Aerospace -- 0.1%
2,100 Heico Corp 46,200
5,700 Kellstrom Industries Inc* 58,514
--------------
104,714
--------------
Automotive -- 0.7%
5,400 Copart Inc* 118,125
9,100 Exide Corp 100,669
3,900 Hayes Lemmerz International Inc* 109,931
1,800 Keystone Automotive Industries Inc* 26,100
14,200 Meritor Automotive Inc 309,738
6,950 Monaco Coach Corp* 201,550
4,700 National R.V. Holdings Inc* 113,388
800 Oshkosh Truck Corp 26,900
--------------
1,006,401
--------------
Banking and Financial Services -- 4.5%
7,600 Advanta Corp, Class A 149,625
3,500 Anchor Bancorp 58,188
1,500 Bancfirst Corp 51,844
5,200 Bank United Corp 178,425
6,700 Bay View Capital Corp 109,294
10,600 City National Corp 351,788
5,900 Comdisco Inc 124,269
5,240 Commerce Bancorp Inc 225,320
3,900 Commonwealth Bancorp Inc 69,956
10,000 Cullen Frost Bankers Inc 261,250
13,600 Dime Bancorp Inc 249,900
8,400 Dime Community Bancshares 182,700
13,400 Doral Financial Corp 185,925
3,900 Financial Federal Corp* 73,369
3,500 Financial Security Assurance Holdings Ltd 175,219
4,600 First Federal Capital Corp 72,163
5,100 First Federal Financial Corp* 77,775
3,500 First Financial Holdings 65,625
7,700 First Sierra Financial Inc* 84,700
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- continued
3,400 First Washington Bancorp Inc 63,750
4,600 Flagstar Bancorp Inc 90,850
4,200 GBC Bancorp California 82,425
3,600 Greenpoint Financial Corp 93,150
7,500 Hambrecht and Quist Group* 286,406
7,000 Independence Community Bank Corp 86,625
4,500 Medallion Financial Corp 89,156
11,366 Metris Companies Inc 313,275
7,000 National Commerce Bancorp 148,313
7,700 Ocean Financial Corp 137,638
2,500 Old National Bancorp 75,000
2,000 Oriential Financial Group Inc 47,250
7,300 PFF Bancorp Inc* 145,088
6,750 Queens County Bancorp Inc 185,625
3,300 Reliance Bancorp Inc 114,056
7,300 Ryland Group Inc 175,656
3,000 S&T Bancorp 69,563
5,800 SEI Investments Co 533,238
2,900 Southwest Securities Group Inc 97,875
5,300 US Trust Corp 440,563
--------------
6,022,837
--------------
Chemicals -- 0.3%
7,100 Geon Co 212,113
9,000 W.R. Grace & Co* 172,125
--------------
384,238
--------------
Communications -- 0.1%
6,400 Aerial Communications Inc* 100,800
900 Metro Networks Inc* 51,300
--------------
152,100
--------------
Computer and Office Equipment -- 3.8%
6,900 Apex Inc* 228,994
7,400 Auspex Systems Inc* 81,863
7,200 CDW Computer Centers Inc* 319,500
5,300 Emulex Corp* 365,369
6,100 Infocus Systems Inc* 97,600
13,600 Micron Electronics Inc* 131,750
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer and Office Equipment -- continued
8,600 MTI Technology Corp* 191,888
28,600 Rational Software Corp* 773,987
6,900 Sandisk Corp* 582,188
7,300 Sequent Computer Inc* 128,663
18,100 Silicon Graphics Inc* 207,019
700 SMART Modular Technologies Inc* 14,569
10,600 Sterling Software Inc* 213,325
19,500 Symbol Technologies Inc 678,843
11,900 Visual Networks Inc* 493,850
16,100 Xircom Inc* 640,981
--------------
5,150,389
--------------
Construction -- 2.0%
20,900 Centex Corp 587,813
2,200 Crossmann Communities Inc* 55,550
6,900 Granite Construction Inc 172,500
27,000 Horton (DR) Inc 393,188
8,100 Insituform Technologies Inc, Class A* 168,075
7,100 Johns Manville Corp 102,063
16,900 Kaufman & Broad Home Corp 345,394
7,900 MDC Holdings Inc 148,619
4,200 NVR Inc* 242,813
12,500 Pulte Corp 289,063
12,400 Standard Pacific Corp 138,725
--------------
2,643,803
--------------
Consumer Goods -- 3.8%
5,400 Brown Shoe Co Inc 93,825
16,400 Burlington Industries Inc* 93,275
32,000 Callaway Golf Co 318,000
1,500 Church & Dwight Co Inc 69,750
14,700 Cytyc Corp* 496,125
10,500 Donna Karan International Inc* 86,625
10,950 Fossil Inc* 341,503
8,800 Furniture Brands International Inc* 176,550
9,100 Genesco Inc* 108,063
4,400 Guess ? Inc* 58,025
2,400 Jakks Pacific Inc* 72,300
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- continued
25,200 Jones Apparel Group Inc* 653,625
4,300 K-Swiss Inc, Class A 134,913
2,900 Knoll Inc* 77,575
13,600 La-Z-Boy Chair Co 298,350
5,200 O'Sullivan Industries Holdings Inc* 81,900
3,300 Oneida Ltd 78,788
7,700 Osh Kosh B Gosh, Class A 124,163
8,800 Patterson Dental Company* 360,800
10,900 Pinnacle Systems Inc* 355,613
11,750 Quiksilver Inc* 202,688
7,500 Scholastic Corp* 297,188
600 SCP Pool Corp* 13,800
4,300 THQ Inc* 135,988
7,300 Tiffany & Co 385,988
--------------
5,115,420
--------------
Electronic Equipment -- 13.8%
12,600 3DFX Interactive Inc* 140,175
18,600 Actel Corp* 291,788
45,000 Adaptec Inc* 1,754,999
6,300 Alpha Industries Inc* 358,706
29,200 American Power Conversion Corp* 512,825
10,700 Antec Corp* 487,519
16,900 Atmel Corp* 664,381
3,200 Atmi Inc* 105,600
6,000 C&D Technology Inc 189,000
21,400 C-Cube Microsystems Inc* 595,188
18,300 Cellnet Data Systems* 127,528
2,400 Concord Communications Inc* 88,575
600 Conexant Systems Inc* 43,125
5,400 CTS Corp 257,175
2,300 Customtracks Corp* 88,263
41,200 Cypress Semiconductor Corp* 952,749
31,100 Digital Microwave Corp* 425,681
14,000 DII Group Inc* 496,125
18,400 DSP Communications Inc* 432,400
5,300 Electro Scientific Industries* 212,000
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Equipment -- continued
4,800 FSI International Inc* 30,900
7,100 Hadco Corp* 295,094
900 Harmonic Lightwaves Inc* 113,400
9,100 Hutchinson Technology Inc* 245,700
46,300 Integrated Device Technology Inc* 902,849
22,600 Interdigital Communications Corp* 138,425
24,700 International Rectifier Corp* 398,288
10,300 Kent Electronics Corp* 174,456
33,600 Komag Inc* 107,100
8,800 MEMC Electronic Materials Inc* 174,900
16,600 Microchip Technology Inc* 908,849
26,000 National Semiconductor Corp* 732,874
32,700 P-Com Inc* 157,369
5,300 Park Electrochemical Corp 154,031
26,000 Picturetel Corp* 143,814
20,300 PMC-Sierra Inc* 1,887,899
5,200 Polycom Inc* 190,125
7,700 Powertel Inc* 284,900
600 QLogic Corp* 52,238
28,800 Read Rite Corp* 162,000
8,700 Remec Inc* 108,206
4,800 Scientific Atlanta Inc 246,000
5,400 SDL Inc* 442,125
7,400 Semtech Corp* 518,463
15,900 Sensormatic Electronics Corp* 185,831
9,100 Silicon Valley Group Inc* 108,063
8,350 SLI Inc* 204,575
2,600 Stoneridge Inc* 46,800
4,000 Transwitch Corp* 198,750
4,100 Triumph Group Inc* 101,475
18,500 Unitrode Corp* 756,187
20,700 Westell Technologies Inc* 156,544
--------------
18,552,032
--------------
Food and Beverage -- 2.0%
2,600 Agribrands International Inc* 126,425
15,000 Cadiz Inc* 150,000
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage -- continued
9,700 Coors (Adolph) Co, Class B 553,506
16,800 Darden Restaurants Inc 262,500
2,100 Hormel (Geo A) and Co 84,525
15,800 IBP Inc 362,413
3,400 Performance Food Group Co* 88,506
1,450 Pilgrims Pride Corp, Class A* 11,781
15,800 Ryan's Family Steak Houses Inc* 153,063
13,700 Smithfield Foods Inc* 402,438
15,000 Topp Inc (The)* 133,125
12,000 Wendy's International Inc 336,000
--------------
2,664,282
--------------
Health Care -- 8.0%
24,700 Apria Healthcare Group* 416,813
9,000 Bard (CR) 419,625
12,666 Bindley Western Industries Inc 212,156
6,100 Carematrix Corp* 49,563
29,800 Chiron Corp* 957,324
20,500 Columbia Laboratories Inc* 126,844
5,300 Cooper (The) Companies Inc 126,869
15,300 Express Scripts Inc, Class A* 1,030,837
3,500 Gliatech Inc* 70,656
6,700 Hooper Holmes Inc 153,263
13,500 Idexx Laboratories Inc* 229,500
46,400 Laboratory Corporation of America Holdings* 133,400
8,300 Lincare Holdings Inc* 218,913
14,700 Medimmune Inc* 1,516,855
11,600 Medquist Inc* 403,825
11,100 Mid Atlantic Medical Services Inc* 93,656
6,100 Novoste Corp* 133,819
3,000 OEC Medical Systems Inc* 103,500
11,000 Orthodontic Centers of America* 178,750
4,500 Perclose Inc* 238,219
10,500 Renal Care Group Inc* 200,813
5,400 ResMed Inc* 149,850
3,200 Techne Corp* 99,200
12,700 US Bioscience Inc* 147,638
35,600 Visx Inc* 3,221,799
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care -- continued
2,600 Xomed Surgical Products Inc* 152,913
--------------
10,786,600
--------------
Insurance -- 1.4%
2,200 Brown & Brown Inc 78,650
4,000 E. W. Blanch Holdings Inc 265,000
8,220 Fidelity National Financial Inc 126,383
3,600 Foremost Corp of America 85,500
3,600 Gallagher (Arthur J) and Co 196,650
3,300 Hilb Rogal and Hamilton Co 79,613
2,800 Medical Assurance Inc* 70,350
38,700 Oxford Health Plans Inc* 599,850
4,100 Stewart Information Services Corp 85,331
9,500 UICI* 249,969
--------------
1,837,296
--------------
Lodging -- 0.1%
14,300 Boyd Gaming Corp* 76,863
2,500 Trendwest Resorts Inc* 61,875
--------------
138,738
--------------
Machinery -- 3.7%
9,100 American Standard Co* 373,100
9,000 Astec Industries* 304,875
6,000 Asyst Technologies Inc* 187,500
4,700 Aviall Inc* 52,288
9,500 Briggs & Stratton Corp 578,313
3,500 Detroit Diesel Corp 71,531
6,600 Donaldson Co Inc 129,525
11,450 Dycom Industries Inc* 353,519
2,900 Federal Mogul Corp 132,313
8,200 Helix Technology Corp 231,650
13,900 JLG Industries Inc 246,725
11,300 Kulicke & Soffa Industries* 232,356
10,400 Lam Research Corp* 586,950
12,800 Mohawk Industries Inc* 289,600
9,000 Pall Corp 178,875
6,300 Scott Technologies Inc* 119,503
3,700 Tecumseh Products Co 210,900
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery -- continued
7,200 Terex Corp* 193,500
4,000 Toro Co 147,000
14,500 Ultratech Stepper Inc* 193,938
3,000 Woodward Governor Co 74,625
1,400 York International Corp 57,575
--------------
4,946,161
--------------
Manufacturing -- 1.7%
5,100 Blyth Industries Inc* 144,394
26,300 Dal Tile International Inc* 233,413
18,500 General Cable Corp 268,250
20,100 Gentex Corp* 384,413
4,600 Lafarge Corp 126,500
8,000 Manitowoc Co Inc 296,500
3,200 Nortek Inc* 114,000
9,500 Owens Corning 267,188
3,200 Temple Inland Inc 198,400
10,200 Tower Automotive Inc* 204,000
2,100 Tredegar Industries 45,675
--------------
2,282,733
--------------
Metals and Mining -- 0.4%
6,900 Amcol International Corp 100,050
17,800 Stillwater Mining Co* 392,713
--------------
492,763
--------------
Oil and Gas -- 1.6%
3,100 Barrett Resources Corp* 111,794
2,800 Basin Exploration Inc* 63,700
8,700 Brown Tom Inc* 143,006
32,700 Chesapeake Energy Corp* 106,275
4,800 Equitable Resources Inc 176,400
11,200 Forest Oil Corp* 167,300
56,500 Grey Wolf Inc* 162,438
62,900 Harken Energy Corp* 106,144
2,000 Houston Exploration Co* 42,500
6,100 HS Resources Inc* 104,463
8,000 Marine Drilling Co Inc* 127,000
14,000 Meridian Resource Corp* 66,500
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas -- continued
1,400 Mitchell Energy, Class B 27,650
4,100 Newfield Exploration Co* 124,538
12,200 Patterson Energy Inc* 163,938
13,300 Pioneer Natural Resources Co 151,288
3,700 Plains Resource Inc* 69,838
5,200 Stone Energy Corp* 276,900
2,000 Union Pacific Resources Group 35,875
--------------
2,227,547
--------------
Paper and Allied Products -- 1.1%
2,300 Boise Cascade Corp 83,663
26,600 Gaylord Container Corp, Class A* 214,463
14,900 Longview Fibre Co 192,769
15,400 Louisiana Pacific Corp 284,900
4,400 Mead Corp 164,175
4,900 Pentair Inc 222,950
4,300 Shorewood Packaging Corp* 63,425
12,200 United Stationers Inc* 276,025
--------------
1,502,370
--------------
Pharmaceuticals -- 6.2%
3,400 Algos Pharmaceuticals Corp* 28,263
4,100 Amerisource Health Corp* 105,831
3,000 Andrx Corp* 215,625
9,800 Aviron* 275,013
12,100 Biomatrix Inc* 237,463
35,700 Genzyme Corp - General Division* 2,014,818
5,565 Gilead Sciences Inc* 433,722
7,600 IDEC Pharmaceuticals Corp* 965,674
34,800 Ivax Corp* 574,200
22,900 Ligand Pharmaceuticals Inc, Class B* 154,575
22,800 Liposome Company Inc* 449,589
60,700 Medpartners Inc* 424,900
10,900 Millipore Corp 411,475
17,500 Roberts Pharmaceutical Corp* 469,219
8,400 Sangstat Medical Corp* 173,250
14,600 Sepracor Inc* 1,093,174
11,100 Triangle Pharmaceuticals Inc* 203,963
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals -- continued
7,400 Vical Inc* 98,975
--------------
8,329,729
--------------
Primary Materials -- 0.7%
4,300 Centex Construction Products Inc 165,281
5,775 Elcor Corp 111,169
2,600 Florida Rock Industries 103,838
12,600 USG Corp 617,400
--------------
997,688
--------------
Primary Processing -- 0.7%
10,800 AK Steel Holding Corp 226,800
7,700 Belden Inc 180,469
8,700 Commscope Inc* 299,606
4,500 Imco Recycling Inc 70,594
4,500 Ryerson Tull Inc 85,219
8,900 Titanium Metals Corp 76,206
--------------
938,894
--------------
Printing and Publishing -- 1.3%
4,600 Consolidated Graphics Inc* 194,350
8,900 Harland (JH) Co 176,888
5,900 Harte Hanks Communications 132,381
4,500 Houghton Mifflin Co 214,875
7,000 John Wiley and Sons Inc, Class A 113,750
3,700 McClatchy Newspapers Inc 127,881
3,900 Playboy Enterprises Inc, Class B* 82,144
15,100 Valassis Communications Inc* 660,625
600 World Color Press Inc* 22,050
--------------
1,724,944
--------------
Real Estate -- 0.6%
8,400 Catellus Development Corp* 114,975
4,300 CN Fairfield Communities Inc* 55,900
8,200 Lennar Corp 155,800
5,800 LNR Property Corp 108,025
5,300 Redwood Trust Inc* 74,531
4,800 Summit Properties Inc 95,400
4,700 Town & Country Trust 81,663
5,700 Webb (D) Corp 123,975
--------------
810,269
--------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- 8.9%
35,000 7 Eleven Inc* 72,188
4,525 99 Cents Only Stores* 162,900
5,700 Action Performance Cos Inc* 140,719
19,000 American Eagle Outfitters Inc* 745,749
9,700 Ames Department Stores Inc* 284,938
18,100 AnnTaylor Stores Corp* 599,563
15,600 Brinker International Inc* 374,400
5,950 Buckle Inc* 100,406
11,300 Cato Corp, Class A 151,844
15,650 CEC Entertainment Inc* 436,244
38,800 Charming Shoppes Inc* 215,825
4,300 Chicos Fas Inc* 95,406
6,700 Children's Place Retail Stores Inc* 211,888
10,700 Cost Plus Inc* 476,150
3,400 CPI Corp 110,500
2,900 Dave and Busters Inc* 34,075
11,625 Dollar Tree Stores Inc* 383,625
5,800 Ethan Allen Interiors Inc 169,288
40,300 Family Dollar Stores Inc 793,405
17,700 Foodmaker Inc* 408,206
1,300 Goodys Family Clothing Inc* 11,984
8,300 Gymboree Corp* 43,056
7,200 Haverty Furniture Companies Inc 116,550
11,300 Linens N Things Inc* 387,025
18,900 Micro Warehouse Inc* 231,525
25,700 Musicland Stores Corp* 218,450
3,800 NPC International Inc* 42,988
4,900 O'Reilly Automotive Inc* 187,425
22,800 Outback Steakhouse Inc* 675,449
16,900 Pacific Sunwear of California* 392,925
5,500 Papa Johns International Inc* 218,625
8,100 Petco Animal Supplies Inc* 101,250
59,200 Petsmart Inc* 284,900
15,100 Ross Stores Inc 628,538
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
12,200 Ruby Tuesday Inc 221,125
19,500 Spiegel Inc, Class A* 174,281
30,600 Sunglass Hut Inc* 386,325
10,900 Talbots Inc 337,219
9,000 The Cheesecake Factory Inc* 272,250
15,100 Transportation World Entertainment Corp* 181,200
31,550 Valhi Inc 356,909
6,000 Valuevision International Inc, Class A* 143,250
7,800 Wet Seal Inc* 118,950
7,600 Williams-Sonoma Inc* 296,400
--------------
11,995,918
--------------
Services -- 8.4%
4,000 Abacus Direct Corp* 407,750
13,500 Acnielson Corp* 337,500
5,900 Advo Inc* 115,788
9,300 AMF Bowling Inc* 37,200
2,500 Aquarion Co 90,000
6,600 Argosy Gaming Co* 89,513
15,200 Aztar Corp* 139,650
1,800 Bally Total Fitness Holdings Corp* 57,713
8,900 Buffets Inc* 99,569
4,200 Burns International Services Corp* 65,888
6,000 Capital Senior Living Corp* 47,250
4,900 Casella Waste Systems Inc, Class A* 83,300
6,100 Catalina Marketing Corp* 553,575
2,500 Celgene Corp* 42,656
23,000 Cephalon Inc* 435,563
2,700 Championship Auto Racing Teams, Inc* 89,606
15,100 COR Therapeutics Inc* 329,369
17,400 Devry Inc* 363,225
7,500 Dollar Thrifty Automotive Group Inc* 141,094
1,900 E-Town Corp 96,425
13,800 Education Management Corp* 178,538
6,200 Extended Stay America Inc* 55,800
7,800 First Consulting Group Inc* 99,938
13,500 Handleman Co* 178,875
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Services -- continued
28,300 Hollywood Entertainment Corp* 383,819
10,300 Hollywood Park District Inc* 174,456
21,900 Icos Corp* 696,693
5,600 IT Group Inc* 66,850
16,550 Labor Ready Inc* 265,834
11,400 Metamor Worldwide Inc* 182,757
28,200 Metromedia International Group Inc* 178,013
6,000 Millennium Pharmaceuticals Inc* 353,625
26,300 Modis Professional Services Inc* 415,869
10,600 Navigant Consulting Inc* 465,075
6,300 NCO Group Inc* 286,650
4,200 Neurogen Corp* 67,725
5,300 ON Assignment Inc* 158,338
33,600 PER-SE Technologies Inc* 119,700
6,200 Personnel Group of America Inc* 51,925
3,700 Philadelphia Suburban Corp 85,794
7,800 Regis Corp 149,175
20,400 Sitel Corp* 80,325
8,500 Sonic Corp* 260,313
2,700 Speedway Motorsports Inc* 100,744
15,600 Station Casinos Inc* 315,900
3,700 Stone & Webster Inc 95,044
14,400 Sunterra Resorts Inc* 189,900
3,800 Superior Consultant Holdings* 86,925
21,300 UnitedGlobal.Com Inc, Class A* 1,560,224
3,600 URS Corp* 89,100
7,200 Whittman-Hart Inc* 189,450
13,700 WMS Industries Inc* 148,988
--------------
11,354,996
--------------
Technology -- 13.7%
32,400 Acclaim Entertainment Inc* 228,825
11,500 Acxiom Corp* 201,969
3,200 Advanced Energy Industries Inc* 110,000
16,900 Advanced Micro Devices Inc* 349,619
2,400 Advent Software Inc* 117,900
2,300 Affiliated Computer Services Inc* 98,325
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
19,500 American Management Systems Inc* 558,188
2,000 Aspect Development Inc* 31,375
4,400 AVT Corp* 124,300
7,800 Bisys Group Inc* 370,500
12,100 Clarify Inc* 532,400
10,000 Cognex Corp* 301,875
2,900 Cohu Inc 123,975
7,800 Credence Systems Corp* 335,400
14,200 CSG Systems International Inc* 320,388
9,100 Cybercash Inc* 79,625
11,900 Data Broadcasting Corp* 89,250
10,200 Dendrite International Inc* 424,575
7,900 Dionex Corp* 314,519
5,300 DST Systems Inc* 352,450
6,300 Electroglas Inc* 121,275
18,400 Electronics For Imaging Inc* 1,078,699
3,700 Factset Research Systems Inc 171,356
8,700 FileNet Corp* 90,263
5,000 IMR Global Corp* 85,313
76,600 Informix Corp* 557,748
8,800 Infousa Inc, Class B* 44,550
9,100 Intel Corp 747,905
8,200 International Telecomm Data Systems Inc* 64,575
3,700 JDA Software Group Inc* 33,069
6,900 JDS Uniphase Corp* 731,830
4,700 Kronos Inc* 235,735
25,000 Legato Systems Inc* 1,076,562
6,400 LHS Group Inc* 212,400
2,600 LTX Corp* 33,800
20,900 Macromedia Inc* 828,162
16,300 Manugistics Group Inc* 203,750
11,100 Mastech Corp* 192,169
1,375 Medical Manager Corp* 81,813
18,600 Mentor Graphics Corp* 166,820
26,600 Mercury Interactive Corp* 1,270,149
1,700 Micromuse Inc* 97,113
13,400 National Computer System Inc 522,600
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
8,400 Network Appliance Inc* 551,775
1,200 Network Solutions Inc* 69,150
2,800 New Era of Networks Inc* 46,900
11,200 Open Market Inc* 135,800
2,500 Optical Coating Laboratories Inc 191,875
2,400 Pixar Inc* 81,750
9,700 Progress Software Corp* 297,063
2,100 Psinet Inc* 100,538
2,400 QRS Corp* 115,500
6,800 Radiant Systems Inc* 133,875
2,200 Radisys Corp* 84,700
9,700 Remedy Corp* 237,650
35,300 S3 Inc* 353,000
11,800 Security Dynamics Technologies Inc* 278,775
47,800 Sybase Inc* 597,500
5,400 Sykes Enterprises Inc* 129,600
10,500 Symantec* 315,000
12,700 Synopsys Inc* 710,405
2,600 USWeb Corp* 50,700
4,100 Waters Corp* 270,344
--------------
18,465,014
--------------
Telecommunications -- 3.5%
2,800 Adelphia Communications Corp, Class A* 173,600
12,000 American Mobile Satellite Corp* 234,000
17,500 Brightpoint Inc* 61,798
21,500 Centennial Cellular Corp, Class A* 841,187
5,100 Commnet Cellular Inc* 159,375
3,300 Commonwealth Telephone Enterprises Inc* 140,663
17,400 Comsat Corp 604,650
1,900 Hispanic Broadcasting Corp* 142,025
25,800 Paging Network Inc* 79,820
5,300 Price Communications Corp* 108,981
15,900 Skytel Communications Inc* 315,019
25,000 Talk Com Inc* 257,813
6,900 Telephone and Data Systems Inc 479,550
4,400 Transaction Network Services Inc* 193,050
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications -- continued
9,800 TV Guide Inc, Class A* 271,950
14,300 Western Wireless Corp, Class A* 553,231
5,400 World Access Inc* 67,163
--------------
4,683,875
--------------
Textiles -- 0.7%
47,600 Shaw Industries Inc 951,999
--------------
Tobacco -- 0.1%
4,600 Brooke Group Ltd 89,413
--------------
Transportation -- 2.1%
39,300 Airtran Holdings Inc* 217,380
11,400 American Freightways Corp* 239,400
2,800 American West Holdings Corp, Class B* 54,600
5,950 Atlas Air Inc* 162,138
14,400 Comair Holdings Inc 304,200
5,000 Landstar System Inc* 185,000
3,700 M.S. Carriers Inc* 105,450
11,300 Mesa Airline Group Inc* 77,688
5,800 Mesaba Holdings Inc* 71,775
6,200 Midwest Express Holdings Inc* 167,400
8,200 MotivePower Industries Inc* 101,475
5,900 Navistar International Corp* 286,888
7,400 Newport News Shipbuilding Inc 232,638
2,100 Roadway Express Inc 44,231
12,300 Skywest Inc 247,538
5,600 US Freightways Corp 271,600
--------------
2,769,401
--------------
Utilities -- 3.0%
2,900 California Water Service Group 86,638
6,000 Calpine Corp* 543,750
1,500 Cilcorp Inc 96,656
3,800 DQE Inc 147,013
5,700 Empire District Electric Co 145,350
</TABLE>
16 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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
39,300 Energy East Corp 982,499
22,300 Niagara Mohawk Holdings Inc* 337,288
12,600 Northeast Utilities* 221,288
15,700 OGE Energy Corp 368,950
9,500 Potomac Electric Power Co 251,750
12,500 Public Service Co of North Carolina 381,250
11,400 Southwest Natural Gas Corp 317,775
7,700 Southwestern Energy Co 68,819
4,300 Western Gas Resources Inc 73,369
--------------
4,022,395
--------------
TOTAL COMMON STOCKS (COST $124,149,946) 133,388,609
--------------
SHORT-TERM INVESTMENTS -- 8.4%
Cash Equivalents -- 5.9%
$3,968,794 BankBoston Eurodollar Time Deposit, 5.4325%, due
10/29/99(a) 3,968,794
$4,000,000 Prudential Securities Group Inc, Master Note, 5.625%, due
3/10/2000(a) 4,000,000
--------------
7,968,794
--------------
U.S. Government -- 1.1%
$1,535,000 U.S. Treasury Bill, 4.68%, due 10/21/99(b) 1,518,686
--------------
Repurchase Agreements -- 1.4%
$1,797,949 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $1,798,183
and an effective yield of 4.68%, collateralized by a U.S.
Treasury Obligation with a rate of 7.25%, maturity date of
5/15/16 and market value, including accrued interest, of
$1,833,908. 1,797,949
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $11,292,032) 11,285,429
--------------
TOTAL INVESTMENTS -- 107.6%
(COST $135,441,978) 144,674,038
Other Assets and Liabilities (net)-- (7.6)% (10,157,170)
--------------
TOTAL NET ASSETS -- 100% $ 134,516,868
==============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Notes to the Schedule of Investments:
* Non-income producing security.
(a) Represents investments of security lending collateral (Note 1).
(b) All or a portion of this security has been segregated to cover margin
requirements on financial future contracts.
18 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $135,441,978) (Note 1) $144,674,038
Receivable for investments sold 1,428,572
Dividends and interest receivable 46,779
Receivable for variation margin on closed futures contracts (Note 1) 301
Receivable for expenses waived or borne by Manager (Note 2) 11,748
-------------
Total assets 146,161,438
-------------
Liabilities:
Payable for investments purchased 3,582,044
Payable upon return of securities loaned (Note 1) 7,968,794
Payable to affiliate for (Note 2):
Management fee 37,738
Shareholder service fee 15,522
Accrued expenses 40,472
-------------
Total liabilities 11,644,570
-------------
Net assets $134,516,868
=============
Net assets consist of:
Paid-in capital $119,861,390
Accumulated undistributed net investment income 3,972
Accumulated undistributed net realized gain 5,419,446
Net unrealized appreciation 9,232,060
=============
$134,516,868
=============
Net assets attributable to:
Class III shares $134,516,868
=============
Shares outstanding:
Class III 11,356,077
=============
Net asset value per share:
Class III $ 11.85
=============
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $135) $ 242,828
Interest (including securities lending income of $35,287) 132,868
------------
Total income 375,696
------------
Expenses:
Management fee (Note 2) 221,419
Custodian and transfer agent fees 46,902
Audit fees 16,932
Legal fees 2,400
Trustees fees (Note 2) 740
Registration fees 364
Miscellaneous 1,840
Fees waived or borne by Manager (Note 2) (69,178)
------------
221,419
Shareholder service fee (Note 2)
Class III 100,645
------------
Net expenses 322,064
------------
Net investment income 53,632
------------
Realized and unrealized gain:
Net realized gain on:
Investments 7,489,982
Closed futures contracts 66,189
------------
Net realized gain 7,556,171
------------
Change in net unrealized appreciation (depreciation) on:
Investments 4,379,991
Open futures contracts 14,860
------------
Net unrealized gain 4,394,851
------------
Net realized and unrealized gain 11,951,022
------------
Net increase in net assets resulting from operations $12,004,654
============
</TABLE>
20 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 Year Ended
31, 1999 February 28,
(Unaudited) 1999
---------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 53,632 $ 644,666
Net realized gain 7,556,171 10,411,205
Change in net unrealized appreciation (depreciation) 4,394,851 (29,532,766)
------------ -------------
Net increase (decrease) in net assets resulting from operations 12,004,654 (18,476,895)
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (158,896) (535,430)
------------ -------------
Total distributions from net investment income (158,896) (535,430)
------------ -------------
Net realized gains
Class III (803,980) (10,987,255)
------------ -------------
Total distributions from net realized gains (803,980) (10,987,255)
------------ -------------
(962,876) (11,522,685)
------------ -------------
Net share transactions: (Note 5)
Class III (6,508,281) (239,630,042)
------------ -------------
Decrease in net assets resulting from net share transactions (6,508,281) (239,630,042)
------------ -------------
Total increase (decrease) in net assets 4,533,497 (269,629,622)
Net assets:
Beginning of period 129,983,371 399,612,993
------------ -------------
End of period (including accumulated undistributed net
investment income of $3,972 and $109,236, respectively) $134,516,868 $129,983,371
============= =============
</TABLE>
See accompanying notes to the financial statements. 21
<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, 1999 Year Ended February 28,
--------------------------------------
(Unaudited) 1999 1998 1997*
----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.88 $ 12.28 $ 9.82 $ 10.00
----------- --------- -------- ---------
Income from investment operations:
Net investment income 0.01 0.03 0.05 0.01
Net realized and unrealized gain (loss) 1.05 (0.98) 3.43 (0.19)
----------- --------- -------- ---------
Total from investment operations 1.06 (0.95) 3.48 (0.18)
----------- --------- -------- ---------
Less distributions to shareholders:
From net investment income (0.02) (0.02) (0.06) --
In excess of net investment income -- -- (0.01) --
From net realized gains (0.07) (0.43) (0.95) --
----------- --------- -------- ---------
Total distributions (0.09) (0.45) (1.02) --
----------- --------- -------- ---------
Net asset value, end of period $ 11.85 $ 10.88 $ 12.28 $ 9.82
=========== ========= ======== =========
Total Return (a) 9.67% (8.20)% 36.66% (1.80)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 134,517 $129,983 $399,613 $159,898
Net expenses to average daily 0.48%** 0.48% 0.48% 0.48%**
net assets
Net investment income to
average daily net assets 0.08%** 0.21% 0.47% 0.70%**
Portfolio turnover rate 87% 113% 132% 13%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.01 $ 0.03 $ 0.03 $ 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.
* Period from December 31, 1996 (commencement of operations) to February 28,
1997.
** Annualized.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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. The Fund's current benchmark is
the Russell 2500 Growth 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
23
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund had no open futures contracts.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. 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, 1999, the Fund loaned securities having a market
value of $7,601,858, collateralized by cash in the amount of $7,968,794,
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. Net payments of interest on interest rate swap agreements are
recorded as interest income. 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 will be no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to
24
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
perform and that there may be unfavorable changes in the fluctuation of
interest rates. The Fund did not have any open swap agreements as of August
31, 1999.
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 dividends 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 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. For the six
months ended August 31, 1999, the Fund received $9,792 in purchase premiums
and $46,884 in redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
25
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .33% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $740. 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, 1999,
aggregated $112,977,559 and $111,225,806, respectively.
At August 31, 1999, 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> <C>
$135,441,978 $20,125,389 $10,893,329 $9,232,060
</TABLE>
4. Principal shareholders
At August 31, 1999, 36.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
26
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 165,285 $ 1,958,379 3,439,182 $ 39,799,712
Shares issued to shareholders
in reinvestment of
distributions 72,475 890,619 907,024 11,146,358
Shares repurchased (823,532) (9,357,279) (24,951,990) (290,576,112)
------------- -------------- ------------- --------------
Net decrease (585,772) $ (6,508,281) (20,605,784) $ (239,630,042)
============= ============== ============= ==============
</TABLE>
27
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate Investments -- 96.0%
Common Stocks -- 2.4%
Diversified-- 0.5%
25,000 St. Joe Co 584,375
-----------
Lodging-- 1.7%
47,330 Crestline Capital Corp* 896,312
12,495 Interstate Hotels Corp* 45,294
374,871 Wyndham International Inc, Class A 1,335,478
-----------
2,277,084
-----------
Office-- 0.2%
20,000 Brookfield Properties Corp 247,500
-----------
Services-- 0.0%
12,500 Vornado Operating Inc* 79,688
-----------
Total Common Stocks (Cost $9,113,929) 3,188,647
-----------
Real Estate Investment Trusts -- 93.6%
Apartments-- 10.2%
78,200 Apartment Investment & Management Co, Class A 3,206,200
26,300 BRE Properties Inc 664,075
82,500 Cornerstone Realty Income Trust 819,844
72,500 Equity Residential Properties Trust 3,189,978
29,600 Gables Residential Trust 708,550
25,000 Mid America Apartment Community 545,313
28,900 Smith (Charles E) Residential 991,631
50,000 Summit Properties Inc 993,750
149,000 United Dominion Realty Trust Inc 1,713,500
25,000 Walden Residential Properties Inc 470,313
-----------
13,303,154
-----------
Diversified-- 19.1%
100,000 Catellus Development Corp* 1,368,750
91,000 Colonial Properties Trust 2,474,063
420,000 Crescent Real Estate Equities 8,714,999
97,500 Glenborough Realty Trust Inc 1,687,969
See accompanying notes to the financial statements. 1
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Diversified -- continued
55,200 Meditrust Corp 493,350
122,000 The Rouse Company 2,775,500
215,000 Vornado Realty Trust 7,336,874
----------
24,851,505
----------
Factory Outlet -- 1.0%
21,400 Chelsea GCA Realty Inc 727,600
70,000 Prime Retail Inc 525,000
----------
1,252,600
----------
Industrial -- 6.3%
59,050 Eastgroup Properties Inc 1,099,806
93,300 First Industrial Realty Trust 2,390,813
70,000 Liberty Property Trust 1,715,000
149,000 Prologis Trust 2,924,125
----------
8,129,744
----------
Lodging -- 9.9%
96,000 Felcor Lodging Trust Inc 1,722,000
492,500 Host Marriott Corp 4,555,625
275,000 Starwood Hotels and Resorts Worldwide Inc 6,548,437
----------
12,826,062
----------
Manufactured Housing -- 0.7%
29,000 Chateau Communities Inc 844,625
----------
Office -- 33.5%
28,500 Alexandria Real Estate Equities Inc 835,406
42,900 Arden Realty Group Inc 1,000,106
71,000 Bedford Property Investors 1,260,250
18,500 Boston Properties Inc 616,281
159,700 Brandywine Realty Trust 2,864,619
52,000 Carramerica Realty Corp 1,196,000
55,000 Cornerstone Properties Inc 876,563
265,286 Duke Realty Investments 5,952,354
150,000 Equity Office Properties 3,834,375
152,500 Highwood Properties Inc 3,783,906
55,700 Kilroy Realty Corp 1,277,619
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Office -- continued
62,800 Koger Equity Inc 1,067,600
200,000 Mack-Cali Realty Corp 5,675,000
60,800 Parkway Properties Inc 2,006,400
100,000 Prentiss Properties Trust 2,268,750
23,600 Prime Group Realty Trust 390,875
40,000 Reckson Associates Realty Corp 830,000
24,955 Reckson Associates Realty Corp, Class B 542,771
43,900 SL Green Realty Corp 913,669
84,100 Spieker Properties Inc 3,216,825
160,800 Trizec Hahn Corporation 3,135,600
-----------
43,544,969
-----------
Regional Malls -- 8.1%
29,800 CBL & Associates Properties Inc 741,275
60,000 General Growth Properties 1,995,000
22,900 JP Realty Inc 443,688
68,600 Macerich Co 1,719,288
74,500 Mills Corp 1,429,469
39,700 Simon Property Group Inc 1,012,350
55,600 Urban Shopping Centers Inc 1,706,225
98,800 Westfield America Inc 1,432,600
-----------
10,479,895
-----------
Self Storage -- 0.4%
5,200 Public Storage Inc 135,200
16,800 Shurgard Storage Centers Inc 424,200
-----------
559,400
-----------
Shopping/Power Center -- 3.1%
100,000 Developers Diversified Realty Corp 1,493,750
49,400 JDN Realty Corp 1,037,400
76,780 New Plan Excel Realty Trust 1,454,021
-----------
3,985,171
-----------
See accompanying notes to the financial statements. 3
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Per Value($) Description Value ($)
- --------------------------------------------------------------------------------
Triple Net Leasing -- 1.3%
34,200 Hospitalities Properties Trust 919,125
33,500 Trinet Corporate Realty Trust Inc 818,656
-----------
1,737,781
-----------
Total Real Estate Investment Trusts
(Cost $149,084,729) 121,514,906
-----------
Total real estate investments
(Cost $158,198,658) 124,703,553
-----------
SHORT-TERM INVESTMENTS -- 13.0%
Cash Equivalents -- 8.8%
$ 76,907 BankBoston Eurodollar Time Deposit, 5.4325%,
due 10/29/99(a) 76,907
4,338,165 Merrimac Cash Fund Premium Class(a) 4,338,165
$7,000,000 Prudential Securities Group Inc. Master Note,
5.6250%, due 3/10/2000(a) 7,000,000
-----------
11,415,072
-----------
Repurchase Agreements -- 4.2%
$5,506,346 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity
value of $5,507,062 and an effective yield of
4.68%, collateralized by a U.S. Treasury
Obligation with a rate of 7.25%, maturity date
of 5/15/16 and market value, including accrued
interest, of $5,616,473. 5,506,346
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $16,921,418) 16,921,418
-----------
TOTAL INVESTMENTS -- 109.0%
(Cost $175,120,076) 141,624,971
Other Assets and Liabilities (net) -- (9.0)% (11,746,10)
-----------
TOTAL NET ASSETS -- 100% $129,878,864
============
Notes to the Schedule of Investments:
* Non-income producing security.
(a) Represents investments of security lending collateral
(Note 1).
4 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $175,120,076) (Note 1) $141,624,971
Receivable for investments sold 31,095
Dividends and interest receivable 103,297
Receivable for expenses waived or borne by Manager (Note 2) 6,262
------------
Total assets 141,765,625
------------
Liabilities:
Payable for investments purchased 367,947
Payable upon return of securities loaned (Note 1) 11,415,072
Payable to affiliate for (Note 2):
Management fee 57,633
Shareholder service fee 14,422
Accrued expenses 31,687
------------
Total liabilities 11,886,761
------------
Net assets $129,878,864
============
Net assets consist of:
Paid-in capital $183,052,962
Accumulated undistributed net investment income 4,326,666
Accumulated net realized loss (24,005,659)
Net unrealized depreciation (33,495,105)
------------
$129,878,864
============
Net assets attributable to:
Class III shares $129,878,864
============
Shares outstanding:
Class III 14,552,915
============
Net asset value per share:
Class III $ 8.92
============
See accompanying notes to the financial statements. 5
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends $4,743,406
Interest (including securities lending income of $5,250) 80,034
----------
Total income 4,823,440
----------
Expenses:
Management fee (Note 2) 382,196
Custodian and transfer agent fees 19,008
Audit fees 18,770
Legal fees 2,301
Trustees fees (Note 2) 736
Registration fees 364
Miscellaneous 1,104
Fees waived or borne by Manager (Note 2) (42,283)
----------
382,196
Shareholder service fee (Note 2)
Class III 106,166
----------
Net expenses 488,362
----------
Net investment income 4,335,078
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (7,775,943)
Closed futures contracts 31,149
----------
Net realized loss (7,744,794)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 7,774,809
Open futures contracts 14,056
----------
Net unrealized gain 7,788,865
----------
Net realized and unrealized gain 44,071
----------
Net increase in net assets resulting from operations $4,379,149
==========
6 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
--------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,335,078 $ 10,721,126
Net realized loss (7,744,794) (12,500,837)
Change in net unrealized
appreciation (depreciation) 7,788,865 (60,036,287)
------------ -------------
Net increase (decrease) in
net assets resulting
from operations 4,379,149 (61,815,998)
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (7,241,520) (3,197,384)
------------ -------------
Total distributions from
net investment income (7,241,520) (3,197,384)
------------ -------------
Net realized gains
Class III -- (15,126,689)
------------ -------------
Total distributions from
net realized gains -- (15,126,689)
------------ -------------
(7,241,520) (18,324,073)
------------ -------------
Net share transactions: (Note 5)
Class III (10,387,826) (151,505,021)
------------ -------------
Decrease in net assets
resulting from net share
transactions (10,387,826) (151,505,021)
------------ -------------
Total decrease in net assets (13,250,197) (231,645,092)
Net assets:
Beginning of period 143,129,061 374,774,153
------------ -------------
End of period (including
accumulated undistributed
net investment income of
$4,326,666 and $7,233,108,
respectively) $129,878,864 $ 143,129,061
============ =============
See accompanying notes to the financial statements. 7
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
Six Months
Ended August Year Ended February 28,
31, 1999 --------------------------
(Unaudited) 1999 1998 1997*
---------- ----- ----- -----
Net asset value, beginning of period $9.13 $12.92 $12.62 $10.00
----- ------ ------ ------
Income from investment operations:
Net investment income 0.33 0.51+ 0.53 0.24
Net realized and unrealized
gain (loss) (0.04) (3.36) 1.26 2.60
------- ------- ------- -------
Total from investment
operations 0.29 (2.85) 1.79 2.84
------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.50) (0.19) (0.57) (0.17)
In excess of net investment
income -- -- (0.03) --
From net realized gains -- (0.75) (0.89) (0.05)
------- ------- ------- -------
Total distributions (0.50) (0.94) (1.49) (0.22)
------- ------- ------- -------
Net asset value, end of period $ 8.92 $ 9.13 $ 12.92 $ 12.62
======= ======= ======= =======
Total Return (a) 2.80% (23.27)% 14.29% 28.49%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $129,879 $143,129 $374,774 $260,929
Net expenses to average daily
net assets 0.69%** 0.69% 0.69% 0.69%**
Net investment income to
average daily net assets 6.12%** 4.60% 4.10% 4.72%**
Portfolio turnover rate 4% 59% 86% 21%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: --(b) $ 0.03 $ 0.03 $ 0.02
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
+ Computed using average shares outstanding throughout the period.
* Period from May 31, 1996 (commencement of operations) to February 28, 1997.
** Annualized.
8 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in or exposure to real
estate investment trusts ("REITS"), which are managed vehicles that invest
in real estate or real estate-related assets. The Fund's current benchmark
is the Morgan Stanley REIT 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
9
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund held no open futures
contracts.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. 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, 1999, the Fund loaned securities having a market value of
$10,946,615, collateralized by cash in the amount of $11,415,072, 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. At February 28, 1999, the Fund had a capital loss carryforward
available to offset future capital gains, if any, of $8,368,927 expiring in
2007.
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 dividends 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.
10
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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. For the six
months ended August 31, 1999, the Fund received $61,409 in purchase premiums
and $136,161 in redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
Investment risk
There are certain additional risks involved in investing in REITs rather
than a more diversified portfolio of investments. Since the Fund's
investments are concentrated in real-estate related securities, the value of
its shares can be expected to change in light of factors affecting the real
estate industry, including local or regional economic conditions, changes in
zoning laws, changes in real estate value and property taxes, and changes in
interest rates. The value of the Fund's shares may fluctuate more widely
than the value of shares of a portfolio that invests in a broader range of
industries.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .54% 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.
11
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $736. 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, 1999, aggregated
$5,068,659 and $20,947,916, respectively.
At August 31, 1999, 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
------------------ ------------------ ------------------ ------------------
$175,120,076 $1,373,446 $34,868,551 $33,495,105
4. Principal shareholder
At August 31, 1999, 10.8% of the outstanding shares of the Fund were held by
one shareholder.
12
<PAGE>
GMO REIT Fund
(A series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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:
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
-------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------
Shares sold 1,330,465 $ 12,281,745 2,311,420 $ 26,773,478
Shares issued to
shareholders in
reinvestment of 471,614 4,494,486 1,482,780 16,781,879
distributions
Shares repurchased (2,928,503) (27,164,057) (17,130,461) (195,060,378)
=======================================================
Net decrease (1,126,424) $(10,387,826) (13,336,261) $(151,505,021)
=======================================================
13
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
MUTUAL FUND -- 100.0%
8,892,953 GMO Emerging Country Debt Fund (Cost
$82,856,667) 64,029,260
-----------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreements -- 0.0%
$ 11,864 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $11,866 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation
with a rate of 8.125%, maturity date of 8/15/21
and market value, including accrued interest, of
$12,101. 11,864
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $11,864) 11,864
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $82,868,531) 64,041,124
Other Assets and Liabilities (net) -- (0.0)% (5,241)
-----------
TOTAL NET ASSETS -- 100% $64,035,883
===========
See accompanying notes to the financial statements. 1
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $82,868,531) (Note 1) $ 64,041,124
Receivable for expenses waived or borne by Manager (Note 2) 1,707
------------
Total assets 64,042,831
------------
Liabilities:
Accrued expenses 6,948
------------
Total liabilities 6,948
------------
Net assets $ 64,035,883
============
Net assets consist of:
Paid-in capital $ 80,167,273
Undistributed net investment income 2,594,982
Accumulated undistributed net realized gain 101,035
Net unrealized depreciation (18,827,407)
------------
$ 64,035,883
============
Shares outstanding 8,598,386
============
Net asset value per share $ 7.45
============
2 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends from investment company shares $2,592,884
Interest 2,098
----------
Total income 2,594,982
----------
Expenses:
Audit fees 5,342
Custodian and transfer agent fees 2,942
Legal fees 643
Trustees fees (Note 2) 275
Miscellaneous 1,104
Fees waived or borne by Manager (Note 2) (10,306)
----------
Net expenses --
----------
Net investment income 2,594,982
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (1,316)
Realized gain distributions from investment company shares 102,351
----------
Net realized gain 101,035
----------
Change in net unrealized appreciation (depreciation) on
investments 124,149
----------
Net realized and unrealized gain 225,184
----------
Net increase in net assets resulting from operations $2,820,166
==========
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
Six Months Ended July 20, 1998
August 31, 1999 (commencement of operations)
(Unaudited) through February 28, 1999
--------------------- ----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,594,982 $ 167,273
Net realized gain 101,035 --
Change in net unrealized appreciation
(depreciation) 124,149 (18,951,556)
------------- ------------
Net increase (decrease) in net assets
resulting from operations 2,820,166 (18,784,283)
------------- ------------
Distributions to shareholders from:
Net investment income -- (168,000)
------------- ------------
-- (168,000)
------------- ------------
Net share transactions: (Note 5) 20,000,000 60,168,000
------------- ------------
Increase in net assets resulting from
net share transactions 20,000,000 60,168,000
------------- ------------
Total increase in net assets 22,820,166 41,215,717
Net assets:
Beginning of period 41,215,717 --
------------- ------------
End of period (including accumulated
undistributed net investment income
of $2,594,982 and $0, respectively.) $ 64,035,883 $ 41,215,717
============= ============
</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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Six Months Ended July 20, 1998
August 31, 1999 (commencement of operations)
(Unaudited) through February 28, 1999
------------- ---------------------------
<S> <C> <C>
Net asset value, beginning of period $ 6.84 $ 10.00
------- -------
Income from investment operations:
Net investment income (a) 0.30 0.03
Net realized and unrealized gain (loss) 0.31 (3.16)
------- -------
Total from investment operations 0.61 (3.13)
------- -------
Less distributions to shareholders:
From net investment income -- (0.03)
------- -------
Total distributions -- (0.03)
------- -------
Net asset value, end of period $ 7.45 $ 6.84
======= =======
Total Return (b) 8.92% (31.32)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $64,036 $41,216
Net expenses to average daily net assets (c) 0.00%* 0.00%*
Net investment income to average daily net
assets (a) 9.00%* 0.64%*
Portfolio turnover rate 0% 0%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per --(d) --(d)
share amounts:
</TABLE>
* Annualized.
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by GMO Emerging Country Debt Fund.
(b) The total returns would have been lower had certain expenses not been waived
during the periods shown.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 1.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 seeks high total return through investment in the GMO Emerging
Country Debt Fund ("ECDF"), a portfolio of the Trust. GMO also serves as
investment manager to ECDF. ECDF pursues its objectives by investing
primarily in sovereign debt of developing countries in Asia, Latin America,
the Middle East, Africa and Europe ("Emerging Countries"). The Fund's
current benchmark is the J.P. Morgan Emerging Markets Bond Index+.
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.
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.
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, 1999 (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 dividends 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. Income dividends and
capital gain distributions are 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 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, 1999 (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 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. The management fee earned by GMO in its capacity as Manager of
ECDF is .35% of average daily net assets. GMO has entered into a binding
agreement effective until June 30, 2000 to reimburse ECDF to the extent that
ECDF's total annual operating expense (excluding custody fees, brokerage
commissions, certain other transaction costs (including transfer taxes),
shareholder service fees and extraordinary expenses) exceeds the management
fee.
GMO has contractually agreed to reimburse all expenses directly incurred by
the Fund until June 30, 2000 (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 six months ended August 31, 1999 was $275. 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, 1999, aggregated
$22,701,414 and $4,300 respectively.
At August 31, 1999, 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
---------------- ------------------ ------------------ ----------------
$82,868,531 $0 $18,827,407 $18,827,407
8
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1999, 100% of the outstanding shares of the Fund were held by
one shareholder. Investment activities of this shareholder could have a
material effect.
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
Six Months Ended (commencement of operations)
Class III: August 31, 1999 through February 28, 1999
--------------------- ----------------------------
Shares Amount Shares Amount
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 2,574,003 20,000,000 6,000,000 $60,000,000
Shares issued to shareholders
in reinvestment of
distributions -- -- 24,383 168,000
--------- ----------- ---------- -----------
Net increase 2,574,003 $20,000,000 6,024,383 $60,168,000
========= =========== ========== ===========
</TABLE>
9
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 75.0%
Aerospace -- 0.5%
1,000 Cordant Technologies Inc 41,375
500 Curtiss Wright Corp 16,531
1,000 Fairchild Corp, Class A* 9,125
700 Gencorp Inc 15,050
5,700 Kaman Corp, Class A 74,456
5,600 Kellstrom Industries Inc* 57,487
----------
214,024
----------
Automotive -- 1.9%
600 Arvin Industries Inc 21,450
600 Bandag Inc 19,950
800 Borg Warner Automotive Inc 37,900
1,900 Cooper Tire & Rubber Co 36,100
7,000 Dura Automotive Systems Inc* 181,124
1,500 Meritor Automotive Inc 32,719
1,000 Modine Manufacturing Co 29,750
1,400 Smith (AO) Corp, Class B 37,975
2,600 Standard Products Corp 90,025
800 Superior Industries International Inc 22,400
3,100 Titan International Inc 34,488
12,400 United Automotive Group Inc* 156,549
2,300 Wabash National Corp 48,300
----------
748,730
----------
Banking and Financial Services -- 8.6%
5,000 Acceptance Insurance Cos Inc* 66,250
12,000 Advanta Corp, Class A 236,249
36,600 Amresco Inc* 244,762
1,100 Andover Bancorp Inc 34,650
100 Bancfirst Corp 3,456
1,100 Bancwest Corp 45,994
3,200 Bay View Capital Corp 52,200
1,800 BSB Bancorp Inc 44,888
1,200 Charter Municipal Mortgage Acceptance 14,925
4,600 Commercial Federal Corp 106,950
1,200 Corus Bancshares Inc 34,350
100 CPB Inc 2,306
3,600 Credit Acceptance Corp* 21,150
500 Dain Rauscher Corp 24,813
6,300 Downey Financial Corp 133,874
See accompanying notes to the financial statements.
1
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
800 First Bancorp Puerto Rico 16,500
1,500 First Citizens Bancshares, Class A 117,375
1,000 First Commerce Bancshares Inc, Class A 20,938
1,100 First Federal Financial Corp* 16,775
500 First Indiana Corp 11,500
3,000 First Republic Bank* 77,063
4,000 Flagstar Bancorp Inc 79,000
4,100 GBC Bancorp California 80,463
3,300 Hamilton Bancorp Inc* 80,438
7,800 Imperial Credit Industries Inc* 42,413
1,000 Interwest Bancorp Inc 22,000
4,700 Jeffries Group Inc* 116,325
3,500 Leucadia National Corp 74,156
7,400 Liberty Financial Cos 190,549
700 Midland Co 16,450
1,200 Morgan Keegan Inc 20,325
20,800 Ocwen Financial Corp* 139,099
12,300 Pacific Century Financial Corp 228,318
3,900 PFF Bancorp Inc* 77,513
1,050 PMI Group Inc 44,625
1,600 Raymond James Financial Corp 31,300
400 Reliance Bancorp Inc 13,825
17,800 Resource America Inc 177,999
11,200 Resource Bancshares Mortgage Group Inc 67,200
1,800 Ryland Group Inc 43,313
15,400 Sovereign Bancorp Inc 154,481
1,100 Student Loan Group 44,000
4,900 U.S. Bancorp Inc 72,122
600 UMB Financial Corp 25,500
500 Value Line Inc 18,625
4,200 Washington Federal Inc 100,275
6,500 Westcorp 91,000
----------
3,378,282
----------
Chemicals -- 0.8%
700 Albemarle Corp 12,119
1,000 Cytec Industries Inc* 23,313
1,600 IMC Global Inc 25,500
1,500 Millenium Chemicals Inc 34,500
6,600 Mississippi Chemical Corp 49,913
1,500 Olin Corp 21,281
900 Stepan Co 22,106
See accompanying notes to the financial statements.
2
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Chemicals -- continued
6,900 Wellman Inc 116,006
----------
304,738
----------
Computer and Office Equipment -- 1.5%
700 Micros Systems Inc* 23,625
28,000 Neomagic Corp* 227,499
1,900 Reynolds & Reynolds Inc, Class A 41,563
10,000 SMART Modular Technologies Inc* 208,124
2,500 Sterling Software Inc* 50,313
600 Zebra Technologies Corp* 28,200
----------
579,324
----------
Construction -- 1.2%
1,200 Bridge & Toll Road Brothers Inc* 24,300
700 Centex Corp 19,688
10,300 Foster Wheeler Corp 133,255
3,600 Horton (DR) Inc 52,425
1,100 Kaufman & Broad Home Corp 22,481
300 MDC Holdings Inc 5,644
4,700 Pulte Corp 108,688
800 Texas Industries Inc 25,600
2,600 US Home Corp* 78,000
----------
470,081
----------
Consumer Goods -- 2.3%
700 Bassett Furniture Industries Inc 14,263
400 Block Drug Co Inc, Class A 16,075
900 Brown Shoe Co Inc 15,638
15,500 Burlington Industries Inc* 88,156
2,200 Callaway Golf Co 21,863
25,100 CHS Electronics Inc* 59,613
3,500 Compucom Systems Inc* 12,688
8,100 Daisytek International Corp* 94,163
700 Department 56 Inc* 19,600
600 Enesco Group Inc 10,350
700 Footstar Inc* 22,750
1,100 Furniture Brands International Inc* 22,069
1,100 Hon Industries Inc 25,919
1,400 Justin Industries 19,994
2,500 Kimball International, Class B 48,281
800 Knoll Inc* 21,400
See accompanying notes to the financial statement.
3
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- continued
900 Lancaster Colony Corp 29,588
1,000 Liz Claiborne Inc 36,750
3,700 Natures Sunshine Products Inc 36,075
700 Nautica Enterprises Inc* 9,406
600 Oxford Industries Inc 12,975
800 Pittston Brinks Group 19,050
1,000 Polo Ralph Lauren Corp* 19,375
1,800 Reebok International Ltd* 21,263
1,100 Russell Corp 18,425
1,100 Technology Data Corp* 40,769
23,700 Terra Industries Inc 53,325
1,600 Unifi Inc* 21,600
2,400 US Industries Inc 38,700
1,200 Wallace Computer Services 25,650
1,100 Warnaco Group Inc, Class A 24,200
----------
919,973
----------
Electronic Equipment -- 4.5%
6,300 3DFX Interactive Inc* 70,088
2,300 Andrew Corp* 40,250
13,500 Arrow Electronics Inc* 268,312
1,000 C-Cube Microsystems Inc* 27,813
8,600 Cable Design Technologies* 181,137
900 Diebold Inc 23,963
200 Franklin Electric Inc 14,100
1,600 Genlyte Group Inc* 39,200
68,700 Glenayre Technologies Inc* 214,687
400 Harman International Industries 17,000
4,200 Innovex Inc 58,275
14,200 Komag Inc* 45,263
500 Litton Industries* 32,000
8,200 Magnetek Inc* 75,850
7,600 Marshall Industries* 278,824
900 Moog Inc, Class A* 29,475
3,300 Oak Technology Inc* 15,675
16,000 Pioneer Standard Electronics Inc 225,999
2,400 Primex Technologies 50,100
400 Thermo Ecotek Corp* 3,100
400 Thomas & Betts Corp 18,000
1,300 Triumph Group Inc* 32,175
----------
1,761,286
----------
See accompanying notes to the financial statements.
4
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- 2.1%
1,600 Agribrands International Inc* 77,800
400 Bob Evans Farms Inc 8,150
1,100 Corn Product Interest Inc 35,819
200 Farmer Brothers Co 39,650
15,900 IBP Inc 364,705
7,300 Imperial Sugar Co 44,713
600 International Multifoods Corp 13,613
800 Interstate Bakeries Corp 19,150
700 Luby's Cafeterias Inc 9,363
700 Michael Foods Inc 19,381
8,700 Ryan's Family Steak Houses Inc* 84,281
900 Smithfield Foods Inc* 26,438
600 Suiza Foods Corp* 19,125
900 Universal Corp 25,538
1,200 Universal Foods Corp 25,350
----------
813,076
----------
Health Care -- 3.6%
4,200 Alterra Healthcare Corp* 42,000
1,200 Apria Healthcare Group* 20,250
800 Arrow International Inc 23,200
19,800 Beverly Enterprises Inc* 99,000
600 Bindley Western Industries Inc 10,050
2,100 Coventry Health Care Inc* 21,131
700 Dentsply International Inc 17,369
1,500 First Health Group Corp* 32,344
700 HCR Manor Care Inc* 13,694
28,000 Integrated Health Services Inc* 85,750
900 Invacare Corp 16,819
1,500 Lincare Holdings Inc* 39,563
10,500 Magellan Health Services Inc* 95,813
1,200 Mallinckrodt Inc 38,475
5,500 Maxxim Medical Inc* 135,437
1,100 Mentor Corp 25,713
2,200 Mid Atlantic Medical Services Inc* 18,563
900 Ocular Sciences Inc* 14,794
4,700 Pediatrix Medical Group Inc* 70,206
93,700 Phycor Inc* 380,655
See accompanying notes to the financial statements.
5
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Health Care -- continued
6,300 Quorum Health Group Inc* 55,519
9,800 Sierra Health Services Inc* 116,375
3,800 Sola International Inc* 60,325
----------
1,433,045
----------
Insurance -- 3.7%
100 Alleghany Corp* 18,075
900 American Financial Group Inc 26,550
700 American National Insurance Co 49,000
1,900 Amerus Life Holdings Inc 45,838
1,000 Argonaut Group Inc 25,250
4,600 ARM Financial Group Inc, Class A 1,150
1,200 Berkley (WR) Corp 27,300
1,400 Capital Re Corp 16,975
800 Commerce Group Inc 17,800
700 Delphi Financial Group Inc* 24,850
1,300 Everest Re Holdings Inc 36,075
3,300 Fidelity National Financial Inc 50,738
2,600 First American Financial Corp 38,675
2,300 Foundation Health Systems Inc, Class A* 29,325
1,700 Fremont General Corp 16,894
1,500 Frontier Insurance Group Inc 18,188
2,700 Harleysville Group Inc 52,481
1,000 HCC Insurance Holdings Inc 14,625
800 Horace Mann Educators Corp 24,100
1,200 Kansas City Life Insurance Co 48,975
7,000 Landamerica Financial Group Inc 161,874
500 Mercury General Corp 15,125
3,300 MMI Companies Inc 43,931
300 National Western Life Insurance, Class A* 27,150
2,000 Ohio Casualty Corp 30,750
2,800 Old Republic International Corp 43,400
1,900 Orion Capital Corp 91,675
1,600 Oxford Health Plans Inc* 24,800
300 PMA Capital Corp, Class A 5,944
1,200 Presidential Life Corp 21,600
700 PXRE Corp 11,856
600 Radian Group Inc 27,788
14,600 Reliance Group Holdings Inc 69,350
600 RLI Corp 20,138
400 SCPIE Holdings Inc 12,125
4,500 Selective Insurance Group 80,156
See accompanying notes to the financial statements.
6
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- continued
5,400 Stewart Information Services Corp 112,388
400 Transatlantic Holding Inc 28,850
1,000 Trenwick Group Inc 21,938
900 Trigon Healthcare Inc* 32,681
----------
1,466,383
----------
Lodging -- 0.0%
300 Boyd Gaming Corp* 1,613
----------
Machinery -- 1.6%
5,400 Agco Corp 55,688
1,000 Cooper Cameron Corp* 41,625
1,400 Cummins Engine Inc 82,950
1,000 Detroit Diesel Corp 20,438
1,200 Donaldson Co Inc 23,550
1,100 Flowserve Corp 17,394
800 FMC Corp* 46,600
13,400 Harnischfeger Industries Inc 19,263
300 IRI International Corp* 1,406
800 Kaydon Corp 24,550
1,300 Kennametal Inc 34,450
900 Milacron Inc 16,200
900 Mohawk Industries Inc* 20,363
2,800 Oakley Inc* 17,150
2,600 Paxar Corp* 22,588
600 Starrett (LS) Co, Class A 14,663
500 Tecumseh Products Co 28,500
1,000 Tecumseh Products Co, Class B 53,000
2,900 Varco International Inc* 35,888
1,000 York International Corp 41,125
----------
617,391
----------
Manufacturing -- 3.1%
7,100 ACX Technologies Inc* 87,863
1,700 Amcast Industrial Corp 26,988
600 Applied Power Inc, Class A 18,375
400 Armstrong World Industries Inc 19,425
800 Barnes Group Inc 15,850
1,300 Champion Enterprises Inc* 11,050
2,700 Clayton Homes Inc 25,650
1,400 Commercial Intertech Corp 17,500
1,600 Crane Co 38,500
See accompanying notes to the financial statements.
7
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Manufacturing-- continued
1,900 Gibson Greetings Inc* 7,481
15,500 Griffon Corp* 110,438
1,000 Harsco Corp 27,688
1,200 International Game Technology 21,000
500 Lafarge Corp 13,750
13,300 Metals USA Inc* 141,312
300 Mikasa Inc 3,638
300 Mine Safety Appliances 19,200
700 NCI Building Systems Inc* 12,819
17,300 Omnicare Inc 166,512
900 Owens Corning 25,313
800 Standex International Corp 18,300
1,200 Tower Automotive Inc* 24,000
11,200 Trinity Industries Inc 351,399
900 Watts Industries Inc, Class A 19,800
----------
1,223,851
----------
Metals and Mining-- 1.5%
1,700 Arch Coal Inc 22,738
8,800 Asarco Inc 183,699
500 Cleveland Cliffs Inc 16,031
2,900 Commercial Metals Co 88,813
8,000 Cyprus Amax Minerals Co 135,499
1,700 Nacco Industries Inc, Class A 132,387
1,600 Timken Co 28,100
----------
607,267
----------
Oil and Gas-- 9.4%
1,800 Friede Goldman International Inc* 22,050
900 Helmerich & Payne Inc 24,806
77,700 K N Energy Inc 1,583,137
3,600 National-Oilwell Inc* 61,200
16,500 Parker Drilling Co* 82,500
54,700 Pride International Inc* 813,662
500 Seacor Smit Inc* 25,969
24,800 Transocean Offshore Inc 843,199
13,900 Veritas DGC Inc* 248,462
----------
3,704,985
----------
Paper and Allied Products-- 0.6%
1,700 Boise Cascade Office Products* 16,363
See accompanying notes to the financial statements.
8
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Paper and Allied Products-- continued
900 Caraustar Industries Inc 20,419
2,700 Rock-Tenn Co, Class A 38,138
3,300 Schweitzer-Mauduit International 44,756
1,400 Shorewood Packaging Corp* 20,650
2,000 United Stationers Inc* 45,250
1,500 Wausau-Mosinee Paper Corp 20,625
900 Westvaco Corp 23,569
----------
229,770
----------
Pharmaceuticals-- 0.4%
600 Amerisource Health Corp* 15,488
1,100 Bergen Brunswig Corp, Class A 16,981
2,000 Mark IV Industries Inc 39,625
3,300 NBTY Inc* 26,813
10,000 NCS Healthcare Inc, Class A* 36,250
1,700 Nu Skin Enterprises Inc* 18,169
----------
153,326
----------
Primary Materials-- 0.3%
500 Ameron Inc 22,875
500 Carlisle Cos Inc 20,000
700 Carpenter Technology Corp 16,013
500 Centex Construction Products Inc 19,219
1,000 Premark International Inc 33,250
400 West Pharmaceutical Services Inc 15,050
----------
126,407
----------
Primary Processing-- 2.9%
1,400 AK Steel Holding Corp 29,400
900 Belden Inc 21,094
4,900 Bethlehem Steel Corp* 37,669
1,300 Citation Corp* 20,556
200 Intermet Corp 2,306
25,400 LTV Corp 146,049
18,800 National Steel Corp, Class B 152,749
500 NCH Corp 22,250
1,600 Oregon Steel Mills Inc 17,500
600 Precision Castparts Corp 21,300
800 Quanex Corp 20,800
1,000 Ryerson Tull Inc 18,938
1,600 Titanium Metals Corp 13,700
23,000 USX-US Steel Group Inc 620,999
----------
1,145,310
----------
See accompanying notes to the financial statements.
9
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Printing and Publishing-- 0.6%
2,400 American Business Products Inc 36,000
4,900 Merrill Corp 99,838
3,200 World Color Press Inc* 117,600
----------
253,438
----------
Real Estate-- 1.0%
1,400 Lennar Corp 26,600
16,600 Meristar Hospitality Corp, REIT 280,124
700 Parkway Properties Inc, REIT 23,100
1,300 Prime Group Realty Trust 21,531
2,400 Webb (D) Corp 52,200
----------
403,555
----------
Refining-- 0.2%
1,200 Ultramar Diamond Shamrock Corp 31,350
1,200 Valero Energy Corp 25,500
----------
56,850
----------
Retail Trade-- 4.7%
7,600 7 Eleven Inc* 15,675
800 Applebees International Inc 24,850
1,400 Burlington Coat Factory Warehouse 23,100
9,200 CBRL Group Inc 120,749
8,400 Central Garden and Pet Co* 65,100
1,100 Claire's Stores Inc 20,694
2,400 Cone Mills Corp* 14,100
7,100 Dress Barn Inc* 106,944
1,500 Finish Line Inc* 13,406
2,000 Fruit of the Loom Inc, Class A* 14,000
8,100 Goodys Family Clothing Inc* 74,672
10,600 Heilig Meyers Co 56,313
3,700 Homebase Inc* 16,188
2,700 Inacom Corp* 26,325
1,700 Ingles Markets Inc 22,844
600 Jo-ann Stores* 8,213
17,000 Just For Feet Inc* 69,063
28,500 Landry's Seafood Restaurants* 242,249
11,700 Lone Star Steakhouse and Saloon Inc* 89,213
See accompanying notes to the financial statements.
10
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade-- continued
13,300 Micro Warehouse Inc* 162,924
1,500 Neiman Marcus Group Inc* 33,375
1,400 NPC International Inc* 15,838
3,000 OfficeMax Inc* 22,688
600 Payless ShoeSource Inc* 29,925
1,600 Petco Animal Supplies Inc* 20,000
1,600 Phillips Van Heusen 13,600
4,400 Rainforest Cafe Inc* 28,875
16,300 Richfood Holdings Inc 298,493
1,200 Ross Stores Inc 49,950
900 Ruby Tuesday Inc 16,313
900 Ruddick Corp 16,706
600 Shopko Stores Inc* 17,175
2,900 Systemax Inc* 27,006
5,900 Value City Department Stores Inc* 73,750
2,800 Venator Group Inc* 19,950
----------
1,870,266
----------
Services-- 5.6%
2,200 Alternative Resources Corp* 13,338
700 Amerco* 17,588
1,300 Anchor Gaming* 63,172
12,400 Arctic Cat Inc 117,025
800 Avis Rental Car Inc* 17,600
3,000 Aztar Corp* 27,563
2,800 Banta Corp 65,800
1,100 Berlitz International Inc* 20,075
1,600 Bowne and Co Inc 22,200
7,600 Buffets Inc* 85,025
14,500 Building One Services Corp* 188,499
700 Carmike Cinemas Inc, Class A* 9,450
1,800 Dollar Thrifty Automotive Group Inc* 33,863
2,900 Electro Rental Corp* 35,163
5,200 Family Golf Centers Inc* 6,500
18,900 Fleming Cos Inc 227,980
5,000 Franklin Covey Co* 38,750
2,100 Harrahs Entertainment Inc* 47,250
2,000 Interpool Inc 19,000
700 Jacobs Engineering Group* 23,100
700 Kellwood Co 16,713
See accompanying notes to the financial statements.
11
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
3,800 Kelly Services 106,875
800 KingWorld Productions Inc* 30,500
1,500 Manpower Inc 40,500
900 Marcus Corp 10,744
8,400 Modis Professional Services Inc* 132,824
1,500 Nash Finch Co 13,594
1,500 National Processing Inc* 12,938
12,200 Oakwood Homes Corp 73,963
3,800 Olsten Corp 38,950
9,700 Personnel Group of America Inc* 81,238
2,200 Prime Hospitality Corp* 20,488
800 Promus Hotel Corp* 23,250
700 Rent-A-Center Inc* 15,531
1,500 Rollins Truck Leasing Corp 15,563
1,200 RWD Technologies Inc* 9,525
800 Sbarro Inc* 22,000
1,900 Staff Leasing Inc* 17,575
30,300 Staffmark Inc* 294,479
1,400 Supervalu Inc 31,500
2,500 Unifirst Corp 37,813
1,900 Wolverine World Wide Inc 21,494
900 XTRA Corp 40,781
---------
2,187,779
---------
Technology -- 3.5%
4,200 Analysts International Corp 56,175
2,400 Aspen Technologies Inc* 20,550
1,200 Autodesk Inc 27,600
2,800 Avnet Inc 123,899
900 Caci International Inc* 20,250
2,500 Cirrus Logic Corp* 27,969
29,700 Computer Horizons Corp* 386,099
5,700 Cotelligent Group Inc* 27,431
6,200 Datastream Systems Inc* 75,175
600 Deluxe Corp 20,438
3,900 Esterline Corp* 63,863
1,300 G TECH Holdings Corp* 32,825
900 Gartner Group Inc, Class A 18,844
24,200 GT Interactive Software Corp* 71,088
2,900 Hypercom Corp* 22,475
See accompanying notes to the financial statements.
12
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology -- continued
3,200 Hyperion Solutions Corp* 49,000
4,700 Input/Output Inc* 34,663
9,900 Midway Games Inc* 129,937
1,700 MTS Systems Inc 18,700
4,500 Network Equipment Tech Inc* 39,375
1,500 Networks Associates Inc* 25,313
500 Project Software and Development* 21,969
5,000 Saga Systems Inc* 58,750
1,200 Thermo Electron Corp* 19,050
----------
1,391,438
----------
Telecommunications -- 0.9%
12,000 Ameripath Inc* 112,500
40,900 Brightpoint Inc* 144,429
1,100 North Pittsburgh Systems 14,369
2,400 Star Telecommunications Inc* 13,800
4,500 West Teleservices* 47,813
1,800 World Access Inc* 22,388
----------
355,299
----------
Textiles -- 0.6%
1,800 Dan River Inc, Class A* 12,600
8,100 Guilford Mills 76,444
9,500 Interface Flooring Systems Inc 82,531
4,200 Pillowtex Corp 45,938
600 Springs Industries Inc, Class A 22,538
----------
240,051
----------
Transportation -- 2.7%
800 Airborne Freight Corp 20,150
900 Airline Express International Corp 21,994
400 Alaska Airline Group Inc* 17,300
1,100 American West Holdings Corp, Class B* 21,450
1,200 Atlantic Coast Airlines Holdings* 23,850
6,100 Brunswick Corp 155,930
1,500 Comair Holdings Inc 31,688
6,300 Consolidated Freightways Corp* 68,119
700 Continental Airlines Inc, Class B* 28,569
1,200 Fleetwood Enterprises Inc 24,450
6,000 Fritz Companies Inc* 68,250
700 Gatx Corp 23,363
See accompanying notes to the financial statements.
13
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- continued
3,600 Halter Marine Group Inc* 19,125
1,400 Heartland Express Inc* 20,825
400 Landstar System Inc* 14,800
12,200 Offshore Logistics Inc* 142,587
500 Pittston Bax Group 4,469
2,200 Ryder System Inc 48,538
6,800 Tidewater Inc 220,999
900 US Freightways Corp 43,650
1,600 Wisconsin Central Transport* 25,500
1,000 Yellow Corp* 15,875
----------
1,061,481
----------
Utilities -- 4.7%
6,100 Citizens Utilities, Class B* 67,100
8,500 CMP Group Inc 225,780
1,700 Connectiv Inc 36,444
2,500 El Paso Electric Co* 22,969
2,200 Hawaiian Electric Industry Inc 78,238
10,100 MCN Corp 180,537
3,000 Niagara Mohawk Holdings Inc* 45,375
8,100 Oneok Inc 251,605
31,900 Public Services Co of New Mexico 600,118
800 Puget Sound Power and Light Co 18,950
4,700 RGS Energy Group Inc 121,612
1,100 Southwestern Energy Co 9,831
1,200 UniSource Energy Corp Holding Co* 14,325
1,100 United Illuminating Co 55,000
100 Western Gas Resources Inc 1,706
4,700 Western Resources Inc 112,213
----------
1,841,803
----------
TOTAL COMMON STOCKS (COST $30,853,301) 29,560,822
----------
See accompanying notes to the financial statements.
14
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par
Value($) Description Value ($)
- --------------------------------------------------------------------------------
SHORT -- TERM INVESTMENTS -- 11.7%
U.S. Government-- 1.7%
$ 690,000 U.S. Treasury Bill, 4.55%, due 10/21/99(a) 682,273
----------
Repurchase Agreements -- 10.0%
$1,973,499 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $1,973,756 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation
with a rate of 7.25%, maturity date of 5/15/16
and market value, including accrued interest, of
$2,012,969. $1,973,499
$1,973,499 Morgan Stanley Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$1,973,755, and an effective yield of 4.66%,
collateralized by a U.S. Treasury Obligation
with a rate of 5.17%, maturity date of 9/15/99,
and market value, including accrued interest, of
$2,015,641. 1,973,499
----------
3,946,998
----------
TOTAL SHORT-TERM INVESTMENTS
(COST $4,632,753) 4,629,271
----------
TOTAL INVESTMENTS -- 86.7%
(COST $35,486,054) 34,190,093
Other Assets and Liabilities (net)-- 13.3% 5,230,810
----------
TOTAL NET ASSETS-- 100% $39,420,903
===========
Notes to the Schedule of Investments:
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Security has been segregated to cover margin requirements on
open financial futures contracts.
See accompanying notes to the financial statements.
15
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $35,486,054) (Note 1) $34,190,093
Cash 5,148,441
Receivable for investments sold 19,800
Dividends and interest receivable 50,020
Receivable for variation margin on open futures contracts 45,000
(Notes 1 and 6)
Receivable for expenses waived or borne by Manager (Note 2) 6,293
-----------
Total assets 39,459,647
-----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 19,054
Shareholder service fee 5,197
Accrued expenses 14,493
-----------
Total liabilities 38,744
-----------
Net assets $39,420,903
===========
Net assets consist:
Paid-in capital $41,150,529
Accumulated undistributed net investment income 79,139
Accumulated undistributed net realized gain 21,628
Net unrealized depreciation (1,830,393)
===========
$39,420,903
===========
Net assets attributable to:
Class III shares $39,420,903
===========
Shares outstanding:
Class III 3,984,279
===========
Net asset value per share:
Class III $ 9.89
===========
16 See accompanying notes to the financial statements.
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Statement of Operations --
For the Period from June 1, 1999 (commencement of operations) through August 31,
1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends $ 85,145
Interest 53,784
-----------
Total income 138,929
-----------
Expenses:
Management fee (Note 2) 42,192
Audit fees 13,320
Custodian and transfer agent fees 3,690
Registration fees 360
Legal fees 270
Trustees fees (Note 2) 90
Miscellaneous 540
Fees waived or borne by Manager (Note 2) (18,270)
-----------
42,192
Shareholder service fee (Note 2)
Class III 11,507
-----------
Net expenses 53,699
-----------
Net investment income 85,230
-----------
Realized and unrealized gain (loss):
Net realized gain on investments 21,628
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (1,295,961)
Open futures contracts (534,432)
-----------
Net unrealized loss (1,830,393)
-----------
Net realized and unrealized loss (1,808,765)
-----------
Net decrease in net assets resulting from operations $(1,723,535)
===========
See accompanying notes to the financial statements. 17
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from June 1, 1999
(commencement of operations)
through August 31, 1999
(Unaudited)
--------------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 85,230
Net realized gain 21,628
Change in net unrealized appreciation (depreciation) (1,830,393)
-----------
Net decrease in net assets resulting from operations (1,723,535)
-----------
Distributions to shareholders from:
Net investment income
Class III (6,091)
-----------
Total distributions from net investment income (6,091)
-----------
(6,091)
-----------
Net share transactions: (Note 5)
Class III 41,150,529
-----------
Increase in net assets resulting from net share
transactions 41,150,529
-----------
Total increase in net assets 39,420,903
Net assets:
Beginning of period --
-----------
End of period (including accumulated undistributed net
investment income of $79,139) $39,420,903
===========
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
Period from June 1, 1999
(commencement of operations)
to August 31, 1999
(Unaudited)
---------------------
Net asset value, beginning of period $10.00
------
Income from investment operations:
Net investment income 0.02
Net realized and unrealized loss (0.13)
------
Total from investment operations (0.11)
------
Less distributions to shareholders:
From net investment income --(a)
------
Total distributions --
------
Net asset value, end of period $ 9.89
======
Total Return (b) (1.08)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $39,421
Net expenses to average daily net assets 0.70%*
Net investment income to average daily net assets 1.10%*
Portfolio turnover rate 0%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per share
amount: $ 0.01
(a) The per share distribution from net investment income is $0.002.
(b) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
* Annualized.
See accompanying notes to the financial statements. 19
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tax Managed U.S. Small Cap Fund (the "Fund"), which commenced operations
on June 1, 1999, 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 to maximize after-tax total return through investment in a
portfolio of common stocks of smaller companies principally traded in the
U.S. The Fund's current benchmark is the Russell 2500 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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 contracts, or if
20
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
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 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 dividends 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.
21
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 taking into consideration, among other things, the nature
and type of expense and the relative size of the funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .50% of the amount invested.
All purchase premiums are paid to and recorded by the Fund as paid-in
capital. For the period ended August 31, 1999, the Fund received $157,588 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 .55% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the period ended August 31, 1999 was $90. 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, 1999, aggregated
$30,979,973 and $0, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------- ------------------- ------------------- ------------------
$ 35,486,054 $ 2,310,145 $ 3,606,106 $ 1,295,961
22
<PAGE>
GMO Tax Managed U.S. Small Cap Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1999, 79.1% of the outstanding shares of the Fund were held by
four shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
Period from June 1,
Class III: 1999 (commencement of
operations)
through August 31, 1999
------------------------
Shares Amount
----------- ------------
Shares sold 3,983,928 $41,146,883
Shares issued to shareholders
in reinvestment of 351 3,646
distributions
Shares repurchased -- --
=========== ============
Net increase 3,984,279 $41,150,529
=========== ============
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------ ------------- ----------------- ---------------- -------------
40 Russell 2000 September, 1999 $8,568,000 $ (534,432)
============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
23
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value Description Value ($)
- --------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 95.2%
Asset Backed Securities -- 68.8%
$ 114,668 Americredit Automobile Receivables Trust Series
96-B Class A, 6.50%, due 1/12/02 114,731
1,660,000 Brazos Student Loan Finance Corp Series 96-B
Class A4, Variable Rate, 3 mo. U.S. Treasury
Bill + .50%, 5.50%, due 12/01/02 1,655,072
9,000,000 Chevy Chase Master Credit Card Trust Series 96-A
Class A, Variable Rate, 1 mo. LIBOR + .15%,
5.42%, due 2/15/05 8,984,179
1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155
2,000,000 Discover Card Master Trust I Series 99-3 Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
9/15/04 1,995,625
1,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due
10/15/06 997,656
5,000,000 Fleet Credit Card Master Trust II Series 99-A
Class A, Variable Rate, 1 mo. LIBOR + .11%,
5.38%, due 9/15/04 4,990,430
5,000,000 MBNA Master Credit Card Trust Series 98-I Class
A, Variable Rate, 1 mo. LIBOR + .26%, 5.53%,
due 10/15/03 5,009,180
3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%,
due 2/01/03 2,916,000
2,500,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%,
due 6/01/03 2,472,500
2,000,000 Starvest Emerging Markets CBO-I Series 1A, Class
A, Variable Rate, 6 mo. LIBOR + .19%, 144A,
5.16%, due 7/30/11 1,929,688
3,500,000 Team Fleet Financing Corp Series 98-3A Class A,
144A, 6.13%, due 10/25/04 3,351,250
------------
35,836,466
------------
Structured Notes -- 0.9%
500,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due
1/07/05 491,953
------------
U.S. Government -- 9.9%
5,188,750 U.S. Treasury Inflation Indexed Note, 3.63%, due
7/15/02 5,140,916
------------
U.S. Government Agency -- 15.6%
315,000 Agency for International Development Floater
(Support of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill +
.40%, 5.61%, due 10/01/12 305,550
2,025,225 Agency for International Development Floater
(Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill +
.40%, 5.61%, due 10/01/12 1,964,468
2,084,158 Agency for International Development Floater
(Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x
117%, 5.23%, due 10/01/11 2,011,213
89,854 Agency for International Development Floater
(Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +
.35%, 5.56%, due 5/01/14 86,260
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, 1999 (Unaudited)
Par Value Description Value ($)
- --------------------------------------------------------------------------------
U.S. Government Agency -- continued
$1,000,000 Federal Farm Credit Bank,
Variable Rate, CPI + 3.00%, 5.07%, due 2/14/02 965,500
2,788,616 Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18%, 5.18%, due
8/25/18 2,803,953
-----------
8,136,944
-----------
TOTAL DEBT OBLIGATIONS (COST $50,096,894) 49,606,279
-----------
SHORT TERM INVESTMENTS -- 5.5%
Commercial Paper -- 3.8%
$2,000,000 Glencore Assets, 5.40%, due 10/05/99 1,989,800
-----------
Repurchase Agreements -- 1.7%
$ 876,101 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $876,215 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation
with a rate of 8.125%, maturity date of 8/15/21
and market value, including accrued interest, of
$893,623. 876,101
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $2,865,901) 2,865,901
-----------
TOTAL INVESTMENTS -- 100.7%
(Cost $52,962,795) 52,472,180
Other Assets and Liabilities (net) -- (0.7)% (374,256)
-----------
TOTAL NET ASSETS -- 100% $52,097,924
===========
Notes to the Schedule of Investments:
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 1999, 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.
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $52,962,795) (Note 1) $52,472,180
Receivable for investments sold 6,739
Interest receivable 288,063
Receivable for expenses waived or borne by Manager (Note 2) 4,029
-----------
Total assets 52,771,011
-----------
Liabilities:
Payable for Fund shares repurchased 650,000
Payable to affiliate for (Note 2):
Management fee 2,234
Shareholder service fee 6,705
Accrued expenses 14,148
-----------
Total liabilities 673,087
-----------
Net assets $52,097,924
===========
Net assets consist of:
Paid-in capital $52,092,689
Accumulated undistributed net investment income 534,375
Accumulated net realized loss (38,525)
Net unrealized depreciation (490,615)
===========
$52,097,924
===========
Shares outstanding 5,410,777
===========
Net asset value per share $ 9.63
===========
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest $1,444,517
----------
Total income 1,444,517
----------
Expenses:
Management fee (Note 2) 13,373
Audit fees 13,804
Custodian and transfer agent fees 5,597
Legal fees 829
Registration fees 546
Trustees fees (Note 2) 368
Miscellaneous 1,102
Fees waived or borne by Manager (Note 2) (22,246)
----------
13,373
Shareholder service fee (Note 2) 40,118
----------
Net expenses 53,491
----------
Net investment income 1,391,026
----------
Realized and unrealized loss:
Net realized loss on investments (12,302)
----------
Change in net unrealized appreciation (depreciation) on
investments (187,719)
----------
Net realized and unrealized loss (200,021)
----------
Net increase in net assets resulting from operations $1,191,005
==========
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 Year Ended
31, 1999 February
(Unaudited) 28, 1999
--------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $1,391,026 $1,817,518
Net realized loss (12,302) (22,156)
Change in net unrealized appreciation (depreciation) (187,719) (360,921)
---------- -----------
Net increase in net assets resulting from operations 1,191,005 1,434,441
---------- -----------
Distributions to shareholders from:
Net investment income (1,195,789) (1,788,988)
---------- -----------
(1,195,789) (1,788,988)
---------- -----------
Fund share transactions: (Note 5)
Proceeds from sale of shares 4,844,376 77,435,093
Net asset value of shares issued to shareholders in payment of
distributions declared 1,162,059 1,459,945
Cost of shares repurchased (7,291,124) (62,529,846)
---------- -----------
Net increase (decrease) in net assets resulting from Fund share
transactions (1,284,689) 16,365,192
---------- -----------
Total increase (decrease) in net assets (1,289,473) 16,010,645
Net assets:
Beginning of period 53,387,397 37,376,752
---------- -----------
End of period (including accumulated undistributed net investment
income of $534,375 and $339,138, respectively) $52,097,924 $53,387,397
=========== ===========
</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 August Year Ended February 28/29,
31, 1999 ------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.63 $ 9.81 $ 9.78 $ 9.77 $ 9.56 $ 9.79
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.26 0.57 0.55 0.47 0.57 0.63
Net realized and unrealized gain (loss) (0.04) (0.16) 0.03 0.06 0.20 (0.28)
------- ------- ------- ------- ------- -------
Total from investment operations 0.22 0.41 0.58 0.53 0.77 0.35
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.22) (0.59) (0.55) (0.52) (0.56) (0.58)
------- ------- ------- ------- ------- -------
Total distributions (0.22) (0.59) (0.55) (0.52) (0.56) (0.58)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.63 $ 9.63 $ 9.81 $ 9.78 $ 9.77 $ 9.56
======= ======= ======= ======= ======= =======
Total Return (a) 2.28% 4.29% 6.10% 5.62% 8.32% 3.78%
Ratios/Supplemental Data:
Net assets, end of period (000's) $52,098 $53,387 $37,377 $40,937 $11,066 $ 8,193
Net expenses to average daily net assets 0.20%* 0.20% 0.20% 0.20% 0.25% 0.25%
Net investment income to average daily net
assets 5.20%* 5.50% 5.73% 5.88% 6.49% 5.02%
Portfolio turnover rate 54% 76% 50% 287% 139% 335%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per share
amounts: --(b) $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02
</TABLE>
* Annualized.
(a)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.
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, 1999 (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 to provide current income to the extent consistent with the
preservation of capital and liquidity through investment in a portfolio of
high-quality fixed income instruments. The Fund's current benchmark is the
Salomon Smith Barney 3 Month T-Bill 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 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. 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 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. The prices provided by
principal market makers may differ from the value that would be realized if
the securities were sold 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, 1999 (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.
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.
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, 1999, 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 dividends 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
8
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
purposes which result in temporary over-distributions for financial
statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of discounts
and amortization of premiums. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified cost
basis. Interest income on 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 interest 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 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 .05% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fees.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.25% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1999 was $368. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
9
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1999, cost of purchases and proceeds
from sales of investments, other than short-term obligations, aggregated
$18,956,445 and $14,818,806, respectively.
At August 31, 1999, 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
------------------ ----------------- ------------------ -----------------
$ 52,962,795 $ 1,989 $ 492,604 $ 490,615
4. Principal shareholder
At August 31, 1999, 73.5% of the outstanding shares of the Fund were held by
one shareholder. Investment activities of this shareholder could have a
material effect.
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 Year Ended
Ended February 28,
August 31, 1999 1999
---------------- ----------------
Shares sold 502,465 8,045,249
Shares issued to shareholders in
reinvestment of distributions 121,490 150,962
Shares repurchased (756,990) (6,463,182)
---------------- ----------------
Net increase (decrease) (133,035) 1,733,029
Fund shares:
Beginning of period 5,543,812 3,810,783
---------------- ----------------
End of period 5,410,777 5,543,812
================ ================
10
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 93.3%
Aerospace -- 1.2%
20,000 Boeing Company 906,250
35,000 Lockheed Martin Corp 1,295,000
10,000 TRW Inc 545,000
------------
2,746,250
------------
Automotive -- 1.3%
25,000 Delphi Automotive Systems* 468,750
12,500 Ford Motor Co 651,563
30,000 General Motors Corp 1,983,750
------------
3,104,063
------------
Banking and Financial Services -- 11.2%
12,500 American Express Co 1,718,750
62,500 Amsouth Bancorp 1,367,188
7,500 Bank of America Corp 453,750
15,000 Bank One Corp 601,875
75,000 Block (HR) Inc 4,171,874
65,000 Chase Manhattan Corp 5,439,687
145,000 Citigroup Inc 6,443,437
50,000 First Union Corp 2,075,000
17,500 PNC Bank Corp 915,469
87,500 Washington Mutual Inc 2,778,125
------------
25,965,155
------------
Chemicals -- 0.4%
5,000 Du Pont (EI) De Nemours & Co 316,875
15,000 Monsanto Co 615,938
------------
932,813
------------
Computer and Office Equipment -- 3.3%
20,000 Electronic Data Systems Corp 1,122,500
2,500 Hewlett Packard Co 263,438
50,000 IBM Corp 6,228,124
------------
7,614,062
------------
Consumer Goods -- 2.4%
65,000 Eastman Kodak Co 4,773,437
37,500 Mattel Co 799,219
------------
5,572,656
------------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronic Equipment -- 0.6%
20,000 Emerson Electric Co 1,252,500
2,500 Raytheon Co, Class B 170,313
------------
1,422,813
------------
Food and Beverage -- 4.6%
45,000 Anheuser Busch Cos Inc 3,464,999
125,000 ConAgra Inc 3,062,499
55,000 Nabisco Group Holdings 976,250
7,500 Nestle SA ADR* 740,075
25,000 Pepsico Inc 853,125
17,500 Ralston-Purina Group 481,250
20,000 RJ Reynolds Tobacco Holdings* 548,750
25,000 Sara Lee Corp 554,688
------------
10,681,636
------------
Health Care -- 0.6%
22,500 Becton Dickinson & Co 632,813
12,500 Columbia HCA Healthcare Corp 307,813
5,000 Johnson & Johnson 511,250
------------
1,451,876
------------
Insurance -- 1.1%
2,501 Aetna Life and Casualty Co 194,414
50,000 Allstate Corp 1,640,625
5,000 Loews Corp 392,500
50,000 Reliance Group Holdings Inc 237,500
------------
2,465,039
------------
Machinery -- 1.4%
25,000 Baker Hughes Inc 850,000
5,000 Caterpillar Inc 283,125
25,000 FMC Corp* 1,456,250
30,000 Milacron Inc 540,000
------------
3,129,375
------------
Manufacturing -- 6.5%
50,000 Corning Inc 3,324,999
20,000 General Electric Co 2,246,250
20,000 Minnesota Mining and Manufacturing Co 1,890,000
125,000 Owens Corning 3,515,624
85,000 Tenneco Inc 1,710,625
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Manufacturing -- continued
37,500 United Technologies Corp 2,479,688
------------
15,167,186
------------
Metals and Mining -- 1.2%
37,500 Alcan Aluminum Ltd 1,232,813
22,500 Inco Ltd 461,250
5,000 Newmont Mining Corp 102,188
15,000 Reynolds Metals Co 949,688
------------
2,745,939
------------
Oil and Gas -- 8.5%
22,500 Amerada Hess Corp 1,396,406
5,000 Atlantic Richfield Co 439,688
40,000 Burlington Resources Inc 1,672,500
52,500 Enron Oil & Gas 1,253,438
2,500 Exxon Corp 197,188
15,000 Kerr-McGee Corp 840,000
10,000 Mobil Corp 1,023,750
150,000 Occidental Petroleum Corp 3,253,124
17,500 Questar Corp 330,313
20,000 Texaco Inc 1,270,000
112,500 Union Pacific Resources Group 2,017,969
87,500 Unocal Corp 3,664,062
77,500 USX - Marathon Group 2,412,188
------------
19,770,626
------------
Paper and Allied Products -- 6.3%
5,000 Champion International Corp 275,000
35,000 Fort James Corp 1,128,750
125,000 International Paper Co 5,882,812
112,500 Kimberly Clark Corp 6,405,468
17,500 Weyerhaeuser Co 984,375
------------
14,676,405
------------
Pharmaceuticals -- 2.7%
25,000 American Home Products Corp 1,037,500
10,000 Glaxo Wellcome PLC ADR 529,375
27,500 Lilly (Eli) & Co 2,052,188
67,500 McKesson HBOC Inc 2,100,938
10,000 Smithkline Beecham PLC ADR 637,500
------------
6,357,501
------------
See accompanying notes to the financial statements. 3
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Primary Materials -- 0.3%
25,000 Crown Cork & Seal Inc 664,063
------------
Primary Processing -- 0.4%
32,500 USX-US Steel Group Inc 877,500
------------
Printing and Publishing -- 0.3%
25,000 R.R. Donnelley and Sons 784,375
------------
Real Estate -- 7.7%
25,000 Brandywine Realty Trust 448,438
20,300 Developers Diversified Realty Corp 303,231
22,500 Duke Realty Investments 504,844
165,000 Equity Office Properties 4,217,812
75,000 Equity Residential Properties Trust 3,299,999
100,000 JP Realty Inc 1,937,500
10,000 Liberty Property Trust 245,000
62,500 Mack-Cali Realty Corp 1,773,438
15,000 Simon Property Group Inc 382,500
15,000 Spieker Properties Inc 573,750
100,000 Summit Properties Inc 1,987,500
100,000 United Dominion Realty Trust Inc 1,150,000
50,000 Walden Residential Properties Inc 940,625
------------
17,764,637
------------
Refining -- 1.3%
75,000 Conoco Inc 2,006,250
17,500 Royal Dutch Petroleum Co 1,082,813
------------
3,089,063
------------
Retail Trade -- 5.4%
100,000 Federated Department Stores Inc* 4,599,999
27,500 Saks Inc* 462,344
57,500 Sears Roebuck & Co 2,156,250
162,500 Toys R Us Inc* 2,244,531
67,500 Wal Mart Stores Inc 2,991,094
------------
12,454,218
------------
Services -- 2.4%
45,000 Hilton Hotels Corp 551,250
5,000 Manpower Inc 135,000
2,000 Meredith Corp 69,375
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
225,000 Waste Management Inc 4,907,812
------------
5,663,437
------------
Technology -- 3.5%
60,000 Compaq Computer Corp 1,391,250
22,500 Computer Sciences Corp 1,556,719
242,500 Storage Technology Corp* 5,092,499
------------
8,040,468
------------
Telecommunications -- 4.5%
30,000 Bell Atlantic Corp 1,837,500
47,500 GTE Corp 3,259,687
25,000 MediaOne Group Inc* 1,643,750
30,001 SBC Communications 1,440,048
45,000 US West Inc 2,351,250
------------
10,532,235
------------
Tobacco -- 0.3%
25,000 Imperial Tobacco Group PLC ADR 560,938
------------
Transportation -- 4.5%
15,000 AMR Corp* 879,375
30,000 Burlington Northern Santa Fe Railroad Co 870,000
65,000 Canadian Pacific 1,523,438
5,000 Delta Air Lines Inc 254,063
90,000 FDX Corp* 3,819,374
100,000 Ryder System Inc 2,206,250
32,500 USAir Group Inc* 1,001,406
------------
10,553,906
------------
Utilities -- 9.4%
50,000 Cinergy Corp 1,518,750
25,000 Dominion Resources Inc 1,156,250
27,500 Duke Power Co 1,581,250
80,000 El Paso Energy Corp 2,925,000
20,000 Firstenergy Corp 571,250
100,000 Niagara Mohawk Holdings Inc* 1,512,500
25,000 PacifiCorp 510,938
37,500 PG & E Corp 1,136,719
25,000 Public Service Enterprise Group Inc. 1,025,000
See accompanying notes to the financial statements. 5
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Utilities -- continued
12,500 Reliant Energy Inc 346,094
125,000 Sempra Energy 2,789,063
25,000 Southern Co 676,563
92,500 Texas Utilities Co 3,740,468
35,000 TransCanada Pipeline Ltd 498,750
50,000 Unicom Corp 1,931,250
------------
21,919,845
------------
TOTAL COMMON STOCKS (COST $198,584,174) 216,708,080
------------
PREFERRED STOCKS -- 3.0%
Oil and Gas -- 1.1%
45,000 Unocal Corp Convertible 6.25% 144A 2,604,375
------------
Real Estate -- 0.6%
32,500 Crescent Real Estate 6.75% 513,906
37,500 Reckson Associates Realty Corp 7.625% 761,719
------------
1,275,625
------------
Transportation -- 1.2%
62,500 Union Pacific Capital Trust 6.25% 144A* 2,890,625
------------
Utilities -- 0.1%
5,000 Texas Utilities Co Convertible 9.25% 260,000
------------
TOTAL PREFERRED STOCKS (COST $7,295,642) 7,030,625
------------
DEBT OBLIGATIONS -- 0.8%
Electronic Equipment -- 0.8%
$2,500,000 Advanced Micro Devices Inc, 6.00% due 5/15/05 1,956,250
------------
TOTAL DEBT OBLIGATIONS (COST $2,107,797) 1,956,250
------------
6 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.7%
Cash Equivalents -- 5.6%
$2,342,958 BankBoston Eurodollar Time Deposit,
5.4325% due 10/29/99(a) 2,342,958
1,733,947 Merrimac Cash Fund Premium Class(a) 1,733,947
$9,000,000 Prudential Securities Group Inc, Master Note,
5.625% due 3/10/2000(a) 9,000,000
------------
13,076,905
------------
Repurchase Agreements -- 3.1%
$7,186,360 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity
value of $7,187,294 and an effective yield of
4.68%, collateralized by a U.S. Treasury
Obligation with a rate of 8.125%, maturity date
of 8/15/21 and market value, including accrued
interest, of $7,330,087. 7,186,360
------------
TOTAL SHORT-TERM INVESTMENTS (COST $20,263,265) 20,263,265
------------
TOTAL INVESTMENTS -- 105.8%
(COST $228,250,878) 245,958,220
Other Assets and Liabilities (net) -- (5.8)% (13,540,575)
------------
TOTAL NET ASSETS -- 100% $232,417,645
============
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).
See accompanying notes to the financial statements. 7
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $228,250,878) (Note 1) $245,958,220
Receivable for investments sold 1,905,583
Dividends and interest receivable 493,477
Receivable for expenses waived or borne by Manager (Note 2) 7,192
-------------
Total assets 248,364,472
-------------
Liabilities:
Payable for investments purchased 2,711,415
Payable upon return of securities loaned (Note 1) 13,076,905
Payable to affiliate for (Note 2):
Management fee 91,693
Shareholder service fee 28,325
Accrued expenses 38,489
-------------
Total liabilities 15,946,827
-------------
Net assets $232,417,645
=============
Net assets consist of:
Paid-in capital $205,041,303
Accumulated undistributed net investment income 738,511
Accumulated undistributed net realized gain 8,930,489
Net unrealized appreciation 17,707,342
-------------
$232,417,645
=============
Net assets attributable to:
Class III shares $232,417,645
=============
Shares outstanding:
Class III 22,256,652
=============
Net asset value per share:
Class III $ 10.44
=============
8 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $15,570) $2,720,129
Interest (including securities lending income of $15,904) 250,751
-----------
Total income 2,970,880
-----------
Expenses:
Management fee (Note 2) 516,456
Custodian and transfer agent fees 26,511
Audit fees 19,690
Legal fees 3,312
Trustees fees (Note 2) 1,104
Registration fees 364
Miscellaneous 1,472
Fees waived or borne by Manager (Note 2) (52,453)
-----------
516,456
Shareholder service fee (Note 2)
Class III 168,409
-----------
Net expenses 684,865
-----------
Net investment income 2,286,015
-----------
Realized and unrealized gain:
Net realized gain on investments 10,816,586
-----------
Change in net unrealized appreciation (depreciation) on 1,810,534
investments
-----------
Net realized and unrealized gain 12,627,120
-----------
Net increase in net assets resulting from operations $14,913,135
============
See accompanying notes to the financial statements. 9
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- ------------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,286,015 $ 4,794,401
Net realized gain 10,816,586 56,251,289
Change in net unrealized appreciation
(depreciation) 1,810,534 (51,003,336)
------------ -------------
Net increase in net assets resulting from
operations 14,913,135 10,042,354
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (1,553,560) (5,045,206)
------------ -------------
Total distributions from net investment
income (1,553,560) (5,045,206)
------------ -------------
Net realized gains
Class III (15,853,816) (71,266,327)
------------ -------------
Total distributions from net realized
gains (15,853,816) (71,266,327)
------------ -------------
(17,407,376) (76,311,533)
------------ -------------
Net share transactions: (Note 5)
Class III 32,070,138 (62,992,395)
------------ -------------
Increase (decrease) in net assets resulting
from net share transactions 32,070,138 (62,992,395)
------------ -------------
Total increase (decrease) in net assets 29,575,897 (129,261,574)
Net assets:
Beginning of period 202,841,748 332,103,322
------------ -------------
End of period (including accumulated
undistributed net investment income of
$738,511 and $6,056, respectively) $232,417,645 $ 202,841,748
============ =============
10 See accompanying notes to the financial statements.
<PAGE>
GMO Value 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, 1999 -----------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.40 $14.33 $14.85 $14.25 $12.05 $13.48
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.11 0.26 0.31 0.31 0.39 0.41
Net realized and unrealized 0.77 0.13 3.81 2.47 3.71 0.32
gain ------- ------- ------- ------- ------- -------
Total from investment
operations 0.88 0.39 4.12 2.78 4.10 0.73
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.08) (0.27) (0.35) (0.32) (0.39) (0.45)
From net realized gains (0.76) (4.05) (4.29) (1.86) (1.51) (1.71)
------- ------- ------- ------- ------- -------
Total distributions (0.84) (4.32) (4.64) (2.18) (1.90) (2.16)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.44 $10.40 $14.33 $14.85 $14.25 $12.05
======= ======= ======= ======= ======= =======
Total Return (a) 7.97% 2.24% 31.54% 21.26% 35.54% 6.85%
Ratios/Supplemental Data:
Net assets, end of period $232,418 $202,842 $332,103 $469,591 $317,612 $350,694
(000's)
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 2.04%* 1.82% 1.89% 2.17% 2.66% 2.86%
Portfolio turnover rate 47% 37% 40% 84% 65% 77%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: --(b) $0.04 $0.05 $0.04 $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.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 long-term capital growth primarily through investment in
equity securities. The Fund's current benchmark is the Russell 1000 Value
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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
12
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
each day by the board of trade or exchange on which they are traded. As of
August 31, 1999 the Fund held no open futures contracts.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. 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, 1999, the Fund loaned securities having a market
value of $12,606,142, collateralized by cash in the amount of $13,076,905,
which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. 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. 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 will be 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. As of August
31, 1999 the Fund held no open swap agreements.
13
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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 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 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, 1999, the Fund
received $11,637 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 .46% 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
14
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.70% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $1,104. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1999,
aggregated $119,279,248 and $100,529,090, respectively.
At August 31, 1999, 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>
$228,250,878 $32,758,838 $15,051,496 $17,707,342
</TABLE>
4. Principal shareholder
At August 31, 1999, 58.2% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder could have a
material effect.
15
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------------ -----------------------------
Shares Amount Shares Amount
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 3,370,348 $ 39,853,750 254,879 $ 3,308,655
Shares issued to shareholders
in reinvestment of
distributions 1,447,972 16,178,422 5,904,295 68,359,733
Shares repurchased (2,071,219) (23,962,034) (9,828,113) (134,660,783)
============== ============== ============= ==============
Net increase (decrease) 2,747,101 $ 32,070,138 (3,668,939) $ (62,992,395)
============== ============== ============= ==============
</TABLE>
16
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
Gmo Global Ballanced Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
517,908 GMO Currency Hedged International Core Fund 5,448,396
1,657,092 GMO Domestic Bond Fund 15,377,812
355,990 GMO Emerging Country Debt Fund 2,563,128
472,419 GMO Emerging Markets Fund 4,407,668
516,552 GMO Evolving Countries Fund 5,072,541
51,398 GMO Growth Fund 224,094
532,280 GMO Inflation Indexed Bond Fund 5,333,446
392,983 GMO International Bond Fund 3,764,773
350,686 GMO International Core Fund 8,125,392
73,803 GMO International Small Companies Fund 923,273
618,734 GMO REIT Fund 5,519,111
248,707 GMO Small Cap Growth Fund 2,947,178
478,970 GMO Small Cap Value Fund 6,035,026
2,529,301 GMO U.S. Bond/Global Alpha A Fund 24,559,518
827,259 GMO U.S. Core Fund 15,428,378
259,839 GMO Value Fund 2,712,718
------------
TOTAL MUTUAL FUNDS (Cost $116,312,365) 108,442,452
------------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreements -- 0.0%
$ 8,419 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity
value of $8,420 and an effective yield of
4.68%, collateralized by a U.S. Treasury
Obligation with a rate of 8.125%, maturity date 8,419
of 8/15/21 and market value, including accrued ------------
interest, of $8,588.
TOTAL SHORT-TERM INVESTMENTS (Cost $8,419) 8,419
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $116,320,784) 108,450,871
Other Assets and Liabilities (net) -- (0.0)% (7,424)
------------
TOTAL NET ASSETS-- 100% $108,443,447
============
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $116,320,784) (Note 1) $108,450,871
Receivable for expenses waived or borne by Manager (Note 2) 3,659
------------
Total assets 108,454,530
------------
Liabilities:
Accrued expenses 11,083
------------
Total liabilities 11,083
------------
Net assets $108,443,447
============
Net assets consist of:
Paid-in capital $116,912,951
Accumulated undistributed net investment income 1,759,468
Accumulated net realized loss (2,359,059)
Net unrealized depreciation (7,869,913)
------------
$108,443,447
============
Net assets attributable to:
Class III shares $108,443,447
============
Shares outstanding:
Class III 10,126,959
============
Net asset value per share:
Class III $ 10.71
============
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends from investment company shares $ 1,761,836
Interest 1,482
-----------
Total income 1,763,318
-----------
Expenses:
Custodian and transfer agent fees 8,919
Audit fees 8,191
Legal fees 1,931
Trustees fees (Note 2) 736
Registration fees 364
Miscellaneous 920
Fees waived or borne by Manager (Note 2) (21,061)
-----------
Net expenses --
-----------
Net investment income 1,763,318
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (3,940,720)
Realized gain distributions from investment company shares 1,912,358
-----------
Net realized loss (2,028,362)
-----------
Change in net unrealized appreciation (depreciation) on
investments 10,091,332
-----------
Net realized and unrealized gain 8,062,970
-----------
Net increase in net assets resulting from operations $ 9,826,288
===========
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,763,318 $ 3,054,707
Net realized gain (loss) (2,028,362) 11,000,413
Change in net unrealized appreciation (depreciation) 10,091,332 (17,495,459)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 9,826,288 (3,440,339)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (18,814) (3,054,707)
------------ ------------
Total distributions from net investment income (18,814) (3,054,707)
------------ ------------
In excess of net investment income
Class III -- (3,098,321)
------------ ------------
Total distributions in excess of net investment
income -- (3,098,321)
------------ ------------
Net realized gains
Class III (6,105,103) (5,840,251)
------------ ------------
Total distributions from net realized gains (6,105,103) (5,840,251)
------------ ------------
(6,123,917) (11,993,279)
------------ ------------
Net share transactions: (Note 5)
Class III (22,859,348) 27,754,476
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (22,859,348) 27,754,476
------------ ------------
Total increase (decrease) in net assets (19,156,977) 12,320,858
Net assets:
Beginning of period 127,600,424 115,279,566
------------ ------------
End of period (including accumulated undistributed net
investment income of $1,759,468 and $14,964, $108,443,447 $127,600,424
respectively) ============ ============
</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 III share outstanding throughout each period)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Period from
June 2, 1997
(commencement
Six Months Ended Year Ended of operations)
August 31, 1999 February 28, to February 28,
(Unaudited) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.51 $ 11.87 $ 11.56
-------- -------- --------
Income from investment operations:
Net investment income (b) 0.17 0.31 0.17+
Net realized and unrealized gain (loss) 0.68 (0.54) 1.30
-------- -------- --------
Total from investment operations 0.85 (0.23) 1.47
-------- -------- --------
Less distributions to shareholders:
From net investment income --(f) (0.28) (0.33)
In excess of net investment income -- (0.29) --(c)
From net realized gains (0.65) (0.56) (0.83)
-------- -------- --------
Total distributions (0.65) (1.13) (1.16)
-------- -------- --------
Net asset value, end of period $ 10.71 $ 10.51 $ 11.87
======== ======== ========
Total Return (a) 7.93% (2.27)% 13.31%
Ratios/Supplemental Data:
Net assets, end of period (000's) $108,443 $127,600 $115,280
Net expenses to average daily net 0.00%* 0.00% 0.00%*
assets (d)
Net investment income to average 2.95%* 2.50% 1.91%*
daily net assets (b)
Portfolio turnover rate 7% 10% 18%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per --(e) $ 0.01 $ 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.
(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) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 1.
(e) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
(f) The per share distribution from net investment income is $0.002.
+ 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)
Notes to Financial Statements
August 31, 1999 (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 total return greater than the return of
the GMO Global Balanced Index through investment to varying extents in other
funds of the Trust. The Fund will pursue its objective by investing in Class
III shares of domestic equity, international equity, and fixed income funds
of the Trust.
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. 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.
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 Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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. Income dividends and
capital gain distributions from underlying funds are 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 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.
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. All
purchase premiums and redemption fees are paid to and recorded by the Fund
as paid-in capital. For the six months ended August 31, 1999 the Fund
received $9,129 in purchase premiums and $26,099 in redemption fees. There
is no premium for reinvested distributions or in-kind transactions.
7
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, including the possible
imposition of capital controls 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 contractually agreed to reimburse all expenses directly incurred by
the Fund until June 30, 2000 (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, 1999 was $736. 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, 1999 aggregated
$8,565,186 and $33,879,100, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Gross
Unrealized Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------ ---------------- -------------- ----------------
$116,320,784 $1,271,160 $9,141,073 $7,869,913
8
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1999, 46.3% 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
Class III: August 31, 1999 February 28, 1999
------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 238,334 $ 2,608,163 2,130,109 $ 24,341,942
Shares issued to shareholders in
reinvestment of distributions 555,977 6,121,305 1,001,505 11,059,081
Shares repurchased (2,811,453) (31,588,816) (695,474) (7,646,547)
=========== ============ =========== ============
Net increase (decrease) (2,017,142) $(22,859,348) 2,436,140 $ 27,754,476
=========== ============ =========== ============
</TABLE>
9
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
50,995 GMO Currency Hedged International Core Fund 536,465
196,386 GMO Emerging Country Debt Fund 1,413,981
211,180 GMO Emerging Markets Fund 1,970,310
238,387 GMO Evolving Countries Fund 2,340,963
50,322 GMO Growth Fund 219,402
137,841 GMO Inflation Indexed Bond Fund 1,381,162
36,234 GMO International Bond Fund 347,125
221,098 GMO International Core Fund 5,122,832
33,224 GMO International Small Companies Fund 415,630
286,629 GMO REIT Fund 2,556,729
117,629 GMO Small Cap Growth Fund 1,393,898
231,131 GMO Small Cap Value Fund 2,912,247
149,095 GMO U.S. Bond/Global Alpha A Fund 1,447,708
607,018 GMO U.S. Core Fund 11,320,879
146,263 GMO Value Fund 1,526,990
-------------
TOTAL MUTUAL FUNDS (COST $37,125,285) 34,906,321
-------------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreements -- 0.0%
$ 9,530 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $9,532 and an
effective yield of 4.68%, collateralized by a U.S. Treasury
Obligation with a rate of 8.125%, maturity date of 8/15/21
and market value, including accrued interest, of $9,721. 9,530
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $9,530) 9,530
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $37,134,815) 34,915,851
Other Assets and Liabilities (net) -- 0.0% (5,248)
-------------
TOTAL NET ASSETS -- 100% $34,910,603
=============
</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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $37,134,815) (Note 1) $ 34,915,851
Receivable for expenses waived or borne by Manager (Note 2) 2,295
------------
Total assets 34,918,146
------------
Liabilities:
Accrued expenses 7,543
------------
Total liabilities 7,543
------------
Net assets $ 34,910,603
============
Net assets consist of:
Paid-in capital $ 37,077,194
Accumulated undistributed net investment income 350,307
Accumulated net realized loss (297,934)
Net unrealized depreciation (2,218,964)
============
$ 34,910,603
============
Net assets attributable to:
Class III shares $ 34,910,603
============
Shares outstanding:
Class III 3,668,763
============
Net asset value per share:
Class III $ 9.52
============
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends from investment company shares $ 350,094
Interest 213
-----------
Total income 350,307
-----------
Expenses:
Audit fees 8,191
Custodian and transfer agent fees 3,589
Legal fees 552
Registration fees 364
Trustees fees (Note 2) 184
Miscellaneous 736
Fees waived or borne by Manager (Note 2) (13,616)
-----------
Net expenses --
-----------
Net investment income 350,307
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (321,535)
Realized gain distributions from investment company shares 1,038,303
-----------
Net realized gain 716,768
-----------
Change in net unrealized appreciation (depreciation) on investments 3,147,384
-----------
Net realized and unrealized gain 3,864,152
-----------
Net increase in net assets resulting from operations $ 4,214,459
===========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
--------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 350,307 $ 697,497
Net realized gain 716,768 3,942,235
Change in net unrealized appreciation
(depreciation) 3,147,384 (6,146,786)
----------- ------------
Net increase (decrease) in net assets
resulting from operations 4,214,459 (1,507,054)
----------- ------------
Distributions to shareholders from:
Net investment income
Class III -- (697,497)
----------- ------------
Total distributions from net
investment income -- (697,497)
----------- ------------
In excess of net investment income
Class III -- (1,211,441)
----------- ------------
Total distributions in excess of
net investment income -- (1,211,441)
----------- ------------
Net realized gains
Class III (1,764,798) (3,274,986)
----------- ------------
Total distributions from net
realized gains (1,764,798) (3,274,986)
----------- ------------
(1,764,798) (5,183,924)
----------- ------------
Net share transactions: (Note 5)
Class III (12,666) (5,936,414)
----------- ------------
Decrease in net assets resulting from
net share transactions (12,666) (5,936,414)
----------- ------------
Total increase (decrease) in net
assets 2,436,995 (12,627,392)
Net assets:
Beginning of period 32,473,608 45,101,000
----------- ------------
End of period (including accumulated
undistributed net investment
income of $350,307 and $0,
respectively) $34,910,603 $32,473,608
============ =============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global (U.S.+) Equity Allocation 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,
August 31, 1999 --------------------------------------
(Unaudited) 1999 1998 1997 *
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.85 $ 10.48 $ 10.30 $ 10.00
-------- -------- ------- --------
Income from investment operations:
Net investment income (a) 0.10 0.16+ 0.26+ 0.12
Net realized and unrealized
gain (loss) 1.06 (0.40) 1.83 0.38
-------- -------- ------- --------
Total from investment
operations 1.16 (0.24) 2.09 0.50
-------- -------- ------- --------
Less distributions to shareholders:
From net investment income -- (0.16) (0.26) (0.12)
In excess of net investment
income -- (0.40) --(c) --
From net realized gains (0.49) (0.83) (1.65) (0.08)
-------- -------- ------- --------
Total distributions (0.49) (1.39) (1.91) (0.20)
-------- -------- ------- --------
Net asset value, end of period $ 9.52 $ 8.85 $ 10.48 $ 10.30
======== ======== ======= ========
Total Return (b) 12.90% (2.84)% 21.86% 5.09%
Ratios/Supplemental Data:
Net assets, end of period (000's) $34,911 $32,474 $45,101 $30,787
Net expenses to average daily
net assets (d) 0.00%** 0.00% 0.00% 0.00%**
Net investment income to average
daily net assets (a) 1.98%** 1.64% 2.39% 3.21%**
Portfolio turnover rate 8% 34% 32% 10%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(e) $ 0.01 $ 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) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 1.
(e) 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.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 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 in Class III shares of domestic
equity, international equity, and fixed income funds of the Trust.
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. 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.
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 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 Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1999 (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 dividends 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. Income dividends and
capital gain distributions from underlying funds are 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 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.
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. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. For the six months ended August
31, 1999, the
7
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Fund received $3,610 in purchase premiums and $1,636 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, including the
possible imposition of capital controls 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 contractually agreed to reimburse all expenses directly incurred by
the Fund until June 30, 2000 (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, 1999 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, 1999,
aggregated $2,831,754 and $3,227,057, respectively.
8
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Notes to Financial Statements - (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------
At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation
and depreciation in value of investments held were as follows:
<S> <C> <C> <C>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------- -------------------- ------------------- ------------------
$ 37,134,815 $ 460,705 $ 2,679,669 $ 2,218,964
<CAPTION>
4. Principal shareholders
At August 31, 1999, 35.7% 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:
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
-------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 81,396 $ 768,043 531,374 $ 5,481,883
Shares issued to shareholders
in reinvestment of distributions 31,519 311,724 136,208 1,323,898
Shares repurchased (114,630) (1,092,433) (1,298,592) (12,742,195)
--------------- ----------------- --------------- -----------------
Net decrease (1,715) $ (12,666) (631,010) $ (5,936,414)
--------------- ----------------- --------------- -----------------
</TABLE>
9
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value
($)/
Shares Description Value($)
- -------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
15,238 GMO Currency Hedged International Core Fund 160,302
61,259 GMO Emerging Country Debt Fund 441,029
90,946 GMO Emerging Markets Fund 848,527
108,947 GMO Evolving Countries Fund 1,069,864
13,830 GMO Growth Fund 60,301
42,470 GMO Inflation Indexed Bond Fund 425,557
26,463 GMO International Bond Fund 253,517
156,474 GMO International Core Fund 3,625,503
16,938 GMO International Small Companies Fund 211,893
51,942 GMO REIT Fund 463,326
22,075 GMO Small Cap Growth Fund 261,587
44,117 GMO Small Cap Value Fund 555,881
24,497 GMO U.S. Bond/Global Alpha A Fund 237,871
81,647 GMO U.S. Core Fund 1,522,728
25,621 GMO Value Fund 267,490
-----------
TOTAL MUTUAL FUNDS (COST $10,068,112) 10,405,376
-----------
SHORT-TERM INVESTMENTS -- 0.1%
Repurchase Agreements -- 0.1%
$12,320 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $12,322 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with
a rate of 8.125%, maturity date of 8/15/21 and
market value, including accrued interest, of
$12,567. 12,320
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $12,320) 12,320
-----------
TOTAL INVESTMENTS -- 100.1%
(Cost $10,080,432) 10,417,696
Other Assets and Liabilities (net) -- (0.1)% (8,523)
-----------
TOTAL NET ASSETS -- 100% $10,409,173
===========
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $10,080,432) (Note 1) $10,417,696
Receivable for expenses waived or borne by Manager (Note 2) 1,738
-----------
Total assets 10,419,434
-----------
Liabilities:
Accrued expenses 10,261
-----------
Total liabilities 10,261
-----------
Net assets $10,409,173
===========
Net assets consist of:
Paid-in capital $15,947,906
Accumulated undistributed net investment income 70,644
Accumulated net realized loss (5,946,641)
Net unrealized appreciation 337,264
-----------
$10,409,173
===========
Net assets attributable to:
Class III shares $10,409,173
===========
Shares outstanding:
Class III 1,209,140
===========
Net asset value per share:
Class III $ 8.61
===========
2 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends from investment company shares $ 70,326
Interest 318
-----------
Total income 70,644
-----------
Expenses:
Audit fees 8,468
Custodian and transfer agent fees 2,315
Registration fees 364
Legal fees 279
Trustees fees (Note 2) 93
Miscellaneous 552
Fees waived or borne by Manager (Note 2) (12,071)
-----------
Net expenses --
-----------
Net investment income 70,644
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (5,621,984)
Realized gain distributions from investment company shares 211,674
-----------
Net realized loss (5,410,310)
-----------
Change in net unrealized appreciation (depreciation) on
investments 7,698,956
-----------
Net realized and unrealized gain 2,288,646
-----------
Net increase in net assets resulting from operations $ 2,359,290
===========
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 31,1999 Year Ended
(Unaudited) February 28, 1999
----------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 70,644 $ 885,699
Net realized gain (loss) (5,410,310) 1,737,055
Change in net unrealized appreciation
(depreciation) 7,698,956 (5,741,678)
------------ ------------
Net increase (decrease) in net assets
resulting from operations 2,359,290 (3,118,924)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (885,699)
------------ ------------
Total distributions from net
investment income -- (885,699)
------------ ------------
In excess of net investment income
Class III -- (1,377,961)
------------ ------------
Total distributions in excess of net
investment income -- (1,377,961)
------------ ------------
Net realized gains
Class III (1,505,715) (3,441,070)
------------ ------------
Total distributions from net
realized gains (1,505,715) (3,441,070)
------------ ------------
(1,505,715) (5,704,730)
------------ ------------
Net share transactions: (Note 5)
Class III (20,026,208) (12,546,195)
------------ ------------
Decrease in net assets resulting from
net share transactions (20,026,208) (12,546,195)
------------ ------------
Total decrease in net assets (19,172,633) (21,369,849)
Net assets:
Beginning of period 29,581,806 50,951,655
------------ ------------
End of period (including accumulated
undistributed net investment income
of $70,644 and $0, respectively) $ 10,409,173 $ 29,581,806
============ ============
</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 III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28,
Six Months Ended ----------------------------------------
August 31, 1999
(Unaudited) 1999 1998 1997*
---------------- -------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.52 $ 10.39 $10.52 $ 10.07
-------- -------- ------- --------
Income from investment operations:
Net investment income (a) 0.06 0.18+ 0.29+ 0.11
Net realized and unrealized
gain (loss) 1.48 (0.82) 1.03 0.63
-------- -------- ------- --------
Total from investment
operations 1.54 (0.64) 1.32 0.74
-------- -------- ------- --------
Less distributions to shareholders:
From net investment income -- (0.18) (0.28) (0.11)
In excess of net investment
income -- (0.33) --(b) --
From net realized gains (1.45) (0.72) (1.17) (0.18)
-------- -------- ------- --------
Total distributions (1.45) (1.23) (1.45) (0.29)
-------- -------- ------- --------
Net asset value, end of period $ 8.61 $ 8.52 $10.39 $ 10.52
======== ======== ======= ========
Total Return (c) 17.67% (6.67)% 13.56% 7.51%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $10,409 $29,582 $50,952 $36,746
Net expenses to average daily
net assets (d) 0.00%** 0.00% 0.00% 0.00%**
Net investment income to
average daily net assets (a) 1.03%** 1.91% 2.65% 0.91%**
Portfolio turnover rate 6% 17% 49% 31%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.01 $ 0.01 $ 0.01 $ 0.03
</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) The per share distribution in excess of net investment income was $0.0004.
(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.
(d) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 1.
+ Computed using average shares outstanding throughout the period.
* Period from October 22, 1996 (commencement of operations) to
February 28, 1997.
** Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 total return greater than the return
of the GMO World Extended benchmark through investment to varying extents
in other Funds of the Trust. The Fund will pursue its objective by
investing in Class III shares of domestic equity, international equity, and
fixed income funds of the Trust.
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. 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.
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 World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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. Income dividends and
capital gain distributions from underlying funds are 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 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.
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. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. For the six months ended August
31, 1999, the
7
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Fund received $3,734 in purchase premiums and $33,196 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, including the
possible imposition of capital controls 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 contractually agreed to reimburse all expenses directly incurred by
the Fund until June 30, 2000 (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, 1999 was $93. 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, 1999,
aggregated $980,524 and $22,236,624, respectively.
8
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, 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>
$ 10,080,432 $ 600,482 $ 263,218 $ 337,264
</TABLE>
4. Principal shareholders
At August 31, 1999, 99.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------------ ------------------------------
Shares Amount Shares Amount
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 61,132 $ 565,697 497 $ 4,496
Shares issued to shareholders
in reinvestment of
distributions 170,716 1,505,715 535,862 4,995,646
Shares repurchased (2,495,019) (22,097,620) (1,968,349) (17,546,337)
------------ ------------ ------------ ------------
Net decrease (2,263,171) $(20,026,208) (1,431,990) $(12,546,195)
============ ============ ============ ============
</TABLE>
9
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 95.3%
Advertising-- 0.1%
400 Interpublic Group Inc 15,850
----------
Aerospace-- 3.2%
5,500 Allied Signal Inc 336,874
200 Cordant Technologies Inc 8,275
----------
345,149
----------
Automotive-- 1.2%
200 Bandag Inc 6,650
100 Borg Warner Automotive Inc 4,738
139 Delphi Automotive Systems* 2,606
300 Eaton Corp 29,400
200 General Motors Corp 13,225
1,300 Genuine Parts Co 37,538
500 Goodyear Tire & Rubber Co 28,063
200 Lear Corp* 8,038
----------
130,258
----------
Banking and Financial Services-- 11.3%
2,500 American Express Co 343,749
565 Bank of America Corp 34,183
810 Bank One Corp 32,501
21 Berkshire Hathaway Inc, Class B* 42,063
700 Countrywide Credit Industries Inc 22,488
400 First Union Corp 16,600
1,200 Franklin Resources Inc 43,125
1,600 Key Corp 46,400
14,800 MBNA Corp 365,374
400 Mercantile Bank Corp 22,075
1,000 MGIC Investment Corp 43,438
1,100 Regions Financial Corp 38,844
200 Republic New York Corp 13,875
200 Student Loan Group 8,000
22 Waddell and Reed Financial Inc, Class A 499
97 Waddell and Reed Financial Inc, Class B 2,213
3,500 Wells Fargo & Co 139,344
----------
1,214,771
----------
Chemicals-- 1.1%
1,100 Engelhard Corp 21,931
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Chemicals -- continued
400 Ferro Corp 9,600
600 Great Lakes Chemical Corp 24,713
200 Minerals Technologies Inc 9,900
150 Octel Corp* 1,706
600 PPG Industries Inc 36,038
300 Rohm & Haas Co 11,213
----------
115,101
----------
Computer and Office Equipment -- 0.2%
400 Electronic Data Systems Corp 22,450
----------
Consumer Goods -- 1.5%
1,200 Fortune Brands Inc 45,000
450 Hasbro Inc 10,997
400 Jones Apparel Group Inc* 10,375
400 Lancaster Colony Corp 13,150
400 Mattel Co 8,525
400 Nautica Enterprises Inc* 5,375
300 Newell Rubbermaid Inc 12,300
600 Nike Inc, Class B 27,750
300 Unifi Inc* 4,050
600 VF Corp 21,600
----------
159,122
----------
Electronic Equipment -- 6.9%
20,300 3 Com Corp* 503,693
600 AVX Corp 17,963
800 Emerson Electric Co 50,100
300 Harris Corp 7,875
2,400 Raytheon Co, Class B 163,499
----------
743,130
----------
Food and Beverage -- 8.8%
1,000 Anheuser Busch Cos Inc 77,000
5,040 Archer Daniels Midland Co 65,520
4,000 McDonald's Corp 165,499
9,800 Pepsico Inc 334,424
1,600 Seagrams Co Ltd 84,900
1,964 Unilever NV 135,271
800 Universal Foods Corp 16,900
1,200 Wendy's International Inc 33,600
See accompanying notes to the financial statements.
2
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- continued
200 Whitman Corp 3,338
400 Wrigley (William Jr) Co 31,325
----------
947,777
----------
Health Care -- 8.5%
300 Arrow International Inc 8,700
8,100 Columbia HCA Healthcare Corp 199,462
400 First Health Group Corp* 8,625
200 Hillenbrand Industries Inc 5,700
400 Invacare Corp 7,475
4,900 Johnson & Johnson 501,024
426 Lifepoint Hospital Inc* 2,929
400 Lincare Holdings Inc* 10,550
300 Mallinckrodt Inc 9,619
1,000 Perrigo Co* 7,938
700 Stryker Corp 40,338
426 Triad Hospitals Inc* 4,766
1,500 United Healthcare Corp 91,219
300 Wellpoint Health Network* 21,863
----------
920,208
----------
Insurance -- 6.9%
430 Aegon N.V. ADR 37,329
700 Aetna Life and Casualty Co 54,425
200 AMBAC Inc 10,563
400 Hartford Financial Services Group Inc 18,175
500 Loews Corp 39,250
400 MBIA Inc 20,750
23,800 Old Republic International Corp 368,899
200 Orion Capital Corp 9,650
100 Progressive Corp 10,200
200 Safeco Corp 7,125
400 Saint Paul Cos Inc 12,825
800 Torchmark Corp 22,800
500 Transatlantic Holding Inc 36,063
2,600 Travelers Property Casualty Corp, Class A 92,300
----------
740,354
----------
Machinery -- 0.4%
500 Case Corp 24,688
600 Donaldson Co Inc 11,775
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Machinery -- continued
200 FMC Corp* 11,650
----------
48,113
----------
Manufacturing -- 0.2%
400 American Greetings Corp 11,075
600 International Game Technology 10,500
----------
21,575
----------
Metals and Mining -- 0.3%
600 Phelps Dodge Corp 33,563
----------
Oil and Gas -- 2.6%
1,700 Atlantic Richfield Co 149,494
595 BP Amoco PLC ADR 66,714
200 Consolidated Natural Gas Co 12,738
800 Phillips Petroleum Co 40,800
200 Texaco Inc 12,700
100 Veritas DGC Inc* 1,788
----------
284,234
----------
Paper and Allied Products -- 0.1%
400 Sonoco Products Co 9,500
----------
Pharmaceuticals -- 8.7%
8,400 Abbott Laboratories 364,349
6,600 Amgen Inc* 549,037
200 Bristol Myers Squibb Co 14,075
600 Mark IV Industries Inc 11,888
----------
939,349
----------
Primary Materials -- 0.2%
500 A. Schulman Inc 8,969
300 Vulcan Materials Co 12,788
----------
21,757
----------
Primary Processing -- 0.5%
600 Nucor Corp 27,938
400 USX-US Steel Group Inc 10,800
300 Valspar Corp 10,894
----------
49,632
----------
See accompanying notes to the financial statements.
4
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Printing and Publishing -- 0.2%
400 Central Newspapers, Class A 16,925
200 Pulitzer Inc* 8,763
----------
25,688
----------
Real Estate -- 2.7%
3,500 Apartment Investment & Management Co, Class A 143,500
3,400 Mack-Cali Realty Corp 96,475
1,400 Mills Corp 26,863
600 Parkway Properties Inc, REIT 19,800
----------
286,638
----------
Retail Trade -- 2.7%
2,100 Albertsons Inc 100,669
500 Autozone Inc* 11,906
500 Dillard's Inc 11,750
1,400 Federated Department Stores Inc* 64,400
200 Hannaford Brothers Co 14,350
300 Lands End Inc* 15,113
900 Office Depot Inc* 9,394
450 Outback Steakhouse Inc* 13,331
400 Richfood Holdings Inc 7,325
300 Ross Stores Inc 12,488
2,000 Toys R Us Inc* 27,625
----------
288,351
----------
Services -- 2.2%
400 Banta Corp 9,400
200 Catalina Marketing Corp* 18,150
206 Chris Craft Industries Inc* 10,429
600 Hertz Corp 24,188
300 KingWorld Productions Inc* 11,438
400 Lee Enterprises Inc 11,475
4,400 Marriott International Inc, Class A 150,700
----------
235,780
----------
Technology -- 11.1%
500 BMC Software Inc* 26,906
9,200 Cisco Systems Inc* 623,874
4,400 First Data Corp 193,599
400 Grainger (WW) Inc 17,425
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology-- continued
300 Microsoft Corp* 27,769
8,300 Oracle Corp* 302,949
----------
1,192,522
----------
Telecommunications-- 5.3%
400 Ameritech Corp 25,250
11,500 AT & T Corp 517,499
327 Hearst-Argyle Television Inc* 8,277
600 TV Guide Inc, Class A* 16,650
----------
567,676
----------
Tobacco-- 2.5%
7,300 Philip Morris Cos Inc 273,293
----------
Transportation-- 1.8%
5,700 Burlington Northern Santa Fe Railroad Co 165,299
500 Galileo International Inc 24,250
----------
189,549
----------
Utilities-- 4.1%
1,600 Citizens Utilities, Class B* 17,600
600 Constellation Energy Group Inc 17,775
700 DTE Energy Co 27,606
2,400 Entergy Corp 71,550
600 General Public Utilities Inc 20,475
692 Keyspan Corp 20,414
9,400 Niagara Mohawk Holdings Inc* 142,175
1,900 Northeast Utilities* 33,369
1,500 PG & E Corp 45,469
300 Pinnacle West Capital Corp 11,400
600 Potomac Electric Power Co 15,900
400 Scana Corp 10,000
300 Western Resources Inc 7,163
----------
440,896
----------
TOTAL COMMON STOCKS (COST $9,850,242) 10,262,286
----------
See accompanying notes to the financial statements.
6
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par
Value ($) Description Value ($)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.0%
Repurchase Agreements -- 4.0%
$424,042 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $424,097 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with 424,042
a rate of 7.25%, maturity date of 5/15/16 and ----------
market value, including accrued interest, of
$432,523.
TOTAL SHORT-TERM INVESTMENTS (COST $424,042) 424,042
----------
TOTAL INVESTMENTS -- 99.3%
(COST $10,274,284) 10,686,328
Other Assets and Liabilities (net) -- 0.7% 78,419
----------
TOTAL NET ASSETS -- 100% $10,764,747
==========
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
* Non-income producing security.
See accompanying notes to the financial statements.
7
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $10,274,284) (Note 1) $10,686,328
Dividends and interest receivable 10,227
Receivable for expenses waived or borne by Manager (Note 2) 3,811
Receivable for Fund shares sold 84,000
-----------
Total assets 10,784,366
-----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 3,030
Shareholder service fee 1,377
Accrued expenses and other liabilities 15,212
-----------
Total liabilities 19,619
-----------
Net assets $10,764,747
===========
Net assets consist of:
Paid-in capital $10,393,214
Accumulated undistributed net investment income 14,023
Accumulated net realized loss (54,534)
Net unrealized appreciation 412,044
===========
$10,764,747
===========
Net assets attributable to:
Class III shares $10,764,747
===========
Shares outstanding:
Class III 952,264
===========
Net asset value per share:
Class III $ 11.30
===========
See accompanying notes to the financial statements.
8
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $4,528) $ 80,397
Interest 9,031
--------
Total income 89,428
--------
Expenses:
Management fee (Note 2) 16,971
Audit fees 16,564
Custodian fees 2,574
Registration fees 1,183
Legal fees 184
Trustees fees (Note 2) 60
Miscellaneous 736
Fees waived or borne by Manager (Note 2) (21,301)
--------
16,971
Shareholder service fee (Note 2)
Class III 7,714
--------
Net expenses 24,685
--------
Net investment income 64,743
--------
Realized and unrealized gain (loss):
Net realized loss on investments (54,534)
--------
Change in net unrealized appreciation (depreciation)
on investments 481,481
--------
Net realized and unrealized gain 426,947
--------
Net increase in net assets resulting from operations $491,690
========
See accompanying notes to the financial statements.
9
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 23, 1998
Six Months Ended (commencement of
August 31, 1999 operations) through
(Unaudited) February 28, 1999
---------------- -------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 64,743 $41,974
Net realized gain (loss) (54,534) 274,006
Change in net unrealized appreciation (depreciation) 481,481 (151,997)
----------- ----------
Net increase in net assets resulting from operations 491,690 163,983
----------- ----------
Distributions to shareholders from:
Net investment income
Class III (62,238) (30,456)
----------- ----------
Total distributions from net investment income (62,238) (30,456)
----------- ----------
(62,238) (30,456)
----------- ----------
Net share transactions: (Note 5)
Class III 2,219,778 7,981,990
----------- ----------
Increase in net assets resulting from net share transactions 2,219,778 7,981,990
----------- ----------
Total increase in net assets 2,649,230 8,115,517
Net assets:
Beginning of period 8,115,517 --
----------- ----------
End of period (including accumulated undistributed net
investment income of $14,023 and $11,518, respectively) $10,764,747 $8,115,517
=========== ==========
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Six Months Ended July 23, 1998
August 31, 1999 (commencement of operations)
(Unaudited) through February 28, 1999
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $10.67 $10.00
------ ------
Income from investment operations:
Net investment income 0.07 0.09
Net realized and unrealized gain 0.63 0.65
------ ------
Total from investment operations 0.70 0.74
------ ------
Less distributions to shareholders:
From net investment income (0.07) (0.07)
------ ------
Total distributions (0.07) (0.07)
------ ------
Net asset value, end of period $11.30 $10.67
====== ======
Total Return (a) 6.57% 7.48%
Ratios/Supplemental Data:
Net assets, end of period (000's) $10,765 $8,116
Net expenses to average daily net assets 0.48%* 0.48%*
Net investment income to average daily net assets 1.26%* 1.30%*
Portfolio turnover rate 4% 33%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amount: $0.02 $0.10
</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 Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tax-Managed U.S. Equities Fund (the "Fund"), which commenced operations
on July 23, 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 high after-tax total return primarily through investment in
U.S. equity securities. The Fund's current benchmark is the GMO S&P 500
(After Tax).
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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 depositwith its custodian,
in a segregated account in the name of the futures broker, an amount of cash
or U.S. government and agency 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
12
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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,
1999, the Fund held no open futures contracts.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. 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.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the equity
markets. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The Fund enters
into equity swap agreements which involve a commitment by one party in the
agreement to pay interest in exchange for a market linked return based on a
notional amount. To the extent that the total return of the security or
index underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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.
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 will be 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. As of August 31, 1999, there were no open
swap agreements.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
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.
13
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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 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. For the six months ended August 31, 1999, the Fund received $3,065
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 .33% 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.
14
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.525% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $60. 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, 1999, aggregated
$2,402,835 and $351,936, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Gross
Unrealized Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------- ---------------- ----------------- ---------------
$10,274,284 $1,121,998 $709,954 $412,044
4. Principal shareholder
At August 31, 1999, 98.3% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares. Investment activities of these shareholders could have a material
effect.
15
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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:
Period from July
23, 1998
(commencement of
operations)
Six Months Ended through February
August 31, 1999 28, 1999
-------------------- ---------------------
Shares Amount Shares Amount
-------- ---------- --------- ----------
Class III:
Shares sold 189,032 $ 2,189,362 928,320 $ 9,723,200
Shares issued to
shareholders
in reinvestment of
distributions 2,659 30,416 -- --
Shares repurchased -- -- (167,747) (1,741,210)
-------- ---------- --------- ----------
Net increase 191,691 $ 2,219,778 760,573 $ 7,981,990
======== ========== ========= ==========
The Fund was formed with a $100,000 purchase and an initial tax-free
contribution of securities in-kind, which had a historical cost of
$4,931,640 and unrealized appreciation of $82,560 on the date of
contribution.
16
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
6,877 GMO Domestic Bond Fund 63,821
440,356 GMO Emerging Country Debt Fund 3,170,564
856,542 GMO Emerging Markets Fund 7,991,537
1,114,930 GMO Evolving Countries Fund 10,948,608
194,265 GMO Inflation Indexed Bond Fund 1,946,536
183,097 GMO International Bond Fund 1,754,072
2,243,256 GMO International Core Fund 51,976,242
237,176 GMO International Small Companies Fund 2,967,069
146,062 GMO U.S. Bond/Global Alpha A Fund 1,418,266
----------
TOTAL MUTUAL FUNDS (COST $75,061,752) 82,236,715
----------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreements -- 0.0%
$ 11,335 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $11,337 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation
with a rate of 8.125%, maturity date of 8/15/21
and market value, including accrued interest, of
$11,562. 11,335
----------
TOTAL SHORT-TERM INVESTMENTS (COST $11,335) 11,335
----------
TOTAL INVESTMENTS -- 100.0%
(Cost $75,073,087) 82,248,050
Other Assets and Liabilities (net) -- (0.00)% (9,111)
----------
TOTAL NET ASSETS -- 100% $82,238,939
===========
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $75,073,087) (Note 1) $ 82,248,050
Receivable for investments sold 58,000
Receivable for expenses waived or borne by Manager (Note 2) 3,100
------------
Total assets 82,309,150
------------
Liabilities:
Payable for Fund shares repurchased 60,000
Accrued expenses 10,211
------------
Total liabilities 70,211
------------
Net assets $ 82,238,939
============
Net assets consist of:
Paid-in capital $ 81,101,204
Accumulated undistributed net investment income 239,205
Accumulated net realized loss (6,276,433)
Net unrealized appreciation 7,174,963
------------
$ 82,238,939
============
Net assets attributable to:
Class III shares $ 82,238,939
============
Shares outstanding:
Class III 8,343,273
============
Net asset value per share:
Class III $ 9.86
============
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends from investment company shares $ 238,991
Interest 214
-----------
Total income 239,205
-----------
Expenses:
Audit fees 8,191
Custodian and transfer agent fees 6,250
Legal fees 1,470
Trustees fees (Note 2) 459
Registration fees 364
Miscellaneous 643
Fees waived or borne by Manager (Note 2) (17,377)
-----------
Net expenses --
-----------
Net investment income 239,205
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (5,764,010)
Realized gain distributions from investment company shares 1,085,321
-----------
Net realized loss (4,678,689)
-----------
Change in net unrealized appreciation (depreciation) on
investments 24,205,720
-----------
Net realized and unrealized gain 19,527,031
-----------
Net increase in net assets resulting from operations $19,766,236
===========
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
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 239,205 $ 1,656,149
Net realized gain (loss) (4,678,689) 1,219,443
Change in net unrealized
appreciation (depreciation) 24,205,720 (10,858,440)
------------ ------------
Net increase (decrease) in net
assets resulting from operations 19,766,236 (7,982,848)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (1,656,149)
------------ ------------
Total distributions from net
investment income -- (1,656,149)
------------ ------------
In excess of net investment income
Class III -- (2,114,210)
------------ ------------
Total distributions in excess of
net investment income -- (2,114,210)
------------ ------------
Net realized gains
Class III (2,308,096) (4,795,515)
------------ ------------
Total distributions from net
realized gains (2,308,096) (4,795,515)
------------ ------------
(2,308,096) (8,565,874)
------------ ------------
Net share transactions: (Note 5)
Class III (25,380,369) 20,834,383
------------ ------------
Increase (decrease) in net assets
resulting from net share
transactions (25,380,369) 20,834,383
------------ ------------
Total increase (decrease) in net
assets (7,922,229) 4,285,661
Net assets:
Beginning of period 90,161,168 85,875,507
------------ ------------
End of period (including
accumulated undistributed net
investment income of $239,205 and
$0, respectively) $ 82,238,939 $ 90,161,168
============ ============
4 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 August Year Ended February 28,
31, 1999 --------------------------------
(Unaudited) 1999 1998 1997 *
---------- ------- ------ -------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 8.28 $ 10.18 $ 10.41 $ 10.00
------- ------- ------- -------
Income from investment
operations:
Net investment income (a) 0.03 0.19+ 0.33+ 0.10
Net realized and
unrealized gain (loss) 1.83 (1.01) 0.31 0.41
------- ------- ------- -------
Total from investment
operations 1.86 (0.82) 0.64 0.51
------- ------- ------- -------
Less distributions to
shareholders:
From net investment
income -- (0.19) (0.29) (0.07)
In excess of net -- (0.31) --(b) --
investment income
From net realized gains (0.28) (0.58) (0.58) (0.03)
------- ------- ------- -------
Total distributions (0.28) (1.08) (0.87) (0.10)
------- ------- ------- -------
Net asset value, end
of period $ 9.86 $ 8.28 $ 10.18 $ 10.41
======= ======= ======= =======
Total Return (c) 22.50% (8.77)% 6.73% 5.11%
Ratios/Supplemental Data:
Net assets, end of $82,239 $90,161 $85,876 $30,459
period (000's)
Net expenses to average
daily net assets (d) 0.00%** 0.00% 0.00% 0.01%**
Net investment income to
average daily net
assets (a) 0.52%** 2.06% 3.13% 3.60%**
Portfolio turnover rate 4% 36% 16% --
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: --(e) $ 0.01 $ 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) The per share distribution in excess of net investment income was $0.001.
(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.
(d) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 1.
(e) 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. 5
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 total return greater than the return of
the GMO EAFE Extended benchmark through investment to varying extents in
other Funds of the Trust. The Fund will pursue its objective by investing in
Class III shares of international equity and fixed income funds of the
Trust.
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. 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.
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 International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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. Income dividends and
capital gain distributions from underlying funds are 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 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.
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. All
purchase premiums and redemption fees are paid to and recorded by the Fund
as paid-in capital. For the six months ended August 31, 1999, the Fund
received $311 in purchase premiums and $30,415 in redemption fees. There is
no premium for reinvested distributions or in-kind transactions.
7
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, including the possible
imposition of capital controls 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 contractually agreed to reimburse all expenses directly incurred by
the Fund until June 30, 2000 (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, 1999 was $459. 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, 1999, aggregated
$3,913,942 and $30,284,430, respectively.
At August 31, 1999, 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
---------------- ------------------ ------------------ ----------------
$75,073,087 $7,571,844 $396,881 $7,174,963
8
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1999, 56.4% 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 were as follows:
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ----------- -----------
Shares sold 4,455 $ 38,869 4,350,530 $37,996,130
Shares issued to
shareholders in
reinvestment of
distributions 228,395 2,261,114 770,742 7,138,503
Shares repurchased (2,781,247) (27,680,352) (2,665,394) (24,300,250)
---------- ------------ ----------- -----------
Net increase (decrease) (2,548,397) $(25,380,369) $ 2,455,878 $20,834,383
========== ============ =========== ===========
9
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 97.3%
Aerospace -- 1.9%
8,800 Allied Signal Inc 539,001
1,900 Cordant Technologies Inc 78,614
2,100 Goodrich (BF) Co 77,570
400 Northrop Grumman Corp 29,001
-----------
724,186
-----------
Automotive -- 6.1%
900 Autonation Inc* 11,644
3,600 Cooper Tire & Rubber Co 68,401
12,800 Ford Motor Co 667,201
21,900 General Motors Corp 1,448,139
200 Genuine Parts Co 5,775
1,800 Goodyear Tire & Rubber Co 101,026
2,500 Meritor Automotive Inc 54,532
-----------
2,356,718
-----------
Banking and Financial Services -- 9.4%
1,100 American General Corp 78,101
3,300 Astoria Financial Corp 108,489
1,000 Bancwest Corp 41,814
500 Bank One Corp 20,063
7,200 Bear Stearns Cos Inc 299,701
4,700 Chase Manhattan Corp 393,332
1,100 Countrywide Credit Industries Inc 35,339
1,900 Donaldson Lufkin & Jenrette 90,845
4,600 Edwards (AG) Inc 115,576
2,100 Fannie Mae 130,464
300 Financial Security Assurance Holdings Ltd 15,019
2,000 First Union Corp 83,001
6,900 Franklin Resources Inc 247,970
2,600 Golden West Financial Corp 236,114
700 Greenpoint Financial Corp 18,113
5,400 J.P. Morgan & Co Inc 697,614
4,500 Lehman Brothers Holding Inc 241,876
1,400 Leucadia National Corp 29,664
1,000 Liberty Financial Cos 25,751
2,300 MGIC Investment Corp 99,907
4,500 Pacific Century Financial Corp 83,532
3,150 PMI Group Inc 133,876
2,200 Republic New York Corp 152,626
See accompanying notes to the financial statements. 1
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
4,100 Rowe (T) Price & Associates Inc 126,845
2,400 Sovereign Bancorp Inc 24,076
1,800 Unionbancal Corp 69,076
1,900 Washington Federal Inc 45,364
-----------
3,644,148
-----------
Chemicals -- 0.7%
2,400 Engelhard Corp 47,851
3,700 IMC Global Inc 58,970
3,200 Millenium Chemicals Inc 73,601
500 PPG Industries Inc 30,032
1,300 Praxair Inc 61,101
1,100 W.R. Grace & Co* 21,038
-----------
292,593
-----------
Computer and Office Equipment -- 0.4%
400 Electronic Data Systems Corp 22,451
3,000 Reynolds & Reynolds Inc, Class A 65,626
4,100 Silicon Graphics Inc* 46,895
1,400 Sterling Software Inc* 28,176
-----------
163,148
-----------
Construction -- 0.4%
3,300 Georgia-Pacific Corp 136,539
1,300 McDermott International Inc 29,332
-----------
165,871
-----------
Consumer Goods -- 2.3%
200 Eastman Kodak Co 14,688
3,100 Fastenal Co 155,389
5,700 Fortune Brands Inc 213,751
1,600 Hon Industries Inc 37,701
6,300 Jones Apparel Group Inc* 163,407
3,500 Lancaster Colony Corp 115,064
1,000 Liz Claiborne Inc 36,751
5,400 Mattel Co 115,089
2,500 Warnaco Group Inc, Class A 55,001
-----------
906,841
-----------
Electronic Equipment -- 4.2%
2,300 Adaptec Inc* 89,701
9,300 American Power Conversion Corp* 163,332
2 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronic Equipment -- continued
6,900 Andrew Corp* 120,751
3,900 Arrow Electronics Inc* 77,514
200 Associated Group Inc, Class B* 11,150
4,100 Emerson Electric Co 256,764
1,700 Harris Corp 44,626
600 Hubbell Inc, Class B 23,289
2,200 National Semiconductor Corp* 62,014
11,400 Raytheon Co, Class B 776,626
-----------
1,625,767
-----------
Food and Beverage -- 3.3%
17,115 Archer Daniels Midland Co 222,496
4,200 IBP Inc 96,339
16,700 Nabisco Group Holdings 296,426
11,600 Seagrams Co Ltd 615,526
800 Unilever NV 55,101
-----------
1,285,888
-----------
Health Care -- 1.0%
900 Columbia HCA Healthcare Corp 22,163
3,000 Johnson & Johnson 306,751
1,000 United Healthcare Corp 60,814
-----------
389,728
-----------
Insurance -- 11.0%
6,300 Aetna Life and Casualty Co 489,826
100 Alleghany Corp* 18,075
2,900 Allmerica Financial Corp 163,851
10,300 Allstate Corp 337,970
500 AMBAC Inc 26,407
900 American Financial Group Inc 26,551
1,200 American National Insurance Co 84,001
200 Chubb Corp 11,438
4,200 Cigna Corp 377,214
6,800 Cincinnati Financial Corp 269,451
1,800 CNA Financial Corp* 65,476
11,600 Conseco Inc 278,401
1,700 Everest Re Holdings Inc 47,176
9,200 Foundation Health Systems Inc, Class A* 117,301
600 Hartford Financial Services Group Inc 27,264
7,800 Lincoln National Corp 365,626
5,500 Loews Corp 431,751
See accompanying notes to the financial statements. 3
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- continued
800 MBIA Inc 41,501
900 Mercury General Corp 27,226
5,400 Old Republic International Corp 83,701
6,400 Safeco Corp 228,001
9,500 Saint Paul Cos Inc 304,595
3,300 Torchmark Corp 94,051
800 Transatlantic Holding Inc 57,701
5,700 Travelers Property Casualty Corp, Class A 202,351
2,800 Unitrin Inc 100,626
-----------
4,277,532
-----------
Machinery -- 2.3%
3,700 Baker Hughes Inc 125,801
4,100 Case Corp 202,439
2,600 Cooper Cameron Corp* 108,226
1,600 Cummins Engine Inc 94,801
3,900 Deere and Co 151,614
2,600 FMC Corp* 151,451
1,100 York International Corp 45,239
-----------
879,571
-----------
Manufacturing -- 2.0%
5,400 Clayton Homes Inc 51,301
2,300 Crane Co 55,345
2,300 International Game Technology 40,251
1,800 Minnesota Mining and Manufacturing Co 170,101
3,600 Rockwell International Corp 212,851
2,900 Temple Inland Inc 179,801
1,700 Trinity Industries Inc 53,339
-----------
762,989
-----------
Metals and Mining -- 1.7%
5,800 Alcan Aluminum Ltd 190,676
1,200 Cyprus Amax Minerals Co 20,325
4,300 Phelps Dodge Corp 240,532
3,400 Reynolds Metals Co 215,264
-----------
666,797
-----------
Oil and Gas -- 3.1%
5,200 Amerada Hess Corp 322,726
5,900 Apache Corp 268,451
1,000 BJ Services Co* 34,251
4 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Oil and Gas -- continued
4,200 Diamond Offshore Drilling Inc 160,651
2,200 Ensco International Inc 46,889
2,000 K N Energy Inc 40,751
1,300 Kerr-McGee Corp 72,801
5,300 Nabors Industries Inc* 144,095
800 Noble Drilling Corp* 19,700
1,900 Pioneer Natural Resources Co 21,613
600 Questar Corp 11,325
800 Rowan Cos Inc* 14,900
1,700 Transocean Offshore Inc 57,801
-----------
1,215,954
-----------
Paper and Allied Products -- 3.6%
2,800 Boise Cascade Corp 101,851
700 Bowater Inc 37,539
5,000 Champion International Corp 275,001
500 Consolidated Papers Inc 13,313
2,000 Ikon Office Solutions Inc 22,250
12,300 International Paper Co 578,870
2,900 Louisiana Pacific Corp 53,651
5,200 Mead Corp 194,026
4,600 Westvaco Corp 120,464
400 Willamette Industries Inc 15,850
-----------
1,412,815
-----------
Pharmaceuticals -- 4.6%
15,400 Abbott Laboratories 667,976
9,800 Amgen Inc* 815,239
4,000 Bristol Myers Squibb Co 281,501
1,100 ICN Pharmaceuticals Inc 22,826
800 Nu Skin Enterprises Inc* 8,550
-----------
1,796,092
-----------
Primary Materials -- 0.1%
600 Crown Cork & Seal Inc 15,938
400 Weatherford International Inc 14,250
-----------
30,188
-----------
Primary Processing -- 1.0%
4,000 Nucor Corp 186,251
7,000 USX-US Steel Group Inc 189,001
-----------
375,252
-----------
See accompanying notes to the financial statements. 5
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate -- 1.1%
2,200 Archstone Communities Trust 47,026
600 Arden Realty Group Inc 13,988
900 Avalonbay Communities Inc 31,726
1,700 Carramercia Realty Corp 39,101
900 Cornerstone Properties Inc 14,344
800 Crescent Real Estate Equities 16,600
1,300 Duke Realty Investments 29,170
1,000 Equity Residential Properties Trust 44,001
600 Highwood Properties Inc 14,888
5,100 HRPT Properties Trust 70,764
500 Mack-Cali Realty Corp 14,188
6,900 Meditrust Corp, REIT 61,670
1,700 Public Storage Inc 44,201
-----------
441,667
-----------
Refining -- 0.9%
2,600 Ashland Inc 100,264
400 Murphy Oil Corp 20,300
2,800 Tosco Corp 71,401
5,400 Ultramar Diamond Shamrock Corp 141,076
600 Valero Energy Corp 12,750
-----------
345,791
-----------
Retail Trade -- 3.9%
189 Albertsons Inc 9,060
7,100 Autozone Inc* 169,070
9,100 Bed, Bath & Beyond Inc* 250,251
5,000 Dillard's Inc 117,501
5,500 Federated Department Stores Inc* 253,001
24,500 Kmart Corp* 307,782
1,200 Neiman Marcus Group Inc* 26,701
400 OfficeMax Inc* 3,025
3,800 Outback Steakhouse Inc* 112,576
300 Penney (JC) Co Inc 10,875
1,500 Ross Stores Inc 62,439
12,600 Toys R Us Inc* 174,039
1,700 Venator Group Inc* 12,113
-----------
1,508,433
-----------
Services -- 1.1%
1,600 AT & T Liberty Media Group* 51,201
6 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
400 BHC Communications Inc, Class A 52,601
900 Chris Craft Industries Inc* 45,564
2,000 Fluor Corp 82,751
1,000 Harrahs Entertainment Inc* 22,501
1,500 KingWorld Productions Inc* 57,189
5,000 Mandalay Resort Group* 102,501
-----------
414,308
-----------
Technology -- 5.4%
1,000 Adobe Systems Inc 99,626
5,200 Advanced Micro Devices Inc* 107,576
1,400 Autodesk Inc 32,201
1,000 Avnet Inc 44,251
9,200 BMC Software Inc* 495,076
2,200 Cabletron Systems Inc* 36,989
1,600 Cisco Systems Inc* 108,501
500 Gartner Group Inc, Class A 10,469
5,700 Intel Corp 468,470
1,000 Microsoft Corp* 92,564
1,200 Novell Inc* 28,426
10,600 Oracle Corp* 386,901
4,000 Seagate Technology Corp* 132,751
3,000 Thermo Electron Corp* 47,626
-----------
2,091,427
-----------
Telecommunications -- 6.4%
3,300 Ameritech Corp 208,314
3,300 AT & T Corp 148,501
900 Bell Atlantic Corp 55,126
1,000 Bellsouth Corp 45,251
11,500 GTE Corp 789,189
1,200 MediaOne Group Inc* 78,901
900 SBC Communications 43,201
800 Sprint Corp 35,501
3,700 Telephone and Data Systems Inc 257,151
2,000 United States Cellular Corp* 112,501
16,800 Viacom Inc, Class B* 706,651
-----------
2,480,287
-----------
Transportation -- 5.1%
4,600 AMR Corp* 269,676
See accompanying notes to the financial statements. 7
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- continued
900 Brunswick Corp 23,007
18,600 Burlington Northern Santa Fe Railroad Co 539,401
5,000 Comair Holdings Inc 105,626
6,300 CSX Corp 275,232
300 Delta Air Lines Inc 15,244
6,900 Laidlaw Inc, Class B 43,126
1,600 Norfolk Southern Corp 41,901
4,600 Tidewater Inc 149,501
2,200 UAL Corp* 142,589
8,000 Union Pacific Corp 389,501
-----------
1,994,804
-----------
Utilities -- 14.3%
1,400 Allegheny Energy Inc 47,251
2,300 Ameren Corp 92,145
700 American Electric Power Inc 25,420
6,800 Central & South West Corp 153,851
8,600 Citizens Utilities, Class B* 94,601
1,700 Connectiv Inc 36,445
6,300 Consolidated Edison Inc 277,201
5,000 Constellation Energy Group Inc 148,126
7,200 Dominion Resources Inc 333,001
4,500 DTE Energy Co 177,470
8,200 Edison International 208,076
2,200 Energy East Corp 55,001
11,700 Entergy Corp 348,807
8,400 Firstenergy Corp 239,926
4,800 General Public Utilities Inc 163,801
1,900 Illinova Corp 60,564
500 Keyspan Corp 14,750
1,000 Kinder Morgan Energy Partners 44,001
1,400 New England Electric System 73,064
10,000 Niagara Mohawk Holdings Inc* 151,251
7,600 Northeast Utilities* 133,476
3,800 Northern States Power Co 89,539
8,500 PacifiCorp 173,720
13,400 PG & E Corp 406,189
2,000 Pinnacle West Capital Corp 76,001
3,400 Potomac Electric Power Co 90,101
9,200 Public Service Enterprise Group Inc 377,201
600 Puget Sound Power and Light Co 14,213
8,600 Reliant Energy Inc 238,114
8 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Utilities -- continued
1,500 Scana Corp 37,501
10,100 Southern Co 273,332
9,800 Texas Utilities Co 396,289
9,000 Unicom Corp 347,626
3,000 Western Resources Inc 71,626
2,500 Wisconsin Energy Corp 61,095
-----------
5,530,775
-----------
TOTAL COMMON STOCKS (COST $39,903,249) 37,779,570
-----------
SHORT-TERM INVESTMENTS -- 4.7%
U.S. Government -- 0.2%
$ 75,000 U.S. Treasury Bill, 4.54%, due 10/21/99/(a)/ 74,160
-----------
Repurchase Agreements -- 4.5%
$1,737,698 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $1,737,924 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation
with a rate of 7.25%, maturity date of 5/15/16
and market value, including accrued interest, of
$1,772,452. 1,737,698
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $1,812,237) 1,811,858
-----------
TOTAL INVESTMENTS -- 102.0%
(COST $41,715,486) 39,591,428
Other Assets and Liabilities (net) -- (2.0)% (791,582)
-----------
TOTAL NET ASSETS -- 100% $38,799,846
===========
Notes to the Schedule of Investments:
* Non-income producing security.
/(a)/ Security has been segregated to cover margin requirements
on open financial futures contracts.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $41,715,486) (Note 1) $ 39,591,428
Receivable for investments sold 54,699
Dividends and interest receivable 66,884
Receivable for expenses waived or borne by Manager (Note 2) 7,840
------------
Total assets 39,720,851
------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 9,988
Shareholder service fee 4,540
Payable for investments purchased 898,844
Payable for variation margin on open futures contracts
(Notes 1 and 6) 143
Accrued expenses 7,490
------------
Total liabilities 921,005
------------
Net assets $ 38,799,846
============
Net assets consist of:
Paid-in capital $ 40,935,023
Accumulated undistributed net investment income 68,123
Accumulated net realized loss (74,385)
Net unrealized depreciation (2,128,915)
============
$ 38,799,846
============
Net assets attributable to:
Class III shares $ 38,799,846
============
Shares outstanding:
Class III 3,976,761
============
Net asset value per share:
Class III $ 9.76
============
10 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Statement of Operations --
Period from August 2, 1999 (commencement of operations) through August 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $418) $ 75,074
Interest 7,577
-----------
Total income 82,651
-----------
Expenses:
Management fee (Note 2) 9,988
Audit fees 5,068
Custodian and transfer agent fees 1,596
Registration fees 672
Legal fees 112
Trustees fees (Note 2) 56
Miscellaneous 336
Fees waived or borne by Manager (Note 2) (7,840)
-----------
9,988
Shareholder service fee (Note 2)
Class III 4,540
-----------
Net expenses 14,528
-----------
Net investment income 68,123
-----------
Realized and unrealized loss:
Net realized loss on:
Investments (69,179)
Closed futures contracts (5,206)
-----------
Net realized loss (74,385)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (956,646)
Open futures contracts (4,857)
-----------
Net unrealized loss (961,503)
-----------
Net realized and unrealized loss (1,035,888)
-----------
Net decrease in net assets resulting from operations $ (967,765)
===========
See accompanying notes to the financial statements. 11
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from August 2, 1999
(commencement of operations)
through August 31, 1999
(Unaudited)
----------------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 68,123
Net realized loss (74,385)
Change in net unrealized appreciation (depreciation) (961,503)
------------
Net decrease in net assets resulting from operations (967,765)
------------
Net share transactions: (Note 5)
Class III 39,767,611
------------
Increase in net assets resulting from net share
transactions 39,767,611
------------
Total increase in net assets 38,799,846
Net assets:
Beginning of period --
------------
End of period (including accumulated undistributed net
investment income of $68,123) $ 38,799,846
============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
Period from August 2, 1999
(commencement of operations)
through August 31, 1999
(Unaudited)
----------------------------
Net asset value, beginning of period $ 10.00
-------
Income from investment operations:
Net investment income 0.02
Net realized and unrealized loss (0.26)
-------
Total from investment operations (0.24)
-------
Net asset value, end of period $ 9.76
=======
Total Return (a) (2.40)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $38,800
Net expenses to average daily net assets 0.48%*
Net investment income to average daily net assets 2.25%*
Portfolio turnover rate 8%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: --(b)
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
See accompanying notes to the financial statements. 13
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Intrinsic Value Fund (the "Fund"), which commenced operations on August
2, 1999, 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 25, 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 in equity
securities. The Fund's current benchmark is the Russell 1000 Value 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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 contracts, or if
14
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
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, 1999, the Fund no securities on loan.
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. Net payments of interest on interest rate swap agreements are
recorded as interest income. 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 will be 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.
The Fund did not have any open swap agreements as of August 31, 1999.
15
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 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 dividends 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 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. For the period ended August 31, 1999, the Fund did not collect any
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
16
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .33% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the period ended August 31, 1999 was $56. 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, 1999, aggregated
$42,769,486 and $2,797,059, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------- ------------------- ------------------- ------------------
$ 41,715,486 $ 793,509 $ 2,917,567 $ 2,124,058
17
<PAGE>
GMO Intrinsic Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1999, 100% of the outstanding shares of the Fund were held by
one shareholder. Investment activities of this shareholder could have a
material effect.
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 August 2, 1999
Class III: (commencement of operations)
through August 31, 1999
------------------------
Shares Amount
--------- --------------
Shares sold 3,976,761 $ 39,767,611
Shares issued to shareholders
in reinvestment of -- --
distributions
Shares repurchased -- --
=========== ==============
Net increase 3,976,761 $ 39,767,611
=========== ==============
The Fund was formed with an initial tax-free contribution of
securities-in-kind, which had a historical cost of $36,907,073 and
unrealized depreciation of $1,167,412 on the date of contribution.
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
Net
Number of Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------ ------------- ----------------- ---------------- ------------
1 S & P 500 September 1999 $329,950 $ (4,857)
============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
18
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value Description Value ($)
- --------------------------------------------------------------------------------
Debt Obligations -- 103.6%
New Zealand-- 1.1%
NZD 1,000,000 New Zealand Index Linked Bond, 4.50%, due
2/15/16 511,758
-----------
United States -- 102.5%
Asset Backed Securities -- 3.1%
USD 1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155
-----------
Corporate Debt -- 2.3%
USD 1,200,000 JP Morgan and Co. Series A,
Variable Rate, CPI + 4.00%, 6.09%, due
2/15/12 1,053,000
-----------
U.S. Government-- 51.2%
USD 4,881,480 U.S. Treasury Inflation Indexed Bond, 3.63%,
due 4/15/28 4,545,436
USD 6,572,085 U.S. Treasury Inflation Indexed Bond, 3.88%,
due 4/15/29 6,395,854
USD 12,495,345 U.S. Treasury Inflation Indexed Note, 3.88%,
due 1/15/09(a) 12,321,582
-----------
23,262,872
-----------
U.S. Government Agency -- 45.9%
USD 8,625,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.24%, due
2/15/02 8,232,563
USD 13,620,686 Tennessee Valley Authority (Indexed
Principal), 3.38%, due 1/15/07 12,616,889
-----------
20,849,452
===========
Total United States 46,585,479
===========
TOTAL DEBT OBLIGATIONS (COST $47,828,731) 47,097,237
-----------
Short-Term Investments -- 0.0%
Repurchase Agreements -- 0.0%
USD 13,588 Salomon Smith Barney Inc. Repurchase
Agreement, dated 8/31/99, due 9/1/99, with a
maturity value of $13,590 and an effective
yield of 4.68%, collateralized by a U.S.
Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market value,
including accrued interest, of $13,860. 13,588
===========
TOTAL SHORT-TERM INVESTMENTS (COST
$13,588) 13,588
-----------
Total Investments -- 103.6%
(Cost $47,842,319) 47,110,825
Other Assets and Liabilities (net) -- (3.6)% (1,639,360)
-----------
TOTAL NET ASSETS -- 100% $45,471,465
===========
See accompanying notes to the financial statements. 1
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Notes to the Schedule of Investments:
Variable rates - The rates shown on variable rate notes are
the current interest rates at August 31, 1999, which are
subject to change based on the terms of the security.
Currency Abbreviations
NZD - New Zealand Dollar
USD - United States Dollar
(a) All or a portion of this security has been segregated to
cover collateral requirements on reverse repurchase
agreements.
2 See accompanying notes to the financial statements.
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $47,842,319) (Note 1) $47,110,825
Interest receivable 314,918
Net receivable for open forward foreign currency contracts 10,559
(Notes 1 and 6)
Receivable for expenses waived or borne by Manager (Note 2) 3,578
-----------
Total assets 47,439,880
-----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 3,820
Shareholder service fee 5,629
Payable for reverse repurchase agreements (Notes 1 and 6) 1,946,498
Accrued expenses and other liabilities 12,468
-----------
Total liabilities 1,968,415
-----------
Net assets $45,471,465
===========
Net assets consist of:
Paid-in capital $45,567,028
Accumulated undistributed net investment income 1,131,919
Accumulated net realized loss (506,268)
Net unrealized depreciation (721,214)
===========
$45,471,465
===========
Net assets attributable to:
Class III shares $45,471,465
===========
Shares outstanding:
Class III 4,540,329
===========
Net asset value per share:
Class III $ 10.02
===========
See accompanying notes to the financial statements. 3
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest $1,292,878
----------
Total income 1,292,878
----------
Expenses:
Management fee (Note 2) 17,530
Interest expense (Notes 1 and 6) 102,979
Audit fees 14,356
Custodian and transfer agent fees 5,429
Registration fees 616
Legal fees 368
Trustees fees (Note 2) 184
Miscellaneous 480
Fees waived or borne by Manager (Note 2) (21,433)
----------
120,509
Shareholder service fee (Note 2)
Class III 26,295
----------
Net expenses 146,804
----------
Net investment income 1,146,074
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (256,400)
Foreign currency, forward contracts and foreign currency
related transactions 9,340
----------
Net realized loss (247,060)
----------
Change in net unrealized appreciation (depreciation) on:
Investments (473,923)
Foreign currency, forward contracts and foreign currency
related transactions (3,413)
----------
Net unrealized loss (477,336)
----------
Net realized and unrealized loss (724,396)
----------
Net increase in net assets resulting from operations $ 421,678
==========
4 See accompanying notes to the financial statements.
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
------------------ ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,146,074 $ 1,498,147
Net realized loss (247,060) (208,075)
Change in net unrealized depreciation (477,336) (23,506)
----------- -----------
Net increase in net assets resulting
from operations 421,678 1,266,566
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (107,609) (1,437,398)
----------- -----------
Total distributions from net
investment income (107,609) (1,437,398)
----------- -----------
(107,609) (1,437,398)
----------- -----------
Net share transactions: (Note 5)
Class III 20,009,986 (341,835)
----------- -----------
Increase (decrease) in net assets
resulting from net share transactions 20,009,986 (341,835)
----------- -----------
Total increase (decrease) in net
assets 20,324,055 (512,667)
Net assets:
Beginning of period 25,147,410 25,660,077
----------- -----------
End of period (including accumulated
undistributed net investment income
of $1,131,919 and $93,454,
respectively) $45,471,465 $25,147,410
=========== ===========
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Cash Flows -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net investment income $ 1,146,074
Net accretion (384,560)
-----------
761,514
-----------
Investments purchased (63,638,712)
Investments sold 41,242,013
-----------
(22,396,699)
-----------
Other gain (loss):
Foreign currency, forward contracts and foreign
currency related transactions 9,340
Futures contracts 0
Swap contracts 0
-----------
9,340
-----------
Changes in assets and liabilities:
(Increase) decrease in interest receivable (210,389)
(Increase) decrease in receivable for expenses waived or borne by Manager 2,826
(Increase) decrease in receivable for fund shares sold 585
Increase (decrease) in payable to affiliate for Management fee (1,497)
Increase (decrease) in payable to affiliate for Shareholder service fee 2,540
Increase (decrease) in accrued expenses and other liabilities (8,095)
-----------
Total changes in assets and liabilities (214,030)
-----------
Net cash provided by (used in) operating activities (21,839,875)
-----------
Cash flows from financing activities:
Proceeds from shares sold 21,391,288
Net asset value of shares reinvested 79,033
Cost of shares repurchased (1,460,335)
Cash distributions paid (107,609)
Reverse repurchase agreements 1,946,498
-----------
Net cash provided by (used in) financing activities 21,848,875
-----------
Net cash provided (used) 9,000
Cash at beginning of period (9,000)
-----------
Cash at end of period $ 0
===========
</TABLE>
6 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 Year Ended February 28,
August 31, 1999 ---------------------------
(Unaudited) 1999 1998*
---------------- --------- ----------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 9.88 $ 10.04 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income 0.33+ 0.61 0.42+
Net realized and unrealized loss (0.16) (0.18) (0.04)
------- ------- -------
Total from investment operations 0.17 0.43 0.38
------- ------- -------
Less distributions to shareholders:
From net investment income (0.03) (0.59) (0.30)
In excess of net investment income -- -- (0.02)
From net realized gains -- -- --(a)
From tax return of capital -- -- (0.02)
------- ------- -------
Total distributions (0.03) (0.59) (0.34)
------- ------- -------
Net asset value, end of period $ 10.02 $ 9.88 $ 10.04
======= ======= =======
Total Return (b) 1.69% 4.28% 3.77%
Ratios/Supplemental Data:
Net assets, end of period (000's) $45,471 $25,147 $25,660
Net operating expenses to average
daily net assets 0.25%** 0.25% 0.25%**
Interest expense to average daily
net assets 0.59%** -- --
Total net expenses to average daily
net assets 0.84%** 0.25% 0.25%**
Net investment income to average
daily net assets 6.54%** 4.93% 4.48%**
Portfolio turnover rate 107% 94% 9%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.01 $ 0.04 $ 0.04
</TABLE>
* Period from March 31, 1997 (commencement of operations) to February 28,
1998.
** Annualized.
+ Computed using average shares outstanding throughout the period.
(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.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Inflation Indexed 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 of shares into classes.
The Fund seeks high total return through investment in government bonds
that are indexed or otherwise "linked" to general measures of inflation in
the country of issue ("inflation indexed bonds"). The Fund's current
benchmark is the Lehman Brothers Treasury Inflation Notes Index.
Inflation indexed securities issued by the U.S. Treasury are fixed income
securities whose principal value is periodically adjusted according to the
rate of U.S. inflation. Inflation indexed bonds issued by a foreign
government are generally adjusted to reflect a comparable local 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. 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 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
8
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
and unrealized gain or loss on investments. Net realized gains and losses
on foreign currency transactions represent gains and losses on disposition
of foreign currencies and forward foreign currency contracts, 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, 1999.
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.
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to
9
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
repurchase under the agreement. At August 31, 1999, the Fund had entered
into a reverse repurchase agreement having a market value of $2,769,000,
collateralized by a security with a market value of $2,830,898. See Note 6
for a summary of open reverse repurchase agreements as of August 31, 1999.
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, 1999, 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 dividends 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 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 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 interest 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 taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
10
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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. For the six months ended
August 31, 1999, the Fund received $21,391 in purchase premiums and $1,449
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 .10% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.25% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $184. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
11
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1999, 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 $ 44,950,382 $ 36,649,450
Investments (non-U.S. Government securities) 18,688,330 4,000,000
</TABLE>
At August 31, 1999, 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>
$47,842,319 -- $731,494 $731,494
</TABLE>
4. Principal shareholders
At August 31, 1999, 44.4% 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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------------- -----------------------------
Shares Amount Shares Amount
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 2,134,698 $ 21,391,288 1,673,497 $ 16,929,247
Shares issued to shareholders
in reinvestment of
distributions 7,879 79,033 99,325 980,335
Shares repurchased (146,290) (1,460,335) (1,785,715) (18,251,417)
--------------- --------------- ------------- ---------------
Net increase (decrease) 1,996,287 $ 20,009,986 (12,893)$ (341,835)
=============== =============== ============= ===============
</TABLE>
12
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Forward currency contract
Settlement Units of Net Unrealized
Date Deliver Currency Value Appreciation
------------- ----------- --------------- -------------- ---------------
Sale
10/22/99 NZD 1,000,000 $ 517,331 $ 10,559
===============
<TABLE>
<CAPTION>
Reverse repurchase agreement
Face Value Description Market Value
---------- ----------- ------------
<S> <C> <C>
$ 1,946,498 J.P. Morgan, 5.13%, dated 8/25/99, to be repurchased at
$1,981,964 on 12/31/99. $ 1,946,498
============
Average balance outstanding................................................... $ 5,019,593
Average interest rate......................................................... 4.90%
Maximum balance outstanding................................................... $ 9,476,874
Average shares outstanding.................................................... 3,642,147
Average balance per share outstanding......................................... $ 1.38
</TABLE>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
13
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
205,107 GMO REIT Fund 1,829,556
80,512 GMO Small Cap Growth Fund 954,061
157,611 GMO Small Cap Value Fund 1,985,902
565,322 GMO U.S. Core Fund 10,543,253
-----------
TOTAL MUTUAL FUNDS (COST $16,189,953) 15,312,772
-----------
SHORT-TERM INVESTMENTS -- 0.1%
Repurchase Agreements -- 0.1%
$13,551 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $13,553
and an effective yield of 4.68%, collateralized by a
U.S. Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market value,
including accrued interest, of $13,822. 13,551
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $13,551) 13,551
-----------
TOTAL INVESTMENTS -- 100.1%
(COST $16,203,504) 15,326,323
Other Assets and Liabilities (net) -- (0.1)% (12,582)
-----------
TOTAL NET ASSETS -- 100% $15,313,741
===========
</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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $16,203,504) (Note 1) $ 15,326,323
Receivable for expenses waived or borne by Manager (Note 2) 6,526
------------
Total assets 15,332,849
------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 4,335
Accrued expenses 14,773
------------
Total liabilities 19,108
------------
Net assets $ 15,313,741
============
Net assets consist of:
Paid-in capital $ 15,987,934
Accumulated undistributed net investment income 174,090
Accumulated net realized gain 28,898
Net unrealized depreciation (877,181)
------------
$ 15,313,741
============
Net assets attributable to:
Class III shares $15,313,741
===========
Shares outstanding:
Class III 3,082,840
===========
Net asset value per share
Class III $ 4.97
===========
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends from investment company shares $ 173,833
Interest 257
-----------
Total income 174,090
-----------
Expenses:
Management fee (Note 2) 26,035
Audit fees 9,388
Custodian and transfer agent fees 1,933
Registration fees 364
Legal fees 184
Trustees fees (Note 2) 93
Miscellaneous 1,196
Fees waived or borne by Manager (Note 2) (39,193)
-----------
Net expenses --
-----------
Net investment income 174,090
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (217,017)
Realized gain distributions from investment company shares 698,513
-----------
Net realized gain 481,496
-----------
Change in net unrealized appreciation (depreciation) on investments
463,440
-----------
Net realized and unrealized gain 944,936
-----------
Net increase in net assets resulting from operations $1,119,026
===========
</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 August 31, Year Ended
1999 February 28,
(Unaudited) 1999
----------------- ----------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income $ 174,090 $ 366,640
Net realized gain 481,496 5,068,304
Change in net unrealized appreciation (depreciation) 463,440 (2,256,138)
----------- -----------
Net increase in net assets resulting from operations 1,119,026 3,178,806
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (366,924)
----------- -----------
Total distributions from net investment income -- (366,924)
----------- -----------
In excess of net investment income
Class III -- (347,888)
----------- -----------
Total distributions in excess of net investment
income -- (347,888)
----------- -----------
Net realized gains
Class III -- (8,557,355)
----------- -----------
Total distributions from net realized gains -- (8,557,355)
----------- -----------
In excess of net realized gains
Class III -- (619,626)
----------- -----------
Total distributions in excess of net realized gains -- (619,626)
----------- -----------
-- (9,891,793)
----------- -----------
Net share transactions: (Note 5)
Class III (2,635,287) (47,279,849)
----------- -----------
Decrease in net assets resulting from net share
transactions (2,635,287) (47,279,849)
----------- -----------
Total decrease in net assets (1,516,261) (53,992,836)
Net assets:
Beginning of period 16,830,002 70,822,838
----------- -----------
End of period (including accumulated undistributed net
investment income of $174,090 and $0, respectively) $15,313,741 $16,830,002
=========== ===========
</TABLE>
See accompanying notes to the financial statements. 4
<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 August 31, Year Ended February 28/29,
1999 --------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 4.63 $ 8.53 $ 13.03 $ 13.63 11.06 $ 11.26
------- -------- -------- --------- --------- ---------
Income from investment operations:
Net investment income (a) 0.06 0.10+ 0.29+ 0.26 0.29 0.28
Net realized and
unrealized gain 0.28 0.27 2.61 2.20 3.90 0.49
------- -------- -------- --------- --------- ---------
Total from investment
operations 0.34 0.37 2.90 2.46 4.19 0.77
------- -------- -------- --------- --------- ---------
Less distributions to shareholders:
From net investment income -- (0.10) (0.40) (0.22) (0.29) (0.27)
In excess of net
investment income -- (0.15) (0.01) -- -- --
From net realized gains -- (3.75) (6.99) (2.84) (1.33) (0.70)
In excess of net realized
gains -- (0.27) -- -- -- --
------- -------- -------- --------- --------- ---------
Total distributions -- (4.27) (7.40) (3.06) (1.62) (0.97)
------- -------- -------- --------- --------- ---------
Net asset value, end $ 4.97 $ 4.63 $ 8.53 $ 13.03 $ 13.63 $ 11.06
of period
======= ======== ======== ========= ========= =========
Total Return (b) 7.34% 3.13% 29.61% 20.88% 38.90% 7.56%
Ratios/Supplemental Data:
Net assets, end of period $15,314 $16,830 $70,823 $226,711 $211,319 $207,291
(000's)
Net expenses to average
daily net assets (c) 0.00%* 0.00% 0.27% 0.48% 0.48% 0.48%
Net investment income to
average daily net 2.21%* 1.51% 2.53% 1.99% 2.27% 2.61%
assets (a)
Portfolio turnover rate 6% 16% 150% 104% 84% 101%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the $ 0.01 $ 0.04 $ 0.04 $ 0.02 $ 0.01 $ 0.01
following per share
amounts:
</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) On August 20, 1997, the Fund began to invest a substantial portion of its
assets in other funds of GMO Trust and revised its voluntary expense
waiver. Net expenses exclude expenses incurred indirectly through
investment in underlying funds. See Note 2.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 total return greater than that of the S&P 500 through
investment in common stocks, either directly or through investment in other
Funds of the Trust ("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 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.
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.
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
6
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements--(Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 dividends 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. Income dividends and
capital gain distributions from underlying funds are recorded on the
ex-dividend 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. 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 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 .27% of the amount
invested. In the case of cash redemptions, the fee is .18% of the amount
redeemed. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. For the six months ended August
31, 1999, the Fund received $4,749 in redemption fees and no purchase
premiums. There is no premium for reinvested distributions or in-kind
transactions.
7
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .33% 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.
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (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 the
management fee. Because GMO will not reimburse expenses incurred indirectly
to the extent they exceed .33%, 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 .33% of the
Fund's average daily net assets. For the six months ended August 31, 1999,
operating expenses (excluding shareholder service fees and fund expenses)
incurred indirectly by the Fund were .36% of the Fund's average daily net
assets.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.49% of average daily net assets. GMO had agreed to waive a portion of its
fee (but not below zero) and bear other expenses 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 exceeded .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, 1999 was $93. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
8
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999,
aggregated $872,346 and $2,643,614, respectively.
At August 31, 1999, 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> <C>
$16,203,504 $215,113 $1,092,294 $877,181
</TABLE>
4. Principal shareholders
At August 31, 1999, 99.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
------------------------------------------------------------
Shares Amount Shares Amount
------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- -- $ --
Shares issued to shareholders
in reinvestment of
distributions -- -- 1,801,919 9,891,793
Shares repurchased (553,311) (2,635,287) (6,465,314) (57,171,642)
------------- -------------- -------------- ----------------
Net decrease (553,311) $ (2,635,287) (4,663,395) $ (47,279,849)
============= ============== ============== ================
</TABLE>
9
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 113.3%
Australia -- 2.7%
GBP 2,500,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 4,383,810
12/07/06 -------------
Brazil -- 1.1%
USD 10,000,000 Brazil Discount Bond, Principal Strip, due 4/15/24(a) 1,857,847
-------------
Bulgaria -- 0.6%
USD 5,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 928,924
-------------
Cayman Islands -- 3.7%
CAD 1,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 712,371
USD 2,792,308 Great Point CBO Ltd. Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 5.34%,
due 10/15/10 2,768,748
USD 3,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, 2,715,000
due 5/15/10 -------------
6,196,119
-------------
Chile -- 0.4%
USD 750,000 Banco Santander, 6.50%, due 11/01/05 711,563
-------------
Japan -- 0.5%
USD 800,000 Japan Development Bank, 6.88%, due 12/16/99 801,600
-------------
United States -- 104.3%
Asset Backed Securities -- 77.7%
USD 13,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due
5/15/24 12,908,085
USD 6,000,000 American Express Credit Account Master Trust Series
99-5 Class A, Variable Rate, 1 mo. LIBOR + .24%,
5.52%, due 2/15/07 5,994,844
USD 10,000,000 Anfield Road I Ltd.,
Variable Rate, 6 mo. LIBOR + .25%, 5.83%, due
11/06/06 9,832,813
USD 3,000,000 Augusta Funding Ltd X, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due
6/30/17 2,837,813
USD 5,000,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 4,738,281
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR +.25%, 5.61%, due 4/25/03 4,912,500
USD 5,385,000 Brazos Student Loan Finance Corp Series 96-B Class A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.50%,
due 12/01/02 5,369,013
USD 3,000,000 Chevy Chase Master Credit Card Trust Series 98-A Class A,
Variable Rate, 1 mo. LIBOR + .15%, 5.42%, due 10/16/06 2,987,813
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 10,000,000 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due
1/15/10 9,570,313
USD 2,130,231 Constellation 99-1A, 144A, 5.73%, due 4/18/02 2,130,231
USD 3,500,000 Discover Card Master Trust I Series 99-3 Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
9/15/04 3,492,344
USD 10,000,000 Discover Card Trust I Series 97-3 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 5.40%, due
4/16/07 9,936,718
USD 5,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due
10/15/06 4,988,281
USD 6,000,000 EMAC Series 98-1 Class A2, 144A, 6.38%, due 4/15/07 5,681,250
USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 6.07%, due
11/25/21 1,951,170
USD 3,000,000 MBNA Master Credit Card Trust Series 95-J Class A,
Variable Rate, 1 mo. LIBOR + .23%, 5.50%, due
4/15/05 3,001,758
USD 3,000,000 MBNA Master Credit Card Trust Series 96-A Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due
7/15/05 3,000,000
USD 8,450,000 MBNA Master Credit Card Trust Series 97-J Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.39%, due
2/15/07 8,397,188
USD 4,000,000 MBNA Master Credit Card Trust Series 98-A Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
8/15/05 3,984,375
USD 8,037,321 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due
7/15/09 7,842,667
USD 373,506 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 5.64%, due
6/25/26 373,447
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 5,073,438
USD 5,000,000 SHYPPCO Finance Company Series 1I Class A-2B, 6.64%, due
6/15/10 4,647,500
USD 2,620,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 5.91%, due
10/25/23 2,621,572
USD 2,000,000 Team Fleet Financing Corp Series 98-3A Class A, 144A,
6.13%, due 10/25/04 1,915,000
-------------
128,188,414
-------------
U.S. Government -- 3.2%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/13(a) 3,824,781
USD 1,500,000 U.S. Treasury Note, 6.38%, due 8/15/02 1,520,157
-------------
5,344,938
-------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- 23.4%
USD 1,450,000 Agency for International Development Floater (Support of
Belize), Variable Rate, 6 mo. U.S. Treasury Bill +
.50%, 5.71%, due 1/01/14 1,413,750
USD 4,500,501 Agency for International Development Floater (Support of
C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill
+ .40%, 5.61%, due 10/01/12 4,365,486
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 3,818,000
USD 10,000,000 Government National Mortgage Association, TBA, 7.50% 9,909,374
USD 10,000,000 Government National Mortgage Association, TBA, 6.50% 9,415,625
USD 10,000,000 Government National Mortgage Association, TBA, 7.00% 9,671,875
-------------
38,594,110
-------------
Total United States 172,127,462
-------------
TOTAL DEBT OBLIGATIONS (COST $191,146,804) 187,007,325
=============
<CAPTION>
Principal
Amount
----------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.1%
Options on Currency -- 0.1%
USD 5,712,000 Euro, Expires 5/03/00, Strike 1.12 69,115
USD 600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 5,580
=============
74,695
=============
TOTAL CALL 0PTIONS PURCHASED
(COST $160,412) 74,695
-------------
PUT OPTIONS PURCHASED -- 0.1%
Options on Currency -- 0.1%
USD 5,457,000 Euro, Expires 5/03/00, Strike 1.07 175,715
USD 600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 31,260
-------------
206,975
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL PUT OPTIONS PURCHASED
(COST $155,208) 206,975
-------------
SHORT-TERM INVESTMENTS -- 9.9%
Cash Equivalents -- 4.0%
USD 5,138,864 BankBoston Eurodollar Time Deposit, 5.4325%, due 5,138,864
10/29/99(c)
1,501,136 Merrimac Cash Fund Premium Class(c) 1,501,136
-------------
6,640,000
-------------
Commercial Paper -- 5.9%
USD 7,900,000 GE Capital, 5.30%, due 10/05/99 7,860,456
USD 1,833,000 Merrill Lynch, 5.55%, due 9/01/99 1,833,000
-------------
9,693,456
-------------
Repurchase Agreements -- 0.0%
USD 997 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $997
and an effective yield of 4.68%, collateralized by a
U.S. Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market value, including
accrued interest, of $1,017. 997
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $16,334,453) 16,334,453
-------------
TOTAL INVESTMENTS -- 123.4%
(COST $207,796,877) 203,623,448
Other Assets and Liabilities (net) -- (23.4)% (38,563,724)
-------------
TOTAL NET ASSETS-- 100% $ 165,059,724
=============
</TABLE>
4 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, 1999 (Unaudited)
Notes to the Schedule of Investments:
EMTN - Euromarket Medium Term Note
TBA - To Be Announced (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.
Variable and Step up rates -- The rates shown on
variable and step up rate notes are the current
interest rates at August 31, 1999, which are subject
to change based on the terms of the security,
including varying reset dates.
Currency Abbreviations
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
ITL - Italian Lira
JPY - Japanese Yen
SEK - Swedish Krona
USD - United States Dollar
(a) Valued by management (Note 1).
(b) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 6).
(c) Represents investments of security lending collateral
(Note 1).
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $207,796,877) (Note 1) $203,623,448
Cash at interest on deposit at brokers (Note 1) 806,126
Interest receivable 1,268,087
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 15,130
Receivable for expenses waived or borne by Manager (Note 2) 12,028
------------
Total assets 205,724,819
------------
Liabilities:
Payable for investments purchased 32,292,225
Payable upon return of securities loaned (Note 1) 6,640,000
Written options outstanding, at value (premiums $82,764) (Notes
1 and 6) 31,920
Net payable for open forward foreign currency contracts (Notes
1 and 6) 502,115
Payable to affiliate for (Note 2):
Management fee 28,019
Shareholder service fee 19,522
Payable for open swap contracts (Notes 1 and 6) 1,094,751
Interest payable for open swap contracts (Note 1) 8,844
Due to custodian 18,556
Accrued expenses 29,143
------------
Total liabilities 40,665,095
------------
Net assets $165,059,724
============
Net assets consist of:
Paid-in capital $170,701,396
Accumulated undistributed net investment income 3,517,992
Accumulated net realized loss (3,407,212)
Net unrealized depreciation (5,752,452)
------------
$165,059,724
============
Net assets attributable to:
Class III shares $165,059,724
============
Shares outstanding:
Class III 23,437,401
============
Net asset value per share:
Class III $ 7.04
============
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest (including securities lending income of $2,389) $ 4,670,991
-----------
Total income 4,670,991
===========
Expenses:
Management fee (Note 2) 159,461
Custodian and transfer agent fees 37,840
Audit fees 21,898
Legal fees 1,921
Trustees fees (Note 2) 641
Registration fees 364
Miscellaneous 1,195
Fees waived or borne by Manager (Note 2) (63,859)
-----------
159,461
Shareholder service fee (Note 2)
Class III 119,593
-----------
Net expenses 279,054
-----------
Net investment income 4,391,937
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (1,417,653)
Closed futures contracts (384,479)
Closed swap contracts (1,733,832)
Foreign currency, forward contracts and foreign currency
related transactions 140,174
-----------
Net realized loss (3,395,790)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (3,520,897)
Open futures contracts 39,468
Open swap contracts (384,462)
Written options 39,900
Foreign currency, forward contracts and foreign currency
related transactions (389,489)
-----------
Net unrealized loss (4,215,480)
-----------
Net realized and unrealized loss (7,611,270)
-----------
Net decrease in net assets resulting from operations $(3,219,333)
===========
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,391,937 $ 10,596,718
Net realized gain (loss) (3,395,790) 514,377
Change in net unrealized appreciation
(depreciation) (4,215,480) (2,439,559)
------------- ---------------
Net increase (decrease) in net assets
resulting from operations (3,219,333) 8,671,536
------------- ---------------
Distributions to shareholders from:
Net investment income
Class III -- (15,078,084)
------------- ---------------
Total distributions from net
investment income -- (15,078,084)
------------- ---------------
In excess of net investment income
Class III -- (3,785,552)
------------- ---------------
Total distributions in excess of
net investment income -- (3,785,552)
------------- ---------------
Net realized gains
Class III -- (1,159,070)
------------- ---------------
Total distributions from net
realized gains -- (1,159,070)
------------- ---------------
In excess of net realized gains
Class III -- (1,427,853)
------------- ---------------
Total distributions in excess of
net realized gains -- (1,427,853)
------------- ---------------
-- (21,450,559)
------------- ---------------
Net share transactions: (Note 5)
Class III 30,132,817 (229,679,318)
------------- ---------------
Increase (decrease) in net assets
resulting from net share transactions 30,132,817 (229,679,318)
------------- ---------------
Total increase (decrease) in net
assets 26,913,484 (242,458,341)
Net assets:
Beginning of period 138,146,240 380,604,581
============= ===============
End of period (including accumulated
undistributed net investment income
of $3,517,992 and distributions in
excess of net investment income of
$873,945, respectively) $ 165,059,724 $ 138,146,240
============= ===============
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from July 29, 1997
August 31, 1999 Year Ended (commencement of operations)
(Unaudited) February 28, 1999 to February 28, 1998
------------ ----------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.18 $ 10.14 $ 10.00
------- -------- -------
Income from investment operations:
Net investment income 0.20 0.59 + 0.35+
Net realized and unrealized gain (loss) (0.34) (0.19) 0.06
------- -------- -------
Total from investment operations (0.14) 0.40 0.41
------- -------- -------
Less distributions to shareholders:
From net investment income -- (2.36)(a) (0.21)
In excess of net investment income -- (0.59)(a) --
From net realized gains -- (0.18) (0.06)
In excess of net realized gains -- (0.23) --
------- -------- -------
Total distributions -- (3.36) (0.27)
------- -------- -------
Net asset value, end of period $ 7.04 $ 7.18 $ 10.14
======= ======== =======
Total Return (b) (1.81)% 3.42% 4.15%
Ratios/Supplemental Data:
Net assets, end of period (000's) $165,060 $138,146 $380,605
Net expenses to average daily net assets 0.35%* 0.35% 0.35%*
Net investment income to
average daily net assets 5.51%* 5.96% 5.88%*
Portfolio turnover rate 38% 134% 27%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: --(c) $ 0.03 $ 0.02
</TABLE>
(a)The amount shown for a share outstanding does not correspond with the
aggregate distributions to shareholders for the year ended February 28, 1999
due to the timing of purchases and redemptions of Fund shares in relation to
the declaration of distributions to shareholders.
(b)Calculation excludes purchase premiums. 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.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Bond/Global Alpha B 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 a high total return relative to its performance benchmark
through investment in U.S. investment grade securities. The Fund achieves
exposure to international bond and currency markets by investing in a
combination of foreign bond and currency derivatives, effectively adding to
or subtracting from the U.S. bond return the performance of the Fund's
international bond and currency investments. The Fund's current benchmark is
the Lehman Brothers Aggregate Bond 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. 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.
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 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.
10
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. The prices provided by
principal market makers may differ from the value that would be realized if
the securities were sold 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 gains
and losses on disposition of foreign currencies and forward foreign currency
contracts, 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 and agency 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, 1999.
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
11
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999.
Options
The Fund may write call and put options on securities or currencies it owns
or in which it may invest. Writing put options tends to increase the Fund's
exposure to the underlying instrument. Writing call options tends to
decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset
against the 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, 1999.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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 and credit risk. 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
12
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 a default of
the underlying security. In connection with these agreements, cash or
securities may be set aside as collateral by the Fund's custodian in
accordance with the terms of the swap agreement. The Fund earns interest on
cash set aside as collateral, which is paid by the counterparty. At August
31, 1999, $806,126 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. Net payments of
interest on interest rate swaps agreements are recorded as interest income.
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
will be 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, 1999.
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.
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks and
broker/dealers whereby the Fund sells portfolio assets concurrent with an
agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations equal
in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had not entered into a reverse
repurchase agreement.
13
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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,
1999, the Fund loaned securities having a market value of $6,503,340
collateralized by cash in the amount of $6,640,000 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 dividends 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 interest income.
The Fund may trade securities on other than normal settlement terms. This
may increase the risk if the other party to the transaction fails to deliver
and causes the Fund to invest at less advantageous prices.
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 taking into consideration, among other things, the nature
and type of expense and the relative size of the funds.
14
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 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. For the six months ended August 31, 1999, the Fund received $45,205
in purchase premiums. There is no premium for redemptions or reinvested
distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may be
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 .20% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at an annual rate of
.40% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $641. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
15
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1999, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
Purchases Sales
-------------- -------------
U.S. Government securities $ 78,488,282 $ 48,380,079
Investments (non-U.S. Government 45,325,621 14,883,619
securities)
At August 31, 1999, 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
------------------ ------------------- ------------------- ----------------
$207,796,877 $193,287 $4,366,716 $4,173,429
4. Principal shareholders
At August 31, 1999, 95.4% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares. Investment activities of these shareholders could have a material
effect.
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
Class III: August 31, 1999 February 28, 1999
----------------------- ------------ -------------
Shares Amount Shares Amount
----------- ----------- ------------ ------------
Shares sold 4,187,338 $30,136,852 18,651,438 $158,378,340
Shares issued to
shareholders
in reinvestment of
distributions 2,639,708 20,620,609
Shares repurchased (569) (4,035) (39,582,432) (408,678,267)
----------- ----------- ------------ --------------
Net increase (decrease) 4,186,769 $30,132,817 (18,291,286) $(229,679,318)
=========== =========== ============ ==============
16
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Forward currency contracts
Net
Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
----------- --------------- ------------ ----------- ----------------
Buys
9/16/99 AUD 5,300,000 $ 3,378,093 $ (164,089)
9/30/99 CAD 19,500,000 13,074,788 (180,594)
10/15/99 EUR 5,300,000 5,618,397 (46,533)
9/23/99 GBP 8,400,000 13,510,741 32,300
9/09/99 JPY 370,000,000 3,379,275 189,793
---------------
$ (169,123)
===============
Sales
9/16/99 AUD 10,800,000 $ 6,883,661 $ 155,880
9/30/99 CAD 8,400,000 5,632,216 (6,233)
10/15/99 EUR 7,400,000 7,844,555 24,220
9/23/99 GBP 11,000,000 17,692,638 (356,634)
9/09/99 JPY 260,000,000 2,374,625 (143,880)
---------------
$ (326,647)
===============
Forward cross currency contracts
Net
Settlement Unrealized
Date Deliver/Units of Receive/In Exchange Appreciation
Currency For (Depreciation)
----------- --------------------- --------------------- ---------------
11/05/99 CHF 1,433,295 EUR 900,000 $ 1,775
10/29/99 EUR 1,300,000 SEK 11,330,150 (2,210)
10/29/99 SEK 10,524,000 EUR 1,200,000 (5,910)
--------------
$ (6,345)
==============
17
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net
Number Unrealized
of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
--------- --------------------------- ---------- -------- --------------
<S> <C> <C> <C> <C>
Buys
22 Australian Government Bond 10 Yr. September 1999 $2,012,235 $ (12,380)
1 Canadian Government Bond December 1999 81,506 (1,180)
8 German Government Bond September 1999 910,596 (4,712)
31 Swedish Government 10 Yr. September 1999 3,749,922 (145,579)
============
$ (163,851)
============
Sales
5 Australian Government Bond 3 Yr September 1999 $ 384,639 $ (1,368)
4 Japanese Government Bond 10 Yr. September 1999 4,462,087 (9,351)
28 Swiss Government Bond September 1999 2,223,027 35,777
11 Swiss Government Bond December 1999 874,098 8,113
28 U.K.Gilt December 1999 4,930,069 5,851
50 U.S. Long Bond December 1999 5,698,438 28,782
65 U.S. Treasury Note 5 Yr December 1999 7,015,938 7,078
152 U.S. Treasury Note 10 Yr December 1999 16,622,625 58,524
============
$ 133,406
============
</TABLE>
At August 31, 1999, 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, 1999 (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 600 $ 37,764 600 $ 45,000
Options written -- -- -- --
Options exercised -- -- -- --
Options expired -- -- -- --
Options sold -- -- -- --
============== ============ ============= =============
Outstanding, end
of period 600 $ 37,764 600 $ 45,000
============== ============ ============= =============
<CAPTION>
Summary of written options outstanding
Principal Amount
of Contracts Exercise Expiration
(000's omitted) Price Date Value
--------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
USD Put/JPY Call 600 USD 112.7 JPY 11/16/99 $ 24,960
USD Call/JPY Put 600 USD 112.7 JPY 11/16/99 6,960
-------------
$ 31,920
=============
</TABLE>
19
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
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 $ (25,135)
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 par value 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 (26,068)
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 par value and the
then-market value of Kingdom of
Belgium, 5.75% due 3/28/08.
Interest Rate
Swaps
5,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust (3,784)
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.
9,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust (114,260)
Company dated 7/27/99 to receive the
notional amount multiplied by 6.664%
and to pay the notional amount
multiplied by 3 LIBOR adjusted by a
specific spread.
</TABLE>
20
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net
Expiration Unrealized
Notional Amount Date Description Depreciation
---------------- ---------- ----------------------------------- --------------
<S> <C> <C> <C>
Total Return Swaps
25,000,000 USD 11/30/99 Agreement with Morgan Guaranty Trust $ (540,462)
Company dated 11/24/98 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. +
75,000,000 USD 8/1/00 Agreement with Goldman Sachs (385,042)
International dated 7/13/99 to
receive (pay) the notional amount
multiplied by the return on the
Lehman Aggregate Index and to pay the
notional amount multiplied by 1 month
LIBOR adjusted by a specific spread. +
-------------
$(1,094,751)
=============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
+ This swap agreement is valued by management (Note 1).
21
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
Debt Obligations -- 111.8%
Albania -- 2.3%
<S> <C> <C> <C>
USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, due 8/31/25 2,783,418
--------------
Austria -- 0.8%
GBP 500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 917,123
--------------
Brazil -- 0.6%
USD 1,000,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due
4/15/09 660,000
--------------
Bulgaria -- 0.2%
USD 2,000,000 Bulgaria Discount Series B Interest Strips, Basket 2,
0.00%, due 7/28/24 229,000
--------------
Cayman Islands -- 3.7%
USD 5,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%,
due 5/15/10 4,525,000
--------------
Germany -- 1.7%
GBP 2,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 2,096,832
--------------
Jordan -- 0.1%
USD 250,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 142,500
--------------
Mexico -- 7.1%
FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 5,625,247
CHF 8,000,000 Mexico Par Bond, 3.75%, due 12/31/19 3,036,103
--------------
8,661,350
--------------
Nigeria -- 0.4%
USD 987,181 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 523,206
--------------
Russia -- 0.0%
USD 189,099 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due
12/15/15* 27,301
--------------
Supra National -- 0.8%
AUD 11,800,000 European Bank for Reconstruction and Development,
Zero Coupon, due 2/10/28 966,938
--------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States -- 94.1%
Asset Backed Securities -- 61.1%
USD 9,000,000 American Express Credit Account Master Trust Series
99-5 Class A,
Variable Rate, 1 mo. LIBOR + .24%, 5.52%, due 2/15/07 8,992,266
USD 688,008 Americredit Automobile Receivables Trust Series 96-B
Class A, 6.50%, due 1/12/02 688,385
USD 1,000,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 947,656
USD 20,500,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.61%, due 4/25/03 20,141,249
USD 7,945,000 Brazos Student Loan Finance Corp Series 96-B Class A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.50%,
due 12/01/02 7,921,413
USD 2,800,000 Cigna CBO Ltd Series 96-1 Class A2, 144A, 6.46%, due
11/15/08 2,793,875
USD 6,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due
10/15/06 5,985,938
USD 4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due
7/15/09 4,724,498
USD 3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due
2/01/03 2,916,000
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 3,044,063
USD 10,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due
6/15/10 9,295,000
USD 3,832,768 Signet Student Loan Trust Series 96-A Class A-1,
Variable Rate, 1 mo. LIBOR + .09%, 5.25%, due
1/25/05 3,832,768
USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%,
due 7/30/11 2,894,531
-------------
74,177,642
-------------
Structured Notes -- 2.4%
USD 3,000,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due
1/07/05 2,951,719
-------------
U.S. Government -- 11.0%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/10(a) 4,933,891
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/12(a) 4,271,141
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/12(a) 4,115,792
-------------
13,320,824
-------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- 19.6%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 4,772,500
USD 10,000,000 Government National Mortgage Association, TBA, 6.50% 9,415,625
USD 10,000,000 Government National Mortgage Association, TBA, 7.00% 9,671,875
-------------
23,860,000
-------------
Total United States 114,310,185
-------------
TOTAL DEBT OBLIGATIONS (COST $141,637,225) 135,842,853
-------------
LOAN ASSIGNMENTS -- 0.5%
Russia -- 0.5%
USD 5,500,000 Russia Vnesh Restructured Loan Agreements, due
12/15/20* 611,875
-------------
TOTAL LOAN ASSIGNMENTS (COST $3,541,183) 611,875
-------------
Principal
Amount
----------
CALL OPTIONS PURCHASED -- 0.1%
Options on Currency -- 0.1%
USD 8,848,000 Euro, Expires 5/03/00, Strike 1.12 107,061
USD 5,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 52,080
-------------
159,141
-------------
TOTAL CALL OPTIONS PURCHASED (COST $543,430) 159,141
-------------
PUT OPTIONS PURCHASED -- 0.5%
Options on Currency -- 0.5%
USD 8,453,000 Euro, Expires 5/03/00, Strike 1.07 272,187
USD 5,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 291,760
-------------
563,947
-------------
TOTAL PUT OPTIONS PURCHASED (COST $339,903) 563,947
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
13,079,000 United Mexican States Warrants, Expires 6/30/03** --
--------------
Nigeria -- 0.0%
987 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20** --
--------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
--------------
Par Value SHORT-TERM INVESTMENTS -- 1.8%
----------
Commercial Paper -- 1.8%
USD 2,220,000 Merrill Lynch, 5.55%, due 9/01/99 2,220,000
--------------
Repurchase Agreements -- 0.0%
USD 1,186 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $1,186
and an effective yield of 4.68%, collateralized by a
U.S. Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market value, including
accrued interest, of $1,209. 1,186
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,221,186) 2,221,186
--------------
TOTAL INVESTMENTS -- 114.7%
(COST $148,282,927) 139,399,002
Other Assets and Liabilities (net) -- (14.7)% (17,877,574)
--------------
TOTAL NET ASSETS -- 100% $ 121,521,428
==============
</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, 1999 (Unaudited)
Notes to the Schedule of Investments:
EMTN -- Euromarket Medium Term Note
IAN -- Interest Arrears Note
TBA -- To Be Announced (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.
Variable and Step up rates -- The rates shown on
variable and step up rate notes are the current
interest rates at August 31, 1999 which are subject
to change based on the terms of the security,
including varying reset dates.
Currency Abbreviations
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
FRF - French Franc
GBP - British Pound
ITL - Italian Lira
JPY - Japanese Yen
SEK - Swedish Krona
USD - United States Dollar
(a) Valued by management (Note 1).
(b) All or a portion of this security has been
segregated to cover margin requirements on open
financial futures contracts (Note 6).
* Non-performing. Borrower not currently paying
interest.
** Non-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $148,282,927) (Note 1) $139,399,002
Cash (Note 1) 1,600,000
Interest receivable 801,771
Receivable for open swap contracts (Notes 1 and 6) 235,105
Receivable for expenses waived or borne by Manager (Note 2) 10,757
------------
Total assets 142,046,635
------------
Liabilities:
Payable for investments purchased 19,218,750
Written options outstanding, at value (premiums $772,464)
(Notes 1 and 6) 297,920
Net payable for open forward foreign currency contracts
(Notes 1 and 6) 432,189
Payable to affiliate for (Note 2):
Management fee 26,321
Shareholder service fee 15,045
Interest payable for open swap contracts (Note 1) 425,575
Payable for variation margin on open futures contracts
(Notes 1 and 6) 53,773
Accrued expenses 55,634
------------
Total liabilities 20,525,207
------------
Net assets $121,521,428
============
Net assets consist of:
Paid-in capital $127,947,143
Accumulated undistributed net investment income 4,238,335
Accumulated net realized loss (1,982,648)
Net unrealized depreciation (8,681,402)
------------
$121,521,428
============
Net assets attributable to:
Class III shares $121,521,428
============
Shares outstanding:
Class III 12,520,187
============
Net asset value per share:
Class III $ 9.71
============
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 4,059,730
Dividends 132,700
-----------
Total income 4,192,430
-----------
Expenses:
Management fee (Note 2) 158,141
Custodian and transfer agent fees 48,613
Audit fees 24,298
Legal fees 2,028
Trustees fees (Note 2) 647
Registration fees 364
Miscellaneous 1,197
Fees waived or borne by Manager (Note 2) (77,147)
-----------
158,141
Shareholder service fee (Note 2)
Class III 94,882
-----------
Net expenses 253,023
-----------
Net investment income 3,939,407
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (1,229,675)
Closed futures contracts 1,550,189
Closed swap contracts (4,077,573)
Foreign currency, forward contracts and foreign currency
related transactions 822,847
-----------
Net realized loss (2,934,212)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (5,102,208)
Open futures contracts (805,003)
Open swap contracts 2,780,557
Written options 372,400
Foreign currency, forward contracts and foreign currency
related transactions 25,900
-----------
Net unrealized loss (2,728,354)
-----------
Net realized and unrealized loss (5,662,566)
-----------
Net decrease in net assets resulting from operations $(1,723,159)
===========
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,939,407 $ 13,927,844
Net realized loss (2,934,212) (4,990,111)
Change in net unrealized appreciation
(depreciation) (2,728,354) (6,000,013)
------------ ------------
Net increase (decrease) in net assets
resulting from operations (1,723,159) 2,937,720
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,990,521) (2,920,291)
------------ ------------
Total distributions from net investment
income (2,990,521) (2,920,291)
------------ ------------
Net realized gains
Class III (1,232,734) (5,164,180)
------------ ------------
Total distributions from net realized gains (1,232,734) (5,164,180)
------------ ------------
(4,223,255) (8,084,471)
------------ ------------
Net share transactions: (Note 5)
Class III (16,235,057) (79,536,376)
------------ ------------
Decrease in net assets resulting from net
share transactions (16,235,057) (79,536,376)
------------ ------------
Total decrease in net assets (22,181,471) (84,683,127)
Net assets:
Beginning of period 143,702,899 228,386,026
------------ ------------
End of period (including accumulated
undistributed net investment income of
$4,238,335 and $3,289,449, respectively) $121,521,428 $143,702,899
============ ============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 30, 1997
Six Months Ended (commencement of
August 31, 1999 Year Ended operations)
(Unaudited) February 28, 1999 to February 28, 1998
---------------- ----------------- --------------------------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 10.23 $ 10.60 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income 0.32+ 0.64+ 0.55+
Net realized and
unrealized gain (loss) (0.47) (0.58) 0.66
-------- -------- --------
Total from investment operations (0.15) 0.06 1.21
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.26) (0.12) (0.27)
From net realized gains (0.11) (0.31) (0.34)
-------- -------- --------
Total distributions (0.37) (0.43) (0.61)
-------- -------- --------
Net asset value, end of period $ 9.71 $ 10.23 $ 10.60
======== ======== ========
Total Return(a) (1.52)% 0.44% 12.16%
Ratios/Supplemental Data:
Net assets, end of period
(000's) 121,521 143,703 228,386
Net expenses to average
daily net assets 0.40%* 0.40% 0.40%*
Net investment income to
average daily net assets 6.21%* 5.97% 6.05%*
Portfolio turnover rate 75% 113% 58%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.01 $ 0.03 $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Bond/Global Alpha A 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 a high total return relative to its performance benchmark
through investment in U.S. investment grade securities. The Fund achieves
exposure to international bond and currency markets by investing in a
combination of foreign bond and currency derivatives, effectively adding to
or subtracting from the U.S. bond return the performance of the Fund's
international bond and currency investments. The Fund's current benchmark is
the Lehman Brothers Aggregate Bond 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. 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.
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 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.
10
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. The prices provided by
principal market makers may differ from the value that would be realized if
the securities were sold 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 gains
and losses on disposition of foreign currencies and forward foreign currency
contracts, 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 and agency 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, 1999.
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
11
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999.
Options
The Fund may write call and put options on securities or currencies it owns
or in which it may invest. Writing put options tends to increase the Fund's
exposure to the underlying instrument. Writing call options tends to
decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset
against 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, 1999.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
12
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 and credit risk. 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
a default of the underlying security. In connection with these agreements,
cash or securities may be set aside as collateral by the Fund's custodian in
accordance with the terms of the swap agreement. The Fund earns interest on
cash set aside as collateral, which is paid by the counterparty. At August
31, 1999, $1,600,000 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. Net payments of
interest on interest rate swap agreements are recorded as interest income.
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
will be 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, 1999.
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.
13
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks and
broker/dealers whereby the Fund sells portfolio assets concurrent with an
agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations equal
in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had not entered into a reverse
repurchase agreement.
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,
1999, 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 dividends 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 U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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. 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 interest income.
The Fund may trade securities on other than normal settlement terms. This
may increase the risk if the other party to the transaction fails to deliver
and causes the Fund to invest at less advantageous prices.
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 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 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. For the six months ended August 31, 1999, the Fund received $16,841
in purchase premiums. There is no premium for redemptions or reinvested
distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may be
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 .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.
15
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.40% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $647. 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, 1999, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
Purchases Proceeds
------------- ---------------
U.S. Government securities $ 68,370,312 $ 48,380,078
Investments (non-U.S. Government 35,676,952 52,452,800
securities)
At August 31, 1999, 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
------------------ ------------------- ------------------- ----------------
$148,282,927 $282,326 $9,166,251 $8,883,925
4. Principal shareholders
At August 31, 1999, 42.9% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
16
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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:
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
---------------------------------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -------------
Shares sold 1,143,898 $ 11,360,633 7,957,888 $ 84,927,873
Shares issued to
shareholders
in reinvestment of
distributions 323,604 3,193,974 596,366 6,299,415
Shares repurchased (2,995,247) (30,789,664)(16,055,030) (170,763,664)
========== =========== ========== =============
Net decrease (1,527,745) $(16,235,057) (7,500,776) $(79,536,376)
========== =========== =========== =============
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Forward currency contracts
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
----------- --------------- ------------- --------------- --------------
Buys
9/16/99 AUD 5,600,000 $ 3,569,306 $ (173,386)
9/30/99 CAD 26,100,000 17,500,100 (267,785)
10/15/99 EUR 1,000,000 1,060,075 3,975
9/23/99 GBP 8,300,000 13,349,899 20,177
9/09/99 JPY 410,000,000 3,744,602 205,728
============
$ (211,291)
============
Sales
9/16/99 AUD 14,300,000 $ 9,114,477 $ 216,988
9/30/99 CAD 7,800,000 5,229,915 20,075
10/15/99 EUR 11,400,000 12,084,854 33,963
9/23/99 GBP 10,500,000 16,888,427 (359,645)
9/09/99 JPY 260,000,000 2,374,626 (139,169)
------------
$ (227,788)
============
17
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Forward cross currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
---------------------------------- ----------------------- -----------------
11/05/99 CHF 9,714,555 EUR 6,100,000 $ 12,038
10/29/99 EUR 1,000,000 SEK 8,715,500 (1,700)
10/29/99 SEK 6,139,000 EUR 700,000 (3,448)
===============
$ 6,890
===============
Futures contracts
Net
Number Unrealized
of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
----------------------------------------------------------------------------
Buys
9 Australian Government Bond September 1999 $ 671,641 $ 2,256
3 yr.
2 Canadian Government Bond December 1999 164,227 (2,359)
46 Swedish Government Bond 10 September 1999 5,746,797 (221,455)
yr.
50 Swiss Government Bond September 1999 4,061,118 (153,086)
99 Swiss Government Bond December 1999 7,951,495 (79,203)
-----------
$ (453,847)
===========
Sales
20 Australian Government Bond September 1999 $1,799,651 $ 20,313
10 yr.
50 German Government Bond September 1999 5,697,159 205,226
6 Japanese Government Bond March 2000 7,058,051 (14,027)
10 yr.
27 U.K. Gilt December 1999 4,768,339 5,949
45 U.S. Long Bond December 1999 5,128,594 28,222
70 U.S. Treasury Note 5 yr. December 1999 7,555,625 9,537
315 U.S. Treasury Note 10 yr. December 1999 34,448,203 127,482
-----------
$ 382,702
=============
At August 31, 1999, 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 A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Written option transactions
Puts Calls
Principal Principal
Amount of Amount of
Contracts Contracts
(000's (000's
omitted) Premiums omitted) Premiums
--------------- ------------ -------------- ------------
Outstanding,
beginning
of period 5,600 $ 352,464 5,600 $ 420,000
Options written -- -- -- --
Options exercised -- -- -- --
Options expired -- -- -- --
Options sold -- -- -- --
============= ========== ============ ============
Outstanding, end
of period 5,600 $ 352,464 5,600 $ 420,000
============= =========== ============ ============
Summary of written options outstanding
Principal
Amount of Expiration
Contracts Exercise Date Value
(000's Price
omitted)
--------------- ------------ --------------- ------------
USD Put/JPY Call 5,600 USD 112.7 JPY 11/16/99 $ 232,960
USD Call/JPY Put 5,600 USD 112.7 JPY 11/16/99 64,960
-----------
$ 297,920
===========
19
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
Net
Unrealized
Expiration Appreciation/
Notional Amount Date Description (Depreciation)
----------------- -------- ----------------------------------- ------------
Credit Default
Swaps
378,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty $ (193,900)
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 par value
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 Guaranty (195,059)
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 par value
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 Guaranty (5,941)
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 10,558
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.
20
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
Net
Unrealized
Expiration Appreciation/
Notional Amount Date Description (Depreciation)
----------------- -------- ----------------------------------- ------------
19,200,000 CHF 6/10/05 Agreement with Credit Suisse $ 210,289
Financial Products dated 10/01/98
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.
10,600,000 CHF 6/11/05 Agreement with Morgan Guaranty (8,021)
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.
3,300,000 CHF 9/16/05 Agreement with Morgan Guaranty 21,855
Trust Company dated 9/14/98 to
pay the notional amount
multiplied by 3.1175% and to
receive the notional amount
multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a
specified spread.
14,000,000 USD 7/29/06 Agreement with Morgan Guaranty (177,738)
Trust Company dated 7/27/99 to
receive the notional amount
multiplied by 6.664% and to pay
the notional amount multiplied by
3 month LIBOR adjusted by a
specific spread.
Total Return Swap
75,000,000 USD 11/12/00 Agreement with Morgan Guaranty 573,062
Trust Company dated 11/09/98 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. +
-----------
$ 235,105
===========
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
+ This swap agreement is valued by management (Note 1).
21
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 94.8%
Advertising -- 0.1%
1,100 Grey Advertising Inc 408,100
----------
Aerospace -- 0.7%
23,100 Cordant Technologies Inc 955,762
12,000 Curtiss Wright Corp 396,750
16,300 Gencorp Inc 350,450
25,400 Kaman Corp, Class A 331,788
27,200 Kellstrom Industries Inc* 279,224
----------
2,313,974
----------
Automotive -- 2.0%
13,200 Arvin Industries Inc 471,900
14,200 Bandag Inc 472,150
19,700 Borg Warner Automotive Inc 933,287
44,600 Cooper Tire & Rubber Co 847,399
18,100 Dura Automotive Systems Inc* 468,338
35,200 Meritor Automotive Inc 767,799
24,000 Modine Manufacturing Co 713,999
27,050 Monaco Coach Corp* 784,449
20,650 Smith (AO) Corp, Class B 560,130
19,500 Superior Industries International Inc 545,999
25,600 Wabash National Corp 537,599
----------
7,103,049
----------
Banking and Financial Services -- 5.4%
27,400 Advanta Corp, Class A 539,437
58,800 Amresco Inc* 393,225
13,700 Astoria Financial Corp 450,388
24,700 Baldwin and Lyons Inc, Class B 524,875
26,200 Bancwest Corp 1,095,487
23,832 BOK Financial Corporation 513,878
31,200 CFS Bancorp Inc 333,450
36,800 Comdisco Inc 775,099
20,500 Commercial Federal Corp 476,625
9,600 Corus Bancshares Inc 274,800
8,300 Dain Rauscher Corp 411,888
21,816 Downey Financial Corp 463,590
11,800 Eaton Vance Corp 359,900
10,200 Financial Security Assurance Holdings Ltd 510,638
18,100 First Bancorp Puerto Rico 373,313
6,800 First Citizens Bancshares, Class A 532,099
See accompanying notes to the financial statements.
1
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
24,200 First Federal Financial Corp* 369,050
20,900 Heller Financial Inc 478,088
39,900 Imperial Credit Industries Inc* 216,956
12,500 Jeffries Group Inc* 309,375
7,400 JSB Financial 393,125
17,800 Leucadia National Corp 377,138
31,300 Liberty Financial Cos 805,974
36,200 Long Beach Financial Corp* 545,262
14,800 Metris Companies Inc 407,925
27,525 Morgan Keegan Inc 466,205
49,300 Pacific Century Financial Corp 915,130
25,650 PMI Group Inc 1,090,124
32,175 Raymond James Financial Corp 629,422
46,900 Resource America Inc 469,000
21,500 Riggs National Corp 400,438
31,800 Roslyn Bancorp Inc 540,599
56,696 Sovereign Bancorp Inc 568,734
11,400 Student Loan Group 456,000
10,110 UMB Financial Corp 429,675
11,600 Value Line Inc 432,100
32,564 Washington Federal Inc 777,465
----------
19,106,477
----------
Chemicals -- 2.8%
17,000 Albemarle Corp 294,313
22,600 Cytec Industries Inc* 526,862
12,400 Dexter Corp 451,825
29,600 Engelhard Corp 590,149
16,650 Ferro Corp 399,600
18,900 Geon Co 564,637
12,000 Great Lakes Chemical Corp 494,250
39,600 Hanna (MA) Co 542,024
38,400 IMC Global Inc 611,999
59,700 Kaiser Aluminum Corp* 533,568
24,500 Lubrizol Corp 621,687
34,800 Millenium Chemicals Inc 800,399
28,800 Mississippi Chemical Corp 217,800
15,300 Nalco Chemical Co 786,037
35,800 Olin Corp 507,913
22,000 Stepan Co 540,374
37,000 W.R. Grace & Co* 707,624
2 See accomapnying 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, 1999 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Chemicals -- continued
37,400 Wellman Inc 628,787
----------
9,819,848
----------
Computer and Office Equipment-- 2.3%
13,100 CDW Computer Centers Inc* 581,312
9,900 Everex Systems Inc(a) --
61,300 Exabyte Corp* 229,875
81,400 Maxtor Corp* 521,473
16,300 Micros Systems Inc* 550,124
24,900 Quantum Corp-DLT and Storage* 455,981
12,450 Quantum Corp-Hard Disk Drive* 88,706
43,700 Reynolds & Reynolds Inc, Class A 955,937
9,000 Safeguard Scientifics Inc* 605,249
8,400 Sandisk Corp* 708,749
27,900 Sequent Computer Inc* 491,738
64,700 Silicon Graphics Inc* 740,005
31,400 SMART Modular Technologies Inc* 653,512
32,400 Sterling Software Inc* 652,049
15,800 Zebra Technologies Corp* 742,599
----------
7,977,309
----------
Construction-- 1.3%
28,200 Bridge & Toll Road Brothers Inc* 571,049
17,200 Centex Corp 483,750
43,600 Foster Wheeler Corp 564,074
43,200 Horton (DR) Inc 629,099
25,900 Kaufman & Broad Home Corp 529,330
25,000 McDermott International Inc 564,062
31,200 Pulte Corp 721,499
19,700 Texas Industries Inc 630,399
----------
4,693,262
----------
Consumer Goods-- 5.2%
79,900 Agribiotech Inc* 312,113
16,200 Bassett Furniture Industries Inc 330,075
10,734 Block Drug Co Inc, Class A 431,373
20,500 Brown Shoe Co Inc 356,188
59,200 Burlington Industries Inc* 336,700
52,400 Callaway Golf Co 520,725
21,900 Coleman Co Inc* 201,206
80,600 Compucom Systems Inc* 292,175
16,700 Department 56 Inc* 467,600
3
See accompanying notes to the financial statements
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- continued
14,400 Enesco Group Inc 248,400
19,800 Fastenal Co 992,474
17,500 Footstar Inc* 568,749
25,800 Furniture Brands International Inc* 517,613
26,700 Hon Industries Inc 629,118
27,281 Jones Apparel Group Inc* 707,600
33,900 Justin Industries 484,136
28,600 Kimball International, Class B 552,337
19,100 Knoll Inc* 510,925
22,900 La-Z-Boy Chair Co 502,369
21,115 Lancaster Colony Corp 694,155
23,900 Liz Claiborne Inc 878,324
54,200 Moore Corp Ltd 504,738
12,000 National Service Industries 384,000
15,150 Oneida Ltd 361,706
28,100 Osh Kosh B Gosh, Class A 453,113
18,900 Pittston Brinks Group 450,056
24,100 Polo Ralph Lauren Corp* 466,938
44,000 Reebok International Ltd* 519,750
26,300 Russell Corp 440,525
7,400 Scholastic Corp* 293,225
82,800 Sunbeam Corp* 512,325
20,900 Technology Data Corp* 774,605
75,900 Terra Industries Inc 170,775
37,800 Unifi Inc* 510,300
57,220 US Industries Inc 922,672
30,000 Wallace Computer Services 641,249
25,900 Warnaco Group Inc, Class A 569,799
-----------
18,510,131
-----------
Electronic Equipment -- 7.5%
32,000 3DFX Interactive Inc* 356,000
34,700 Adaptec Inc* 1,353,299
28,800 American Power Conversion Corp* 505,800
42,600 Andrew Corp* 745,499
66,700 Arrow Electronics Inc* 1,325,662
41,200 Aspect Telecommunications Corp* 455,775
38,900 Atmel Corp* 1,529,255
30,800 AVX Corp 922,074
23,100 C-Cube Microsystems Inc* 642,468
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronic Equipment -- continued
23,000 Ciena Corp* 807,874
13,600 CTS Corp 647,699
20,800 Cypress Semiconductor Corp* 481,000
12,500 Dallas Semiconductor Corp 631,249
20,200 Diebold Inc 537,824
5,300 Franklin Electric Inc 373,650
12,000 Hadco Corp* 498,750
9,000 Harman International Industries 382,500
23,600 Hussmann International Inc 401,200
18,100 Imation Corp* 510,194
50,300 International Rectifier Corp* 811,087
11,200 Jabil Circuit Inc 501,900
29,600 Kemet Corp* 764,049
8,100 Lattice Semiconductor Corp* 499,163
19,700 Lincoln Electric Holdings Inc 398,925
10,600 Litton Industries* 678,399
15,800 Marshall Industries* 579,662
32,700 MEMC Electronic Materials Inc* 649,912
27,000 Methode Electronics, Class A 486,000
10,000 Microchip Technology Inc* 547,499
62,700 National Semiconductor Corp* 1,767,355
76,600 Oak Technology Inc* 363,850
10,200 Pittway Corp, Class A 335,963
22,000 SCI Systems Inc* 1,095,874
49,400 Sensormatic Electronics Corp* 577,362
38,000 Silicon Valley Group Inc* 451,250
10,700 Thomas & Betts Corp 481,500
27,000 Valmont Industries Inc 428,625
56,637 Vishay Intertechnology Inc 1,214,155
16,600 Watkins Johnson 549,874
54,728 Zilog Inc(b)* 136,393
-----------
26,426,569
-----------
Entertainment & Leisure -- 0.1%
21,300 Metro Goldwyn Mayer Inc* 426,000
-----------
Food and Beverage -- 3.3%
6,700 Agribrands International Inc* 325,788
11,600 Coors (Adolph) Co, Class B 661,924
25,100 Corn Product Interest Inc 817,318
23,700 Darden Restaurants Inc 370,313
See accompanying notes to the financial statements. 5
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- continued
12,600 Dean Foods Co 507,150
3,500 Farmer Brothers Co 693,874
20,900 Great Atlantic & Pacific Tea Co 734,112
12,300 Hormel (Geo A) and Co 495,075
70,900 IBP Inc 1,626,268
14,400 International Multifoods Corp 326,700
20,000 Interstate Bakeries Corp 478,750
16,300 Luby's Cafeteria Inc 218,013
16,600 Michael Foods Inc 459,613
18,400 Pilgrims Pride Corp 195,500
9,200 Pilgrims Pride Corp, Class A* 74,750
46,300 Ryan's Family Steak Houses Inc* 448,531
1,100 Seaboard Corp 272,800
21,000 Smithfield Foods Inc* 616,874
14,100 Suiza Foods Corp* 449,438
22,200 Universal Corp 629,924
27,950 Universal Foods Corp 590,443
28,200 Wendy's International Inc 789,599
-----------
11,782,757
-----------
Health Care -- 3.8%
29,700 Alterra Healthcare Corp* 297,000
27,900 Apria Healthcare Group* 470,813
18,200 Arrow International Inc 527,799
23,700 Ballard Medical Products 580,649
8,300 Bard (CR) 386,988
91,600 Beverly Enterprises Inc* 458,000
17,533 Bindley Western Industries Inc 293,678
50,300 Coventry Health Care Inc* 506,144
17,000 Dentsply International Inc 421,813
9,900 Express Scripts Inc, Class A* 667,012
34,900 First Health Group Corp* 752,530
19,000 Haemonetics Corp* 371,688
15,600 HCR Manor Care Inc* 305,175
28,100 Invacare Corp 525,118
168,300 Laboratory Corporation of America Holdings* 483,863
25,400 Lincare Holdings Inc* 669,924
27,700 Mallinckrodt Inc 888,130
93,900 Mariner Post-Acute Network Inc* 52,819
25,000 Mentor Corp 584,374
53,600 Mid Atlantic Medical Services Inc* 452,250
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Health Care -- continued
20,900 Ocular Sciences Inc* 343,544
76,600 Phycor Inc* 311,188
14,200 Quest Diagnostics Inc* 375,413
57,100 Quorum Health Group Inc* 503,194
29,500 RightCHOICE Managed Care, Class A* 318,969
21,950 Sierra Health Services Inc* 260,656
36,100 Sola International Inc* 573,087
34,300 Sunrise Medical Inc* 240,100
103,300 Vivus Inc* 332,502
18,100 Wesley Jessen Visioncare Inc* 555,443
-----------
13,509,863
-----------
Insurance -- 5.6%
2,157 Alleghany Corp* 389,878
22,200 American Financial Group Inc 654,899
10,000 American National Insurance Co 699,999
22,700 Argonaut Group Inc 573,174
61,200 ARM Financial Group Inc, Class A 15,300
20,700 Berkley (WR) Corp 470,925
25,700 Capital Re Corp 311,613
20,600 Commerce Group Inc 458,350
16,968 Delphi Financial Group Inc* 602,363
31,400 Everest Re Holdings Inc 871,349
25,070 Fidelity National Financial Inc 385,451
25,850 First American Financial Corp 384,519
54,110 Foundation Health Systems Inc, Class A* 689,902
39,530 Fremont General Corp 392,829
35,100 Frontier Insurance Group Inc 425,588
9,300 Gallagher (Arthur J) and Co 508,013
25,800 Harleysville Group Inc 501,488
24,700 HCC Insurance Holdings Inc 361,238
19,600 Horace Mann Educators Corp 590,449
21,900 Kansas City Life Insurance Co 893,793
10,000 Liberty Corp 480,625
25,500 Life USA Holdings Inc 524,344
15,400 Mercury General Corp 465,850
48,100 Ohio Casualty Corp 739,537
19,100 Orion Capital Corp 921,574
36,800 Oxford Health Plans Inc* 570,399
28,400 Presidential Life Corp 511,200
15,600 Radian Group Inc 722,474
See accompanying notes to the financial statements. 7
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- continued
117,900 Reliance Group Holdings Inc 560,024
13,043 RLI Corp 437,756
29,700 Selective Insurance Group 529,030
7,100 Transatlantic Holding Inc 512,088
13,650 Trenwick Group Inc 299,447
20,100 Trigon Healthcare Inc* 729,880
25,200 UICI* 663,074
44,000 Vesta Insurance Group 211,750
13,725 X1 Captial Limited 690,538
-----------
19,750,710
-----------
Lodging -- 0.2%
154,900 Wyndham International Inc, Class A 551,830
-----------
Machinery -- 5.3%
60,900 Agco Corp 628,030
30,000 Case Corp 1,481,249
23,600 Cooper Cameron Corp* 982,349
31,700 Cummins Engine Inc 1,878,224
24,800 Detroit Diesel Corp 506,850
29,200 Donaldson Co Inc 573,049
25,700 Flowserve Corp 406,381
18,900 FMC Corp* 1,100,924
19,700 Kaydon Corp 604,543
29,700 Kennametal Inc 787,049
16,500 Kulicke & Soffa Industries* 339,281
12,300 Lam Research Corp* 694,180
21,300 Milacron Inc 383,400
22,200 Mohawk Industries Inc* 502,275
10,200 Nordson Corp 501,394
11,500 Novellus System Inc* 620,280
66,200 Oakley Inc* 405,475
17,600 Smith International Inc* 821,699
13,700 Starrett (LS) Co, Class A 334,794
11,700 Tecumseh Products Co 666,899
23,400 Tecumseh Products Co, Class B 1,240,199
13,200 Toro Co 485,100
35,600 Ultratech Stepper Inc* 476,150
59,300 Varco International Inc* 733,837
24,200 Varian Medical Systems Inc 523,325
24,300 York International Corp 999,337
-----------
18,676,273
-----------
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Manufacturing -- 3.8%
37,900 ACX Technologies Inc* 469,013
40,500 Amcast Industrial Corp 642,937
17,800 American Greetings Corp 492,838
14,900 Applied Power Inc, Class A 456,313
9,700 Armstrong World Industries Inc 471,056
15,300 Ball Corp 687,543
18,300 Barnes Group Inc 362,569
31,200 Champion Enterprises Inc* 265,200
64,212 Clayton Homes Inc 610,013
37,750 Crane Co 908,358
7,100 CSS Industries Inc* 147,325
33,800 General Cable Corp 490,100
44,800 Gibson Greetings Inc* 176,400
19,700 Global Industrial Technologies Inc* 219,163
7,400 Greif Brothers Corp 179,450
44,400 Griffon Corp* 316,350
23,000 Harsco Corp 636,812
27,800 International Game Technology 486,500
12,300 Lafarge Corp 338,250
17,300 Lydall Inc* 187,056
7,000 Mine Safety Appliances 448,000
16,200 NCI Building Systems Inc* 296,663
21,200 Owens Corning 596,249
8,000 Sequa Corp, Class A* 540,999
14,400 Snap-On Inc 486,900
18,400 Standex International Corp 420,900
29,600 Tower Automotive Inc* 591,999
29,400 Trinity Industries Inc 922,424
21,500 Watts Industries Inc, Class A 473,000
-----------
13,320,380
-----------
Metals and Mining -- 1.3%
40,100 Arch Coal Inc 536,337
31,500 Asarco Inc 657,562
10,900 Cleveland Cliffs Inc 349,481
15,800 Commercial Metals Co 483,875
70,900 Cyprus Amax Minerals Co 1,200,868
6,900 Nacco Industries Inc, Class A 537,337
38,900 Timken Co 683,180
-----------
4,448,640
-----------
See accompanying notes to the financial statements. 9
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Oil and Gas -- 3.8%
31,500 BJ Services Co* 1,078,874
14,600 Cal Dive International Inc* 549,324
34,100 Ensco International Inc 726,755
20,200 Equitable Resources Inc 742,349
43,900 Friede Goldman International Inc* 537,774
45,100 Global Industries Limited* 504,556
33,400 Global Marine Inc* 592,849
22,100 Helmerich & Payne Inc 609,130
26,400 K N Energy Inc 537,899
43,800 KCS Energy Inc 41,063
18,400 Kerr-McGee Corp 1,030,399
29,200 Mitchell Energy, Class B 576,699
41,900 Nabors Industries Inc* 1,139,155
33,200 National-Oilwell Inc* 564,399
47,400 Newpark Resources Inc* 426,600
69,100 Ocean Energy Inc* 699,637
12,700 Peoples Energy Corp 462,756
24,500 Pogo Producing Co 511,438
60,600 Pride International Inc* 901,424
11,900 Seacor Smit Inc* 618,055
27,700 Veritas DGC Inc* 495,138
-----------
13,346,273
-----------
Paper and Allied Products -- 2.4%
25,000 Boise Cascade Corp 909,374
8,800 Bowater Inc 471,900
22,300 Caraustar Industries Inc 505,931
68,400 Ikon Office Solutions Inc 760,949
24,100 Louisiana Pacific Corp 445,850
22,000 Mail-Well Inc* 313,500
8,100 Media General Inc, Class A 396,900
14,000 Pentair Inc 636,999
15,200 Potlatch Corp 587,099
35,300 Rock-Tenn Co, Class A 498,613
32,400 Shorewood Packaging Corp* 477,900
38,421 Smurfit-Stone Container Corp* 814,044
18,000 TJ International Inc 524,250
36,300 Wausau-Mosinee Paper Corp 499,125
21,400 Westvaco Corp 560,412
-----------
8,402,846
-----------
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Pharmaceuticals -- 0.9%
15,400 Amerisource Health Corp* 397,513
25,650 Bergen Brunswig Corp, Class A 395,972
28,800 ICN Pharmaceuticals Inc 597,599
41,475 Mark IV Industries Inc 821,722
79,000 NBTY Inc* 641,874
40,100 Nu Skin Enterprises Inc* 428,569
-----------
3,283,249
-----------
Primary Materials -- 1.6%
27,300 A. Schulman Inc 489,694
11,300 Ameron Inc 516,975
11,100 Carlisle Cos Inc 444,000
16,800 Carpenter Technology Corp 384,300
12,600 Centex Construction Products Inc 484,313
12,100 Florida Rock Industries 483,244
24,200 Premark International Inc 804,649
18,100 Tupperware Corp 408,381
10,900 USG Corp 534,099
22,700 Weatherford International Inc 808,687
10,500 West Pharmaceutical Services Inc 395,063
-----------
5,753,405
-----------
Primary Processing -- 3.0%
33,200 AK Steel Holding Corp 697,199
19,400 Belden Inc 454,688
114,800 Bethlehem Steel Corp* 882,524
30,800 Citation Corp* 487,025
30,300 Howmet International Inc.* 541,612
36,600 Lone Star Technologies Inc* 731,999
98,100 LTV Corp 564,074
6,200 Maxxam Inc* 353,400
13,500 Mueller Industries Inc* 418,500
54,500 National Steel Corp, Class B 442,813
11,000 NCH Corp 489,500
37,500 Oregon Steel Mills Inc 410,156
13,200 Precision Castparts Corp 468,600
19,700 Quanex Corp 512,200
24,200 Rouge Industries Inc, Class A 175,450
See accompanying notes to the financial statements. 11
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Primary Processing -- continued
22,300 Ryerson Tull Inc 422,306
18,700 Superior Telecom Inc 492,044
37,500 Titanium Metals Corp 321,094
38,300 USX-US Steel Group Inc 1,034,099
14,000 Valspar Corp 508,375
-----------
10,407,658
-----------
Printing and Publishing -- 0.4%
15,200 American Business Products Inc 228,000
35,500 Hollinger International Inc 381,625
25,200 World Color Press Inc* 926,099
-----------
1,535,724
-----------
Real Estate -- 1.0%
32,600 Lennar Corp 619,399
49,400 Meditrust Corp, REIT 441,513
23,800 Meristar Hospitality Corp, REIT 401,625
16,500 Parkway Properties Inc, REIT 544,499
34,800 Price Enterprises Inc, REIT* 269,700
51,600 Prison Realty Trust Inc, REIT 674,024
25,700 Security Capital Group, Class B, REIT* 361,406
16,900 Webb (D) Corp 367,575
-----------
3,679,741
-----------
Refining -- 0.7%
12,500 Holly Corp 176,563
24,000 Lyondell Petro Chemical Co 349,500
12,500 Murphy Oil Corp 634,374
27,492 Ultramar Diamond Shamrock Corp 718,228
29,200 Valero Energy Corp 620,499
-----------
2,499,164
-----------
Retail Trade -- 6.5%
180,100 7 Eleven Inc* 371,456
12,500 Ames Department Stores Inc* 367,188
13,500 AnnTaylor Stores Corp* 447,188
18,400 Applebees International Inc 571,549
18,100 BJ's Wholesale Club Inc 511,325
35,300 Borders Group Inc* 469,931
33,040 Burlington Coat Factory Warehouse 545,159
43,900 Cash American Investments Inc 315,531
25,600 CBRL Group Inc 336,000
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade -- continued
32,900 Central Garden and Pet Co* 254,975
78,800 Charming Shoppes Inc* 438,325
24,700 Claire's Stores Inc 464,669
57,300 Cone Mills Corp* 336,638
19,400 Consolidated Stores Corp* 312,825
16,200 CPI Corp 526,499
21,200 Dave and Busters Inc* 249,100
27,400 Dress Barn Inc* 412,713
18,600 Foodmaker Inc* 428,963
47,300 Fruit of the Loom Inc, Class A* 331,100
56,900 Goodys Family Clothing Inc* 524,550
9,300 Hannaford Brothers Co 667,274
78,100 Heilig Meyers Co 414,906
54,000 Inacom Corp* 526,499
40,400 Ingles Markets Inc 542,874
15,800 Lands End Inc* 795,924
49,800 Lone Star Steakhouse and Saloon Inc* 379,725
23,400 Michaels Stores Inc* 718,087
30,900 Micro Warehouse Inc* 378,525
34,100 Neiman Marcus Group Inc* 758,724
33,300 NPC International Inc* 376,706
70,200 OfficeMax Inc* 530,887
28,000 Outback Steakhouse Inc* 829,499
15,000 Payless ShoeSource Inc* 748,124
37,000 Petco Animal Supplies Inc* 462,500
38,400 Phillips Van Heusen 326,400
48,300 Pier 1 Imports Inc 262,631
71,000 Rainforest Cafe Inc* 465,938
26,900 Ross Stores Inc 1,119,712
21,400 Ruby Tuesday Inc 387,875
21,000 Ruddick Corp 389,813
204,700 Service Merchandise Co* 57,582
13,800 Shopko Stores Inc* 395,025
59,600 Spiegel Inc, Class A* 532,674
34,700 The Pep Boys 505,319
36,700 Value City Department Stores Inc* 458,750
66,100 Venator Group Inc* 470,963
14,700 Weismarkets Inc 520,931
16,100 Whitehall Jewellers Inc* 452,813
See accompanying notes to the financial statements. 13
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade -- continued
11,700 Zale Corp* 405,844
-----------
23,098,208
-----------
Services -- 7.2%
51,900 Alternative Resources Corp* 314,644
13,200 Amerco* 331,650
12,000 Anchor Gaming* 583,125
31,925 Arctic Cat Inc 301,292
35,000 Avid Technology Inc* 441,875
18,800 Avis Rental Car Inc* 413,600
43,500 Aztar Corp* 399,656
26,250 Banta Corp 616,874
20,200 Berlitz International Inc* 368,650
37,000 Bowne and Co Inc 513,375
45,200 Buffets Inc* 505,675
37,100 Building One Services Corp* 482,300
15,800 Carmike Cinemas Inc, Class A* 213,300
9,600 Catalina Marketing Corp* 871,199
12,000 Chemed Corp 364,500
10,800 Chris Craft Industries Inc* 546,749
25,800 Dollar Thrifty Automotive Group Inc* 485,363
42,500 Electro Rental Corp* 515,313
45,900 Fleming Cos Inc 553,668
25,000 Franklin Covey Co* 193,750
49,800 Harrahs Entertainment Inc* 1,120,499
25,500 Hollywood Entertainment Corp* 345,844
24,000 Interim Services Inc* 442,500
36,500 Interpool Inc 346,750
17,400 Jacobs Engineering Group* 574,199
17,200 Kellwood Co 410,650
28,900 Kelly Services 812,812
19,600 KingWorld Productions Inc* 747,249
51,400 Mandalay Resort Group* 1,053,699
34,500 Manpower Inc 931,499
20,550 Marcus Corp 245,316
56,500 Modis Professional Services Inc* 893,405
2,000 Oakwood Homes Corp 12,125
89,700 Olsten Corp 919,424
51,200 Prime Hospitality Corp* 476,800
18,300 Promus Hotel Corp* 531,843
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
15,800 Rent-A-Center Inc* 350,563
19,600 Res-Care Inc* 369,950
36,100 Rollins Truck Leasing Corp 374,538
71,600 Romac International Inc* 519,100
18,600 Sbarro Inc* 511,500
47,400 Staff Leasing Inc* 438,450
46,400 Staffmark Inc* 450,952
28,000 Station Casinos Inc* 566,999
11,800 Stone & Webster Inc 303,113
31,800 Supervalu Inc 715,499
54,500 U.S. Oncology Inc* 558,624
17,048 United Water Resources Inc 571,107
32,900 Veterinary Centers of America Inc* 366,013
45,600 Wolverine World Wide Inc 515,850
-----------
25,493,430
-----------
Technology -- 4.3%
60,000 Acclaim Entertainment Inc* 423,750
7,400 Adobe Systems Inc 737,224
32,200 Advanced Micro Devices Inc* 666,137
48,000 Aspen Technologies Inc* 411,000
27,600 Autodesk Inc 634,799
26,100 Avnet Inc 1,154,924
45,000 Cabletron Systems Inc* 756,562
60,000 Cirrus Logic Corp* 671,249
14,100 Cognex Corp* 425,644
31,300 Computer Horizons Corp* 406,900
40,700 Datastream Systems Inc* 493,488
13,400 Deluxe Corp 456,438
11,800 Dionex Corp* 469,788
12,800 Electronics For Imaging Inc* 750,399
18,700 Esterline Corp* 306,213
30,300 G TECH Holdings Corp* 765,074
22,400 Gartner Group Inc, Class A 469,000
117,400 Inprise Corp* 495,287
10,100 KLA Instruments Corp* 634,405
18,600 Mettler-Toledo International Inc* 495,225
40,700 MTS Systems Inc 447,700
63,300 Renaissance Worldwide Inc* 308,588
14,700 Synopsys Inc* 822,280
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology -- continued
23,750 Tektronix Inc 789,687
11,800 Teradyne Inc* 803,137
27,300 Thermo Electron Corp* 433,388
-----------
15,228,286
-----------
Telecommunications -- 0.9%
13,580 Adtran Inc* 517,738
69,500 Brightpoint Inc* 245,425
8,600 Premiere Technologies Inc* 56,169
8,200 Telephone and Data Systems Inc 569,899
47,100 TV Guide Inc, Class A* 1,307,024
43,700 World Access Inc* 543,518
-----------
3,239,773
-----------
Textiles -- 0.5%
4,200 Crystal Brands Inc(a) --
25,650 Guilford Mills 242,072
44,800 Shaw Industries Inc 895,999
13,500 Springs Industries Inc, Class A 507,094
-----------
1,645,165
-----------
Transportation -- 4.3%
20,500 Airborne Freight Corp 516,344
22,250 Airline Express International Corp 543,733
70,700 Airtran Holdings Inc* 391,063
10,700 Alaska Airline Group Inc* 462,775
23,700 American Freightways Corp* 497,700
26,500 American West Holdings Corp, Class B* 516,750
28,200 Atlantic Coast Airlines Holdings* 560,474
47,900 Brunswick Corp 1,224,443
12,000 CNF Transportation Inc 467,250
36,100 Comair Holdings Inc 762,612
16,300 Continental Airlines Inc, Class B* 665,243
18,800 Expeditors International Washington Inc 607,474
21,900 Fleetwood Enterprises Inc 446,213
29,400 Frontier Airlines Inc* 369,338
17,400 Gatx Corp 580,724
86,500 Halter Marine Group Inc* 459,531
32,100 Heartland Express Inc* 477,488
47,700 Laidlaw Inc, Class B 298,125
10,300 Landstar System Inc* 381,100
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- continued
11,500 Navistar International Corp* 559,187
39,300 Ryder System Inc 867,055
19,800 Swift Transportation Co 412,088
33,800 Tidewater Inc 1,098,499
20,500 US Freightways Corp 994,249
37,700 Wisconsin Central Transport* 600,843
23,700 Yellow Corp* 376,238
-----------
15,136,539
-----------
Utilities -- 6.6%
18,200 Alliant Energy Corp 526,662
31,400 Avista Corp 541,649
8,800 Calpine Corp* 797,499
11,900 Central Hudson Gas & Electric 502,775
5,700 Cilcorp Inc 367,294
60,900 Citizens Utilities, Class B* 669,899
13,400 Cleco Corp 445,550
22,800 CMP Group Inc 605,624
13,700 Commonwealth Energy Systems 599,374
48,050 Connectiv Inc 1,030,071
13,500 DQE Inc 522,281
34,700 Dynegy Inc 815,449
16,400 Eastern Utilities Associates 490,975
59,800 El Paso Electric Co* 549,412
26,900 Energen Corp 507,738
28,500 Energy East Corp 712,499
12,400 Hawaiian Electric Industry Inc 440,975
29,900 Illinova Corp 953,062
31,000 Keyspan Corp 914,499
23,600 LG&E Energy Corp 542,799
27,000 MCN Corp 482,625
29,800 Midamerican Energy Holdings Co* 853,024
10,100 New England Electric System 527,093
69,700 Niagara Mohawk Holdings Inc* 1,054,212
78,000 Northeast Utilities* 1,369,874
16,100 Nui Corporation 412,563
25,800 Oneok Inc 801,412
38,900 Public Services Co of New Mexico 731,805
18,300 Puget Sound Power and Light Co 433,481
21,800 RGS Energy Group Inc 564,074
3,403 Sierra Pacific Resources* 82,956
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value($) Description Value ($)
- --------------------------------------------------------------------------------
Utilities -- continued
13,600 TNP Enterprises Inc 508,300
28,140 UniSource Energy Corp Holding Co* 335,921
9,100 United Illuminating Co 455,000
32,900 Utilicorp United Inc 762,868
33,300 Western Gas Resources Inc 568,180
28,400 Western Resources Inc 678,049
------------
23,157,523
------------
TOTAL COMMON STOCKS (COST $351,198,772) 334,732,156
------------
SHORT-TERM INVESTMENTS -- 9.2%
Cash Equivalents -- 3.7%
$2,670,567 BankBoston Eurodollar Time Deposit, 5.4325%,
due 10/29/99(c) 2,670,567
4,777,537 Merrimac Cash Fund Premium Class(c) 4,777,537
$5,500,000 Prudential Securities Group Inc, Master Note,
5.625%, due 3/10/2000(c) 5,500,000
------------
12,948,104
------------
U.S. Government -- 1.0%
$3,570,000 U.S. Treasury Bill, 4.69%, due 10/21/99(d) 3,532,169
------------
Repurchase Agreements -- 4.5%
$16,023,662 Salomon Smith Barney Inc. Repurchase
Agreement, dated 8/31/99, due 9/1/99, with a
maturity value of $16,025,745 and an effective
yield of 4.68%, collateralized by a U.S.
Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market
value, including accrued interest, of
$16,344,135. 16,023,662
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $32,519,126) 32,503,935
------------
TOTAL INVESTMENTS -- 104.0%
(COST $383,717,898) 367,236,091
Other Assets and Liabilities (net) -- (4.0)% (14,268,873)
------------
TOTAL NET ASSETS -- 100% $352,967,218
============
18 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Notes to the Schedule of Investments:
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Bankrupt issuer.
(b) Valued by management (Note 1).
(c) Represents investments of security lending collateral
(Note 1).
(d) All or a portion of this security has been segregated to
cover margin requirements on open financial futures contracts
(Note 6).
See accompanying notes to the financial statements. 19
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $383,717,898) (Note 1) $367,236,091
Receivable for investments sold 3,543,333
Dividends and interest receivable 372,630
Receivable for open swap contracts (Notes 1 and 6) 929,020
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 54,075
Receivable for expenses waived or borne by Manager (Note 2) 13,670
------------
Total assets 372,148,819
------------
Liabilities:
Payable for investments purchased 6,046,896
Payable upon return of securities loaned (Note 1) 12,948,104
Payable to affiliate for (Note 2):
Management fee 99,578
Shareholder service fee 41,691
Accrued expenses 45,332
------------
Total liabilities 19,181,601
------------
Net assets $352,967,218
============
Net assets consist of:
Paid-in capital $367,502,241
Accumulated undistributed net investment income 548,936
Accumulated undistributed net realized gain 616,967
Net unrealized depreciation (15,700,926)
------------
$352,967,218
============
Net assets attributable to:
Class III shares $352,967,218
============
Shares outstanding:
Class III 28,002,470
============
Net asset value per share:
Class III $ 12.60
============
20 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $1,742) $ 2,625,346
Interest (including securities lending income of $35,378) 302,639
-----------
Total income 2,927,985
-----------
Expenses:
Management fee (Note 2) 603,142
Custodian and transfer agent fees 52,915
Audit fees 20,333
Legal fees 5,520
Trustees fees (Note 2) 1,935
Registration fees 354
Miscellaneous 1,941
Fees waived or borne by Manager (Note 2) (82,998)
-----------
603,142
Shareholder service fee (Note 2)
Class III 274,155
-----------
Net expenses 877,297
-----------
Net investment income 2,050,688
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 6,992,686
Closed futures contracts 406,714
Closed swap contracts (4,670,941)
-----------
Net realized gain 2,728,459
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 27,088,759
Open futures contracts 76,827
Open swap contracts 2,334,147
-----------
Net unrealized gain 29,499,733
-----------
Net realized and unrealized gain 32,228,192
-----------
Net increase in net assets resulting from operations $34,278,880
===========
See accompanying notes to the financial statements. 21
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,050,688 $ 5,029,707
Net realized gain 2,728,459 83,696,862
Change in net unrealized appreciation (depreciation) 29,499,733 (162,379,486)
------------ -------------
Net increase (decrease) in net assets resulting from
operations 34,278,880 (73,652,917)
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (2,053,818) (5,866,332)
------------ -------------
Total distributions from net investment income (2,053,818) (5,866,332)
------------ -------------
Net realized gains
Class III (4,626,726) (102,038,674)
------------ -------------
Total distributions from net realized gains (4,626,726) (102,038,674)
------------ -------------
(6,680,544) (107,905,006)
------------ -------------
Net share transactions: (Note 5)
Class III (22,314,785) (240,370,696)
------------ -------------
Decrease in net assets resulting from net share
transactions (22,314,785) (240,370,696)
------------ -------------
Total increase (decrease) in net assets 5,283,551 (421,928,619)
Net assets:
Beginning of period 347,683,667 769,612,286
------------ -------------
End of period (including accumulated undistributed net
investment income of $548,936 and $552,066,
respectively) $352,967,218 $347,683,667
============ =============
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1999 ----------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.69 $ 18.28 $ 15.89 $ 13.89 $ 13.61 $ 14.31
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.07 0.18 0.27 0.28 0.23 0.20
Net realized and
unrealized gain (loss) 1.08 (2.50) 4.85 2.32 3.20 0.34
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.15 (2.32) 5.12 2.60 3.43 0.54
-------- -------- -------- -------- -------- --------
Less distributions to
shareholders:
From net investment income (0.07) (0.19) (0.29) (0.27) (0.23) (0.20)
From net realized gains (0.17) (4.08) (2.44) (0.33) (2.92) (1.04)
-------- -------- -------- -------- -------- --------
Total distributions (0.24) (4.27) (2.73) (0.60) (3.15) (1.24)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period $ 12.60 $ 11.69 $ 18.28 $ 15.89 $ 13.89 $ 13.61
======== ======== ======== ======== ======== ========
Total Return (a) 9.86% (14.74)% 34.43% 19.12% 27.18% 4.48%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $352,967 $347,684 $769,612 $655,373 $231,533 $235,781
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 1.12%* 0.99% 1.51% 2.15% 1.67% 1.55%
Portfolio turnover rate 24% 49% 56% 58% 135% 54%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: --(b) $ 0.04 $ 0.04 $ 0.03 $ 0.02 $ 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) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
See accompanying notes to the financial statements. 23
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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. The Fund's current benchmark is
GMO Russell 2500 Value + 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
24
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
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, 1999, the Fund loaned securities having a market
value of $12,230,669, collateralized by cash in the amount of $12,948,104,
which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. 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. 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 will be 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, 1999.
25
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 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 dividends 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 also utilized earnings and profits
distributed to shareholders on redemption of shares as a part of the
dividends paid deduction for 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.
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 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, 1999 (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. For the six
months ended August 31, 1999, the Fund received $49,995 in purchase
premiums and $143,290 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 .33% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the accrual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $1,935. 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, 1999,
aggregated $85,486,754 and $119,405,605, respectively.
At August 31, 1999, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------------- ----------------------- ------------------------ ----------------------
$ 383,717,898 $ 36,876,859 $ 53,358,666 $ 16,481,807
</TABLE>
27
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1999, 11.3% 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 were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
---------------------------- -----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 766,347 $ 10,010,943 6,086,481 $ 84,771,299
Shares issued to shareholders
in reinvestment of distributions 442,301 5,865,811 7,418,240 103,948,872
Shares repurchased (2,940,086) (38,191,539) (25,867,398) (429,090,867)
----------- ------------- ----------- -------------
Net decrease (1,731,438) $ (22,314,785) (12,362,677) $ (240,370,696)
=========== ============= =========== =============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- --------------------- ------------------- ---------------
43 Russell 2000 September 1999 $9,210,600 $ (148,139)
===============
</TABLE>
At August 31, 1999, 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, 1999 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Swap agreements
Net
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Appreciation
------------------ --------------- ------------------------------------------------ ---------------
<S> <C> <C> <C>
$ 12,727,535/ 7/21/00 Agreement with Lehman Brothers Finance $ 465,381
13,369,200 S.A. dated 7/16/99 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.
24,993,827/ 7/21/00 Agreement with Deutsche Bank AG dated 463,639
24,993,827 7/20/99 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.
---------------
$ 929,020
===============
</TABLE>
29
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 87.9%
Banking and Financial Services -- 7.5%
500 Washington Mutual Inc 15,889
--------
Food and Beverage -- 14.7%
500 ConAgra Inc 12,264
1,000 Pepsi Bottling Group Inc* 18,952
--------
31,216
--------
Manufacturing -- 4.0%
300 Owens Corning 8,451
--------
Oil and Gas -- 8.3%
2,500 Gulf Canada Resources Ltd 10,013
400 Questar Corp 7,563
--------
17,576
--------
Paper and Allied Products -- 20.1%
200 International Paper Co 9,426
500 Kimberly Clark Corp 28,483
200 St. Joe Co 4,688
--------
42,597
--------
Real Estate -- 6.7%
500 Mack-Cali Realty Corp 14,202
--------
Retail Trade -- 11.3%
1,500 Office Depot Inc* 15,464
500 Saks Inc* 8,419
--------
23,883
--------
Services -- 5.1%
500 Waste Management Inc 10,920
--------
Technology -- 5.0%
500 Storage Technology Corp* 10,513
--------
Utilities -- 5.2%
300 El Paso Energy Corp 10,983
--------
TOTAL COMMON STOCKS (Cost $201,549) 186,230
--------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.0%
Repurchase Agreements -- 10.0%
$10,609 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $10,610 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with
a rate of 8.125%, maturity date of 8/15/21
and market value, including accrued interest,
of $10,821. 10,609
$10,609 Morgan Stanley Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$10,610 and an effective yield of 4.66%,
collateralized by a U.S. Treasury Obligation with a
rate of 5.17%, maturity date of 9/15/99, and market
value, including accrued interest, of $19,957. 10,609
--------
21,218
--------
TOTAL SHORT-TERM INVESTMENTS (COST $21,218) 21,218
--------
TOTAL INVESTMENTS -- 97.9%
(COST $222,767) 207,448
Other Assets and Liabilities (net)-- 2.1% 4,342
--------
TOTAL NET ASSETS -- 100% $211,790
========
Notes to the Schedule of Investments:
* Non-income producing security.
2 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $222,767) (Note 1) $ 207,448
Cash 30,344
Receivable for investments sold 18,334
Dividends and interest receivable 6,567
Receivable for expenses waived or borne by Manager (Note 2) 786
------------
Total assets 263,479
------------
Liabilities:
Payable for investments purchased 27,281
Payable to affiliate for (Note 2):
Management fee 107
Shareholder service fee 25
Accrued expenses 24,276
------------
Total liabilities 51,689
------------
Net assets $ 211,790
============
Net assets consist of:
Paid-in capital $(20,634,795)
Accumulated undistributed net investment income 79,350
Accumulated undistributed net realized gain 20,782,464
Net unrealized depreciation (15,229)
------------
$ 211,790
============
Net assets attributable to:
Class III shares $ 211,790
============
Shares outstanding:
Class III 29,719
============
Net asset value per share:
Class III $ 7.13
============
See accompanying notes to the financial statements. 3
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $8,345) $ 799,575
Interest 62,535
-----------
Total income 862,110
-----------
Expenses:
Management fee (Note 2) 181,636
Audit fees 14,448
Custodian fees 10,146
Legal fees 1,071
Registration fees 1,026
Trustees fees (Note 2) 366
Miscellaneous 1,164
Fees waived or borne by Manager (Note 2) (28,221)
-----------
181,636
Shareholder service fee (Note 2)
Class III 45,409
-----------
Net expenses 227,045
-----------
Net investment income 635,065
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 21,134,588
Foreign currency and foreign currency related transactions (229)
-----------
Net realized gain 21,134,359
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (11,775,255)
Foreign currency and foreign currency related transactions 21
-----------
Net unrealized loss (11,775,234)
-----------
Net realized and unrealized gain 9,359,125
-----------
Net increase in net assets resulting from operations $ 9,994,190
===========
4 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
Six Months
Ended August Year Ended
31, 1999 February 28,
(Unaudited) 1999
---------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 635,065 $ 1,653,398
Net realized gain 21,134,359 28,697,755
Change in net unrealized appreciation (depreciation) (11,775,234) (26,005,231)
------------ ------------
Net increase in net assets resulting from operations 9,994,190 4,345,922
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (735,485) (1,820,272)
------------ ------------
Total distributions from net investment income (735,485) (1,820,272)
------------ ------------
Net realized gains
Class III (4,135,387) (43,849,538)
------------ ------------
Total distributions from net realized gains (4,135,387) (43,849,538)
------------ ------------
(4,870,872) (45,669,810)
------------ ------------
Net share transactions: (Note 5)
Class III (86,973,355) (3,650,568)
------------ ------------
Decrease in net assets resulting from net share
transactions (86,973,355) (3,650,568)
------------ ------------
Total decrease in net assets (81,850,037) (44,974,456)
Net assets:
Beginning of period 82,061,827 127,036,283
------------ ------------
End of period (including accumulated undistributed net
investment income of $79,350 and $179,770,
respectively) $ 211,790 $ 82,061,827
============ ============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------
Six Months Year Ended February 28/29,
Ended August ---------------------------------------------------
31, 1999
(Unaudited) 1999 1998 1997 1996 1995
----------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.07 $ 11.92 $ 16.33 $ 15.04 $ 12.54 $ 12.49
------- -------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.08+ 0.18 0.35 0.33 0.37 0.34
Net realized and
unrealized gain 1.01 0.19 3.90 2.53 3.26 0.55
------- -------- --------- --------- --------- ---------
Total from investment
operations 1.09 0.37 4.25 2.86 3.63 0.89
------- -------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.13) (0.20) (0.38) (0.32) (0.37) (0.32)
From net realized gains (0.90) (5.02) (8.28) (1.25) (0.76) (0.52)
------- -------- --------- --------- --------- ---------
Total distributions (1.03) (5.22) (8.66) (1.57) (1.13) (0.84)
------- -------- --------- --------- --------- ---------
Net asset value, end $ 7.13 $ 7.07 $ 11.92 $ 16.33 $ 15.04 $ 12.54
of period ======= ======== ========= ========= ========= =========
Total Return (a) 15.60% 2.30% 30.43% 20.03% 29.95% 7.75%
Ratios/Supplemental Data:
Net assets, end of period $ 212 $ 82,062 $ 127,036 $ 232,583 $ 212,428 $ 182,871
(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 2.10%* 1.67% 1.84% 2.15% 2.61% 2.84%
assets
Portfolio turnover rate 23% 34% 21% 25% 34% 49%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the --(b) $ 0.02 $ 0.04 $ 0.02 $ 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.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
+ Computed using average shares outstanding throughout the period.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 primarily through investment in
equity securities. The Fund's current benchmark is the S&P 500 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. 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.
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.
7
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund had no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign 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 dividends 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 taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded by the Fund as paid-in
capital. For the six
8
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
months ended August 31, 1999, the Fund did not have any 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 .60% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 was $366. 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, 1999,
aggregated $12,147,097 and $100,753,587, respectively.
At August 31, 1999, 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>
$222,767 $1,768 $17,087 $15,319
</TABLE>
4. Principal shareholders
At August 31, 1999, 73.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
9
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
--------------------------- ---------------------------
Shares Amount Shares Amount
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 2,272 $ 16,500
Shares issued to shareholders
in reinvestment of
distributions 590,407 4,138,761 5,275,741 43,852,942
Shares repurchased (12,174,944) (91,112,116) (4,319,130) (47,520,010)
------------- ------------- ------------ -------------
Net increase (decrease) (11,584,537) $(86,973,355) 958,883 $ (3,650,568)
============= ============= ============ =============
</TABLE>
6. Subsequent Event
On September 29, 1999, the Fund's Board of Trustees approved the following
changes to the Fund's investment policies: (a) the Fund must invest at
least 65% of its total assets in common stocks and securities convertible
into common stocks (previously 90%); (b) the Fund may invest up to 15% of
its total assets in securities of foreign issuers and securities traded
principally outside the U.S. (previously 25%); (c) the Fund may hold cash
for short periods of time pending reinvestment after securities
transactions (previously limited to 5% of assets); and (d) (subject to
shareholder approval) the Fund's subclassification under the 1940 Act
changed from diversified to non-diversified.
10
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 92.2%
Aerospace -- 1.2%
27,600 Allied Signal Inc 1,690,499
5,500 Cordant Technologies Inc 227,563
1,500 Northrop Grumman Corp 108,750
-----------
2,026,812
-----------
Automotive -- 0.4%
3,300 General Motors Corp, Class H* 169,950
5,850 Genuine Parts Co 168,919
800 Goodyear Tire & Rubber Co 44,900
4,900 Lear Corp* 196,919
3,300 Meritor Automotive Inc 71,981
-----------
652,669
-----------
Banking and Financial Services -- 3.1%
7,100 American Express Co 976,250
1,700 Bank of America Corp 102,850
5,035 Bear Stearns Cos Inc 209,582
34,600 Charles Schwab & Co Inc 1,366,699
500 Chase Manhattan Corp 41,844
15,517 Citigroup Inc 689,537
1,000 City National Corp 33,188
7,200 Comdisco Inc 151,650
8,000 Countrywide Credit Industries Inc 257,000
8,300 Dime Bancorp Inc 152,513
900 Edwards (AG) Inc 22,613
9,200 Freddie Mac 473,800
400 Golden West Financial Corp 36,325
400 Greenpoint Financial Corp 10,350
4,100 Hibernia Corporation, Class A 53,044
100 Household International Inc 3,775
1,100 J.P. Morgan & Co Inc 142,106
1,800 Lehman Brothers Holding Inc 96,750
450 Liberty Financial Cos 11,588
900 Morgan Stanley Dean Witter & Co 77,231
3,200 National City Corp 88,400
4,500 PMI Group Inc 191,250
2,400 Unionbancal Corp 92,100
-----------
5,280,445
-----------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Chemicals -- 1.1%
900 Cabot Corporation 20,756
3,100 Eastman Chemical Co 143,956
7,300 Engelhard Corp 145,544
5,000 Monsanto Co 205,313
13,000 Praxair Inc 611,000
8,123 Rohm & Haas Co 303,597
900 Sherwin Williams Co 21,938
6,000 Union Carbide Corp 341,250
800 W.R. Grace & Co* 15,300
2,600 Wellman Inc 43,713
----------
1,852,367
----------
Communications -- 0.3%
6,100 NTL Inc* 598,944
----------
Computer and Office Equipment -- 6.5%
2,200 CDW Computer Centers Inc* 97,625
2,400 Computer Associates International Inc 135,600
3,050 Comverse Technology Inc* 237,900
1,200 Concord EFS Inc* 44,550
26,200 Electronic Data Systems Corp 1,470,474
47,000 EMC Corp* 2,819,999
2,900 Gateway Inc* 281,119
36,600 Hewlett Packard Co 3,856,724
4,200 Lexmark International Group Inc* 330,750
4,900 Micron Electronics Inc* 47,469
16,500 Micron Technology Inc* 1,230,280
7,100 Rational Software Corp* 192,144
4,400 Reynolds & Reynolds Inc, Class A 96,250
5,700 Silicon Graphics Inc* 65,194
3,400 Sterling Software Inc* 68,425
2,750 Symbol Technologies Inc 95,734
2,300 Western Digital Corp* 14,088
----------
11,084,325
----------
Construction -- 1.8%
49,900 Home Depot Inc 3,050,137
----------
Consumer Goods -- 2.2%
1,800 Department 56 Inc* 50,400
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- continued
5,400 Eastman Kodak Co 396,563
900 Fisher Scientific International Inc* 16,200
4,000 Furniture Brands International Inc* 80,250
2,650 Hasbro Inc 64,759
2,700 Hon Industries Inc 63,619
5,200 Johnson Controls 355,550
10,900 Jones Apparel Group Inc* 282,719
3,600 Knoll Inc* 96,300
4,700 Kohls Corp* 334,875
4,500 Lancaster Colony Corp 147,938
3,900 Liz Claiborne Inc 143,325
13,491 Newell Rubbermaid Inc 553,131
11,800 Nike Inc, Class B 545,750
200 Patterson Dental Company* 8,200
1,300 Polo Ralph Lauren Corp* 25,188
2,200 Procurenet(a)* --
1,300 Reebok International Ltd* 15,356
2,700 Steelcase Inc 39,319
2,300 Technology Data Corp* 85,244
3,700 Terra Industries Inc 8,325
7,100 VF Corp 255,600
500 Wallace Computer Services 10,688
4,000 Warnaco Group Inc, Class A 88,000
1,500 Whirlpool Corp 106,031
----------
3,773,330
----------
Electronic Equipment -- 7.6%
19,300 3 Com Corp* 478,881
6,800 Adaptec Inc* 265,200
9,800 ADC Telecommunications Inc* 363,213
8,300 Altera Corp* 349,638
300 Amphenol Corp, Class A* 14,044
600 Analog Devices Inc* 30,900
1,200 Andrew Corp* 21,000
100 Antec Corp* 4,556
13,300 Atmel Corp* 522,856
1,300 Dallas Semiconductor Corp 65,650
2,600 EchoStar Communications Corp* 217,425
8,400 Emerson Electric Co 526,050
See accompanying notes to the financial statements. 3
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronic Equipment -- continued
15,900 General Instrument Corp* 782,081
3,500 Hubbell Inc, Class B 135,844
8,000 Jabil Circuit Inc 358,500
4,400 Linear Technology Corp 276,925
3,000 Litton Industries* 192,000
4,000 LSI Logic Corp* 227,000
3,300 Maxim Integrated Products Inc* 222,131
3,700 Microchip Technology Inc* 202,575
5,650 Molex Inc 181,153
19,300 Motorola Inc 1,780,424
5,800 National Semiconductor Corp* 163,488
2,100 Nortel Networks Corp 86,231
3,500 PMC-Sierra Inc* 325,500
5,300 Qualcomm Inc* 1,018,593
10,900 Raytheon Co, Class B 742,563
200 Read Rite Corp* 1,125
3,100 Sanmina Corp* 232,500
3,300 Scientific Atlanta Inc 169,125
13,900 Tellabs Inc* 827,919
17,400 Texas Instruments Inc 1,427,887
1,243 Vishay Intertechnology Inc 26,647
2,200 Vitesse Semiconductor Corp* 149,600
6,500 Xilinx Inc* 454,594
----------
12,843,818
----------
Food and Beverage -- 2.2%
3,000 Anheuser Busch Cos Inc 231,000
4,620 Archer Daniels Midland Co 60,060
25,300 Coca Cola Co 1,513,255
3,600 Coca Cola Enterprises Inc 102,375
6,300 ConAgra Inc 154,350
1,300 Dole Food Co 32,744
5,900 IBP Inc 135,331
1,900 McDonald's Corp 78,613
20,900 Nabisco Group Holdings 370,975
4,100 Pepsico Inc 139,913
1,900 Pioneer Hi Bred International Inc 74,338
1,166 RJ Reynolds Tobacco Holdings* 31,992
1,700 Seagrams Co Ltd 90,206
4,200 Sysco Corp 137,025
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- continued
2,600 Universal Corp 73,775
4,000 Wendy's International Inc 112,000
5,000 Wrigley (William Jr) Co 391,563
----------
3,729,515
----------
Health Care -- 3.7%
2,400 Bard (CR) 111,900
7,300 Becton Dickinson & Co 205,313
10,400 BioMet Inc 371,800
11,400 Boston Scientific Corp* 386,888
42,200 Columbia HCA Healthcare Corp 1,039,174
6,100 Dentsply International Inc 151,356
600 Express Scripts Inc, Class A* 40,425
1,900 Forest Laboratories Inc* 92,031
3,800 HCR Manor Care Inc* 74,338
1,700 Hillenbrand Industries Inc 48,450
8,600 Integrated Health Services Inc* 26,338
14,700 Johnson & Johnson 1,503,074
1,200 Lincare Holdings Inc* 31,650
4,400 Mallinckrodt Inc 141,075
6,500 Mariner Post-Acute Network Inc* 3,656
5,300 Novacare Corp* 5,963
100 Pharmacia & Upjohn Inc 5,225
6,100 Quorum Health Group Inc* 53,756
5,300 Stryker Corp 305,413
27,700 Tenet Healthcare Corp* 483,019
3,600 United Healthcare Corp 218,925
1,300 Universal Health Services, Class B* 43,388
4,800 Visx Inc* 434,400
7,500 Wellpoint Health Network* 546,563
----------
6,324,120
----------
Insurance -- 1.9%
1,867 Aegon N.V. ADR 162,079
9,900 Aetna Life and Casualty Co 769,725
200 AFLAC Corp 8,988
400 Allstate Corp 13,125
900 AMBAC Inc 47,531
1,100 American National Insurance Co 77,000
2,300 CNA Financial Corp* 83,663
See accompanying notes to the financial statements. 5
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- continued
600 Commerce Group Inc 13,350
1,373 Conseco Inc 32,952
1,400 Erie Indemnity Company - Class A 37,800
6,900 Foundation Health Systems Inc, Class A* 87,975
12,400 Humana Inc* 112,375
5,500 Loews Corp 431,750
3,400 MBIA Inc 176,375
1,500 Nationwide Financial Service, Class A 54,750
2,000 Old Republic International Corp 31,000
6,100 Oxford Health Plans Inc* 94,550
1,500 Pacificare Health Systems, Class A* 90,000
2,100 Safeco Corp 74,813
14,300 Saint Paul Cos Inc 458,494
2,400 Torchmark Corp 68,400
2,400 Transatlantic Holding Inc 173,100
1,300 Trigon Healthcare Inc* 47,206
----------
3,147,001
----------
Machinery -- 1.0%
4,200 American Standard Co* 172,200
16,800 Applied Materials Inc* 1,193,849
1,200 Lam Research Corp* 67,725
1,200 Mohawk Industries Inc* 27,150
2,700 Novellus System Inc* 145,631
300 Tecumseh Products Co, Class B 15,900
800 York International Corp 32,900
----------
1,655,355
----------
Manufacturing -- 2.3%
4,400 American Greetings Corp 121,825
1,200 Champion Enterprises Inc* 10,200
6,200 Corning Inc 412,300
1,100 Crane Co 26,469
3,500 Danaher Corp 205,625
1,200 Gentex Corp* 22,950
400 Illinois Tool Works Inc 31,175
12,100 International Game Technology 211,750
10,000 Leggett & Platt Inc 221,250
1,100 Minnesota Mining and Manufacturing Co 103,950
8,800 Owens Illinois Inc* 217,800
6 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Manufacturing -- continued
1,900 Rockwell International Corp 112,338
10,086 Tyco International Ltd 1,021,837
17,600 United Technologies Corp 1,163,799
----------
3,883,268
----------
Metals and Mining -- 0.1%
5,900 Freeport-McMoRan Copper & Gold Inc* 94,769
----------
Oil and Gas -- 2.6%
4,200 Apache Corp 191,100
7,800 Atlantic Richfield Co 685,913
2,300 Burlington Resources Inc 96,169
7,000 Columbia Energy Group 413,438
2,400 Consolidated Natural Gas Co 152,850
716 Devon Energy Corp* 27,656
1,000 Diamond Offshore Drilling Inc 38,250
7,600 Enron Corp 318,250
1,300 Enron Oil & Gas 31,038
1,000 Ensco International Inc 21,313
4,700 Kerr-McGee Corp 263,200
14,200 Occidental Petroleum Corp 307,963
10,000 Phillips Petroleum Co 510,000
3,900 Questar Corp 73,613
1,700 Santa Fe Snyder Corp* 16,575
2,000 Sonat Inc 72,250
11,200 Union Pacific Resources Group 200,900
11,300 Unocal Corp 473,188
10,800 USX - Marathon Group 336,150
1,800 Vastar Resources Inc 119,925
----------
4,349,741
----------
Paper and Allied Products -- 0.2%
2,800 Ikon Office Solutions Inc 31,150
2,700 Mead Corp 100,744
9,650 Sonoco Products Co 229,188
600 Westvaco Corp 15,713
----------
376,795
----------
Pharmaceuticals -- 7.6%
56,608 Abbott Laboratories 2,455,371
900 Alza Corp* 45,338
See accompanying notes to the financial statements. 7
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Pharmaceuticals -- continued
48,800 Amgen Inc* 4,059,549
7,050 Bergen Brunswig Corp, Class A 108,834
16,400 Biogen Inc* 1,258,699
6,200 Genzyme Corp - General Division* 349,913
2,400 Immunex Corp* 161,550
2,730 Mark IV Industries Inc 54,088
9,000 Merck & Co Inc 604,688
5,100 Nu Skin Enterprises Inc* 54,506
76,236 Pfizer Inc 2,877,908
10,400 Schering Plough Corp 546,650
2,800 Sepracor Inc* 209,650
3,800 Sigma-Aldrich Corp 122,550
200 Watson Pharmaceutical Inc* 7,175
----------
12,916,469
----------
Primary Materials -- 0.2%
7,300 Crown Cork & Seal Inc 193,906
1,900 Sealed Air Corp* 111,625
1,600 Tupperware Corp 36,100
1,900 Weatherford International Inc 67,688
----------
409,319
----------
Primary Processing -- 0.3%
700 Dow Chemical Co 79,538
300 Mueller Industries Inc* 9,300
7,200 Nucor Corp 335,250
2,100 Worthington Industries Inc 31,500
----------
455,588
----------
Printing and Publishing -- 0.1%
1,100 Houghton Mifflin Co 52,525
2,800 John Wiley and Sons Inc, Class A 45,500
----------
98,025
----------
Refining-- 0.2%
2,400 Ashland Inc 92,550
10,000 Tosco Corp 255,000
600 Ultramar Diamond Shamrock Corp 15,675
----------
363,225
----------
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade -- 5.7%
16,942 Albertsons Inc 812,157
7,400 Autozone Inc* 176,213
3,300 Bed, Bath & Beyond Inc* 90,750
5,000 Best Buy Co Inc* 351,250
500 Blair Corp 10,250
1,400 Circuit City Stores Inc 60,200
7,700 Dillard's Inc 180,950
2,400 Federated Department Stores Inc* 110,400
13,600 Food Products Lion Inc 109,650
1,700 Fruit of the Loom Inc, Class A* 11,900
35,550 Gap Inc 1,390,893
1,200 Hannaford Brothers Co 86,100
7,100 Kmart Corp* 89,194
15,000 Kroger Co* 346,875
4,800 Neiman Marcus Group Inc* 106,800
7,650 Office Depot Inc* 79,847
4,400 Outback Steakhouse Inc* 130,350
1,100 Payless ShoeSource Inc* 54,863
400 Pier 1 Imports Inc 2,175
2,600 Ross Stores Inc 108,225
3,926 Safeway Inc* 182,804
3,500 Sears Roebuck & Co 131,250
10,100 Staples Inc* 219,675
4,200 Starbucks Corp* 96,075
22,300 Toys R Us Inc* 308,019
200 Value City Department Stores Inc* 2,500
98,800 Wal Mart Stores Inc 4,378,074
----------
9,627,439
----------
Services -- 1.7%
1,500 Catalina Marketing Corp* 136,125
48,300 Disney Walt Co 1,340,324
3,300 Fluor Corp 136,538
5,500 Harrahs Entertainment Inc* 123,750
3,200 Hertz Corp 129,000
2,600 Icos Corp* 82,713
500 Mandalay Resort Group* 10,250
2,900 Manpower Inc 78,300
6,400 Marriott International Inc, Class A 219,200
See accompanying notes to the financial statements. 9
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
300 Omnicom Group 22,613
2,400 Promus Hotel Corp* 69,750
1,400 Speedway Motorsports Inc* 52,238
10,800 Supervalu Inc 243,000
3,600 Time Warner Inc 213,525
1,700 Total System Services Inc 26,350
900 UnitedGlobal.Com Inc, Class A* 65,925
-----------
2,949,601
-----------
Technology -- 28.8%
6,300 Adobe Systems Inc 627,638
7,100 Advanced Micro Devices Inc* 146,881
2,000 Affiliated Computer Services Inc* 85,500
29,400 America Online Inc 2,684,587
3,300 American Management Systems Inc* 94,463
24,400 Automatic Data Processing Inc 959,225
900 Avnet Inc 39,825
1,000 Beckman Coulter Inc 47,375
1,600 Bisys Group Inc* 76,000
6,200 Ceridian Corp* 173,600
115,600 Cisco Systems Inc* 7,839,124
4,100 CMG Information Services Inc* 344,144
45,661 Compaq Computer Corp 1,058,763
12,700 Computer Sciences Corp 878,681
28,500 Dell Computer Corp* 1,391,155
3,600 Electronics For Imaging Inc* 211,050
21,800 First Data Corp 959,200
400 G TECH Holdings Corp* 10,100
2,200 Grainger (WW) Inc 95,838
10,000 Informix Corp* 72,813
107,304 Intel Corp 8,819,047
3,000 Intuit Inc* 268,688
5,800 JDS Uniphase Corp* 615,163
1,400 KLA Instruments Corp* 87,938
2,300 Macromedia Inc* 91,138
300 Mercury Interactive Corp* 14,325
122,500 Microsoft Corp* 11,338,905
1,400 National Data Corp 53,550
41,300 Novell Inc* 978,293
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, 1999 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology -- continued
58,550 Oracle Corp* 2,137,074
6,600 PE Corp - Biosystems Group 454,163
4,400 Policy Management System Corp* 134,475
1,500 Psinet Inc* 71,813
15,300 Seagate Technology Corp* 507,769
400 Shared Medical Systems Corp 22,475
15,700 Solectron Corp* 1,228,524
9,000 Storage Technology Corp* 189,000
43,700 Sun Microsystems Inc 3,474,149
4,700 Synopsys Inc* 262,906
3,900 Teradyne Inc* 265,444
----------
48,810,801
----------
Telecommunications -- 5.3%
7,100 Alltel Corp 480,138
3,700 AT & T Corp 166,500
7,100 Bell Atlantic Corp 434,875
900 Cablevision Systems Corp* 63,563
2,000 Century Communications Corp* 93,250
3,825 Centurytel Inc 150,370
4,200 Comsat Corp 145,950
26,500 GTE Corp 1,818,562
5,400 Lucent Technologies Inc 345,938
49,590 MCI Worldcom Inc* 3,756,442
500 Telephone and Data Systems Inc 34,750
3,700 TV Guide Inc, Class A* 102,675
3,800 United States Cellular Corp* 213,750
9,000 US West Inc 470,250
18,300 Viacom Inc, Class B* 769,744
----------
9,046,757
----------
Textiles -- 0.2%
10,800 Shaw Industries Inc 216,000
3,200 Westpoint Stevens Inc 76,800
----------
292,800
----------
Tobacco -- 2.6%
117,284 Philip Morris Cos Inc 4,390,819
----------
See accompanying notes to the financial statements. 11
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- 1.0%
10,200 Brunswick Corp 260,738
21,400 Burlington Northern Santa Fe Railroad Co 620,600
11,800 CSX Corp 515,513
4,800 FDX Corp* 203,700
900 Southwest Airlines Inc 15,019
900 Swift Transportation Co 18,731
1,000 Tidewater Inc 32,500
-----------
1,666,801
-----------
Utilities -- 0.3%
7,800 Coastal Corp 337,838
1,700 El Paso Energy Corp 62,156
1,300 Oneok Inc 40,381
-----------
440,375
-----------
TOTAL COMMON STOCKS (COST $111,498,926) 156,191,430
-----------
SHORT-TERM INVESTMENTS -- 12.8%
Cash Equivalents -- 4.4%
$2,418,009 BankBoston Eurodollar Time Deposit, 5.4325%,
due 10/29/99(b) 2,418,009
$5,000,000 Prudential Securities Group Inc, Master Note,
5.625%, due 3/10/2000(b) 5,000,000
-----------
7,418,009
-----------
U.S. Government -- 0.4%
$765,000 U.S. Treasury Bill, 4.70%, due 10/21/99(c) 756,893
-----------
Repurchase Agreements -- 8.0%
$8,449,254 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity
value of $8,450,352 and an effective yield of
4.68%, collateralized by a U.S. Treasury
Obligation with a rate of 8.125%, maturity date
of 8/15/21 and market value, including accrued
interest, of $8,618,239. 8,449,254
$5,141,562 Morgan Stanley Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$5,142,228, and an effective yield of 4.66%,
collateralized by a U.S. Treasury Obligation
with a rate of 5.17%, maturity date of 9/15/99,
and market value, including accrued interest,
of $5,248,649. 5,141,562
-----------
13,590,816
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $21,768,983) 21,765,718
-----------
12 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Value ($)
-------------
TOTAL INVESTMENTS -- 105.0%
(COST $133,267,909) 177,957,148
Other Assets and Liabilities (net) -- (5.0)% (8,530,472)
------------
TOTAL NET ASSETS -- 100% $169,426,676
============
Notes to the Schedule of Investments:
* Non-income producing security.
(a) Pending corporate action.
(b) Represents investments of security lending collateral
(Note 1).
(c) Security has been segregated to cover margin requirements on
open financial futures contracts (Note 6).
See accompaning notes to the financial statements 13
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $133,267,909) (Note 1) $177,957,148
Receivable for investments sold 251,099
Dividends and interest receivable 98,393
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 375
Receivable for expenses waived or borne by Manager (Note 2) 8,866
------------
Total assets 178,315,881
------------
Liabilities:
Payable for investments purchased 1,333,050
Payable upon return of securities loaned (Note 1) 7,418,009
Payable to affiliate for (Note 2):
Management fee 46,888
Shareholder service fee 20,898
Payable for open swap contracts (Note 1 and 6) 44,546
Accrued expenses 25,814
------------
Total liabilities 8,889,205
------------
Net assets $169,426,676
============
Net assets consist of:
Paid-in capital $106,182,757
Accumulated undistributed net investment income 87,966
Accumulated undistributed net realized gain 18,966,808
Net unrealized appreciation 44,189,145
------------
$169,426,676
============
Net assets attributable to:
Class III shares $169,426,676
============
Shares outstanding:
Class III 38,820,453
============
Net asset value per share:
Class III $ 4.36
============
14 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $264) $ 542,236
Interest (including securities lending income of $12,715) 267,291
-----------
Total income 809,527
-----------
Expenses:
Management fee (Note 2) 277,508
Custodian and transfer agent fees 25,164
Audit fees 18,404
Legal fees 2,578
Trustees fees (Note 2) 920
Registration fees 364
Miscellaneous 1,195
Fees waived or borne by Manager (Note 2) (48,625)
-----------
277,508
Shareholder service fee (Note 2)
Class III 126,140
-----------
Net expenses 403,648
-----------
Net investment income 405,879
-----------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 18,727,797
Closed futures contracts 84,768
Closed swap contracts 341,443
-----------
Net realized gain 19,154,008
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 379,205
Open futures contracts (341,993)
Open swap contracts (84,335)
-----------
Net unrealized loss (47,123)
-----------
Net realized and unrealized gain 19,106,885
-----------
Net increase in net assets resulting from operations $19,512,764
===========
See accompanying notes to the financial statements. 15
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 405,879 $ 1,101,856
Net realized gain 19,154,008 35,847,656
Change in net unrealized appreciation (depreciation) (47,123) (1,539,965)
------------ ------------
Net increase in net assets resulting from operations 19,512,764 35,409,547
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (411,113) (1,131,539)
------------ ------------
Total distributions from net investment income (411,113) (1,131,539)
------------ ------------
Net realized gains
Class III (10,657,405) (37,976,729)
------------ ------------
Total distributions from net realized gains (10,657,405) (37,976,729)
------------ ------------
(11,068,518) (39,108,268)
------------ ------------
Net share transactions: (Note 5)
Class III 2,898,189 (41,140,532)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 2,898,189 (41,140,532)
------------ ------------
Total increase (decrease) in net assets 11,342,435 (44,839,253)
Net assets:
Beginning of period 158,084,241 202,923,494
------------ ------------
End of period (including accumulated undistributed net
investment income of $87,966 and $93,200,
respectively) $169,426,676 $158,084,241
============ ============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1999 ----------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 4.14 $ 4.38 $ 5.18 $ 5.65 $ 4.45 $ 4.14
--------- --------- --------- --------- --------- ---------
Income from investment
operations:
Net investment income 0.01 0.03 0.04 0.07 0.08 0.06
Net realized and
unrealized gain 0.51 0.89 1.41 1.03 1.54 0.38
--------- --------- --------- --------- --------- ---------
Total from investment
operations 0.52 0.92 1.45 1.10 1.62 0.44
--------- --------- --------- --------- --------- ---------
Less distributions to
shareholders:
From net investment (0.01) (0.03) (0.06) (0.08) (0.07) (0.06)
income
From net realized gains (0.29) (1.13) (2.19) (1.49) (0.35) (0.07)
--------- --------- --------- --------- --------- ---------
Total distributions (0.30) (1.16) (2.25) (1.57) (0.42) (0.13)
--------- --------- --------- --------- --------- ---------
Net asset value, end
of period $ 4.36 $ 4.14 $ 4.38 $ 5.18 $ 5.65 $ 4.45
========= ========= ========= ========= ========= =========
Total Return (a) 12.58% 22.90% 36.37% 21.64% 37.77% 10.86%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $169,427 $158,084 $202,923 $244,183 $391,366 $239,006
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 0.48%* 0.64% 0.79% 1.21% 1.54% 1.50%
Portfolio turnover rate 24% 50% 60% 100% 76% 139%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: --(b) $ 0.01 $ 0.01 $ 0.01 --(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.
See accompanying notes to the financial statements. 17
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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. The Fund's current benchmark is
the Russell 1000 Growth 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. 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.
Futures contracts
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
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 and agency 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
18
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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,
1999.
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, 1999, the Fund loaned securities having a market
value of $7,161,900, collateralized by cash in the amount of $7,418,009,
which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. 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. 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 will be 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, 1999.
19
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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 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. For the six months ended August 31, 1999, the Fund
received $2,198 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 .33% 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.
20
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999 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, 1999,
aggregated $37,591,188 and $51,572,480, respectively.
At August 31, 1999, 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
---------------- ---------------- ---------------- ---------------
$133,267,909 $50,764,749 $6,075,510 $44,689,239
4. Principal shareholders
At August 31, 1999, 81.4% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
21
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
----------------------------- ------------------------------
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 350,212 $ 1,570,109 735,556 $ 3,204,280
Shares issued to shareholders
in reinvestment of 2,503,580 11,040,782 9,514,574 39,000,762
distributions
Shares repurchased (2,194,997) (9,712,702) (18,430,431) (83,345,574)
============= ============== ============= ==============
Net increase (decrease) 658,795 $ 2,898,189 (8,180,301) $ (41,140,532)
============= ============== ============= ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C>
23 Russell 2000 September 1999 $ 4,926,600 $ (178,823)
18 S&P 500 September 1999 5,939,100 (276,725)
=================
$ (455,548)
=================
</TABLE>
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
22
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS -- 103.2%
Asset Backed Securities -- 37.1%
$15,000,000 Augusta Funding Ltd X, 144A,
Variable Rate, 3mo. LIBOR + .25%, 5.58%, due 6/30/17 14,189,063
1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155
2,792,308 Great Point CBO Ltd. Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due 10/15/10 2,768,748
10,000,000 JC Penney Master Credit Card Trust Series E Class A,
5.50%, due 6/15/07(a) 9,436,328
4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due
7/15/09 4,724,498
17,000,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due
6/01/03 16,813,000
243,767 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 5.64%, due 6/25/26 243,728
5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438
2,637,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 5.91%, due 10/25/23 2,638,582
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 5.99%, due 4/25/25 4,921,150
8,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 5.93%, due 7/25/03 8,014
--------------
62,236,704
--------------
Corporate Debt -- 1.1%
1,000,000 Banco Santander, 6.50%, due 11/01/05 948,750
1,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due
5/15/10 905,000
--------------
1,853,750
--------------
Foreign Government Obligations -- 4.9%
25,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(b) 4,644,618
20,000,000 Republic of Ecuador Discount Bond Series A Receipts, Zero
Coupon, due 2/28/25(b) 3,574,318
--------------
8,218,936
--------------
U.S. Government -- 0.3%
506,705 U.S. Treasury Inflation Indexed Note, 3.88%, due
1/15/09(c) 499,659
--------------
U.S. Government Agency -- 59.8%
10,000,000 Agency for International Development Floater (Support of
India), Variable Rate, 3 mo. LIBOR + .10%, 5.41%,
due 2/01/27 9,800,000
7,750,000 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. LIBOR + .30%, 6.19%,
due 12/01/14 7,691,875
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency -- continued
$6,288,667 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. U.S. Treasury Bill
+ .75%, 5.96%, due 3/30/19 6,241,502
15,000,000 Agency for International Development Floater (Support of
Morocco), Variable Rate, 6 mo. LIBOR + .15%, 6.05%,
due 10/29/26 14,737,500
20,000,000 Agency for International Development Floater (Support of
Morocco), Variable Rate, 6 mo. LIBOR - .015%, 5.88%,
due 2/01/25 19,200,000
25,000,000 Agency for International Development Floater (Support of
Portugal), Variable Rate, 6 mo. LIBOR, 5.89%,
due 1/01/21 24,968,749
9,035,000 Agency for International Development Floater (Support of
Sri Lanka), Variable Rate, 6 mo. LIBOR + .20%, 6.09%,
due 6/15/12 8,967,238
9,166,668 Agency for International Development Floater (Support of
Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x 115%,
5.14%, due 1/01/12 8,800,001
-------------
100,406,865
-------------
TOTAL DEBT OBLIGATIONS (COST $176,194,123) 173,215,914
-------------
Shares PREFERRED STOCKS -- 5.1%
-----------
Preferred Stocks-- 5.1%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 8,564,270
-------------
TOTAL PREFERRED STOCKS (COST $10,008,080) 8,564,270
-------------
Shares/
Par Value ($) SHORT-TERM INVESTMENTS -- 4.6%
--------------
Cash Equivalents -- 3.2%
$1,452,632 BankBoston Eurodollar Time Deposit, 5.4325%, due
10/29/99(d) 1,452,632
3,937,368 Merrimac Cash Fund Premium Class(d) 3,937,368
-------------
5,390,000
-------------
Commercial Paper -- 1.3%
$2,222,000 Merrill Lynch, 5.55%, due 9/01/99 2,222,000
-------------
Repurchase Agreements -- 0.1%
$ 94,089 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $94,101 and
an effective yield of 4.68%, collateralized by a U.S.
Treasury Obligation with a rate of 8.125%, maturity date
of 8/15/21 and market value, including accrued interest,
of $95,971. 94,089
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $7,706,089) 7,706,089
-------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Value ($)
---------
TOTAL INVESTMENTS -- 112.9%
(Cost $193,908,292) 189,486,273
Other Assets and Liabilities (net) -- (12.9)% (21,719,618)
------------
TOTAL NET ASSETS-- 100% $167,766,655
============
Notes to the Schedule of Investments:
Variable Rates -- The rates shown on variable rate notes are the
current interest rates at August 31, 1999, 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
collateral requirements on reverse repurchase agreements
(Note 6).
(b) Valued by management (Note 1).
(c) All or a portion of this security has been segregated to cover
margin requirements on open financial futures contracts
(Note 6).
(d) Represents investments of security lending collateral
(Note 1).
See accompanying notes to the financial statements. 3
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $193,908,292) (Note 1) $189,486,273
Dividends and interest receivable 1,567,345
Receivable for variation margin on open futures contracts (Notes 1 and 6) 24,801
Receivable for expenses waived or borne by Manager (Note 2) 6,120
------------
Total assets 191,084,539
------------
Liabilities:
Payable for investments purchased 14,776,967
Payable upon return of securities loaned (Note 1) 5,390,000
Payable to affiliate for (Note 2):
Management fee 14,444
Shareholder service fee 21,524
Due to custodian 258
Payable for reverse repurchase agreements (Notes 1 and 6) 2,769,000
Payable for open swap contracts (Note 1 and 6) 313,600
Accrued expenses and other liabilities 32,091
------------
Total liabilities 23,317,884
------------
Net assets $167,766,655
============
Net assets consist of:
Paid-in capital $174,381,375
Accumulated undistributed net investment income 1,372,414
Accumulated net realized loss (3,289,300)
Net unrealized depreciation (4,697,834)
------------
$167,766,655
============
Net assets attributable to:
Class III shares $167,766,655
============
Shares outstanding:
Class III 18,086,863
============
Net asset value per share:
Class III $ 9.28
============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest (including securities lending income of $989) $ 4,525,616
Dividends 998,650
-----------
Total income 5,524,266
-----------
Expenses:
Management fee (Note 2) 85,794
Interest expense (Notes 1 and 6) 170,401
Audit fees 19,049
Custodian and transfer agent fees 16,792
Legal fees 2,669
Trustees fees (Note 2) 829
Registration fees 364
Miscellaneous 1,292
Fees waived or borne by Manager (Note 2) (40,995)
-----------
256,195
Shareholder service fee (Note 2)
Class III 128,685
-----------
Net expenses 384,880
-----------
Net investment income 5,139,386
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (421,098)
Closed futures contracts 1,293,452
Closed swap contracts 1,248,182
-----------
Net realized gain 2,120,536
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (2,771,370)
Open futures contracts (334,029)
Open swap contracts (5,342,878)
-----------
Net unrealized loss (8,448,277)
-----------
Net realized and unrealized loss (6,327,741)
-----------
Net decrease in net assets resulting from operations $(1,188,355)
===========
See accompanying notes to the financial statements. 5
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,139,386 $ 16,849,450
Net realized gain 2,120,536 1,274,151
Change in net unrealized appreciation (depreciation) (8,448,277) (2,987,171)
------------- -------------
Net increase (decrease) in net assets resulting from
operations (1,188,355) 15,136,430
------------- -------------
Distributions to shareholders from:
Net investment income
Class III (5,087,220) (18,501,522)
------------- -------------
Total distributions from net investment income (5,087,220) (18,501,522)
------------- -------------
Net realized gains
Class III (326,983) (4,552,278)
------------- -------------
Total distributions from net realized gains (326,983) (4,552,278)
------------- -------------
In excess of net realized gains
Class III -- (5,488,875)
------------- -------------
Total distributions in excess of net realized gains -- (5,488,875)
------------- -------------
(5,414,203) (28,542,675)
------------- -------------
Net share transactions: (Note 5)
Class III (701,457) (242,933,466)
------------- -------------
Decrease in net assets resulting from net share
transactions (701,457) (242,933,466)
------------- -------------
Total decrease in net assets (7,304,015) (256,339,711)
Net assets:
Beginning of period 175,070,670 431,410,381
------------- -------------
End of period (including accumulated undistributed net
investment income of $1,372,414 and $1,320,248,
respectively) $ 167,766,655 $ 175,070,670
============= =============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1999 -----------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995*
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 9.65 $ 10.26 $ 10.18 $ 10.40 $ 10.13 $ 10.00
--------- --------- --------- --------- --------- ---------
Income from investment
operations:
Net investment income 0.29 0.68 0.67 0.58 0.66 0.24
Net realized and
unrealized gain
(loss) (0.35) (0.15) 0.38 (0.09) 0.58 0.07
--------- --------- --------- --------- --------- ---------
Total from
investment
operations (0.06) 0.53 1.05 0.49 1.24 0.31
--------- --------- --------- --------- --------- ---------
Less distributions to
shareholders:
From net investment
income (0.29) (0.68) (0.70) (0.60) (0.60) (0.18)
From net realized gains (0.02) (0.21) (0.27) (0.08) (0.37) --
In excess of net
realized gains -- (0.25) -- (0.03) -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.31) (1.14) (0.97) (0.71) (0.97) (0.18)
--------- --------- --------- --------- --------- ---------
Net asset value, end
of period $ 9.28 $ 9.65 $ 10.26 $ 10.18 $ 10.40 $ 10.13
========= ========= ========= ========= ========= =========
Total Return (a) (0.59)% 5.03% 10.71% 4.93% 12.50% 3.16%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $ 167,767 $ 175,071 $ 431,410 $ 570,862 $ 310,949 $ 209,377
Net operating expenses
to average daily net 0.25%** 0.25% 0.25% 0.25% 0.25% 0.25%**
assets
Interest expense to
average daily net 0.20%** 0.02% -- -- -- --
assets
Total net expenses to
average daily net 0.45%** 0.27% 0.25% 0.25% 0.25% 0.25%**
assets
Net investment income
to average daily net 5.99%** 6.21% 6.14% 6.15% 6.52% 6.96%**
assets
Portfolio turnover rate 16% 17% 59% 25% 70% 65%
Fees and expenses
voluntarily waived
or borne by the
Manager consisted of
the following per --(b) $ 0.02 $ 0.02 $ 0.02 $ 0.01 $ 0.01
share amounts:
</TABLE>
(a) 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.
* For the period from August 18, 1994 (commencement of operations) to
February 28, 1995.
** Annualized.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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. investment
grade securities. The Fund's current benchmark is the Lehman Brothers
Government Bond 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 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. 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 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. The prices provided by
principal market makers may differ from the value that would be realized if
the securities were sold and the differences could be material to the
financial statements.
8
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 and agency 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, 1999.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. Writing put options tends to increase the Fund's exposure to
the underlying instrument. Writing call options tends to decrease the
Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999, the Fund had no written
option contracts outstanding.
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
9
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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.
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had entered into reverse repurchase
agreements having a market value of $2,769,000, collateralized by
securities with a market value of $2,830,898. See Note 6 for a summary of
open reverse repurchase agreements as of August 31, 1999.
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 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, 1999, the Fund loaned securities having a market
value of $5,218,455, collateralized by cash in the amount of $5,390,000,
which was invested in short-term instruments.
10
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 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. Net payments of interest on interest rate swap agreements are
recorded as interest income. 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 will be 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, 1999.
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 dividends 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.
11
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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. 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
interest 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 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 .10% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.25% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $829. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
12
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1999, 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 $ 1,002,341 $ 1,004,246
Investments (non-U.S. Government securities) 33,560,141 27,149,242
</TABLE>
At August 31, 1999, 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>
$193,908,292 $549,099 $4,971,118 $4,422,019
</TABLE>
4. Principal shareholders
At August 31, 1999, 28.4% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
------------------------------ ------------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 1,112,259 $ 10,571,743 7,444,098 $ 76,654,884
Shares issued to shareholders
in reinvestment of 436,592 4,105,769 2,308,399 23,190,329
distributions
Shares repurchased (1,612,823) (15,378,969) (33,636,371) (342,778,679)
-------------- -------------- ------------- ---------------
Net decrease (63,972) $ (701,457) (23,883,874) $(242,933,466)
============== ============== ============= ===============
</TABLE>
13
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Short futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
----------- ------------------------ ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
316 U.S. Treasury Bond 5 Yr. December 1999 $ 34,108,250 $ 37,447
1 U.S. Treasury Note 10 Yr. December 1999 109,359 338
---------------
$ 37,785
===============
</TABLE>
At August 31, 1999, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
Reverse repurchase agreements
<TABLE>
<CAPTION>
Face Value Description Market Value
---------- ----------- ------------
<S> <C> <C>
$ 2,769,000 Bear Stearns, 5.40%, dated 8/25/99, to be repurchased at
$2,772,333 on 9/02/99. $ 2,769,000
===============
Average balance outstanding................................................ $ 12,271,932
Average interest rate...................................................... 5.12%
Maximum balance outstanding................................................ $ 17,267,632
Average shares outstanding................................................. 17,842,280
Average balance per share outstanding...................................... $ .69
</TABLE>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
14
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Total return swap agreements
<TABLE>
<CAPTION>
Net
Unrealized
Notional Expiration Appreciation/
Amount Date Description (Depreciation)
--------------- ------------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
$25,000,000 11/12/00 Agreement with Morgan Guaranty Trust Company $ 191,020
dated 11/09/98 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.
100,000,000 6/01/01 Agreement with Lehman Brothers Special (504,620)
Financing Inc. dated 5/20/99 to receive
(pay) the notional amount multiplied by the
return on the Lehman Brothers US Government
Bond Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
--------------
$ (313,600)
==============
</TABLE>
15
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Debt Obligations -- 76.4%
Argentina -- 7.5%
ARS 4,400,000 Provincia Corrientes Series 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/09 1,375,138
ARS 2,500,000 Provincia Corrientes Series 2, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/09 781,328
ARS 27,323,800 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/07(a) 17,310,725
USD 6,500,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/31/23 4,403,750
DEM 3,830,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.44%, due 3/31/23 1,303,153
ARS 27,436,201 Republic of Argentina Certificates, 6.00%, due 4/15/06 14,885,628
ARS 35,134,370 Republic of Argentina Pro 1 Co-Participation Rights,
Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/07 16,479,667
USD 2,000,000 Republic of Argentina Pro 4,
Variable Rate, 1 mo. LIBOR, 5.36%, due 12/28/10 1,602,000
-------------
58,141,389
-------------
Bosnia & Herzegovina -- 0.3%
DEM 25,244,000 Bosnia & Herzegovina Series A, Step Up, 2.00%, due 12/11/17 2,385,901
DEM 12,335,000 Bosnia & Herzegovina Series B, Zero Coupon, due 12/11/17 133,237
-------------
2,519,138
-------------
Brazil -- 15.0%
USD 7,555,166 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 4,533,099
USD 24,000,000 Brazil DCB (Bearer),
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/12 13,680,000
USD 525,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 4/15/24 313,688
USD 13,000,000 Brazil FLIRB (Bearer),
Variable Rate, Step Up, 5.00%, due 4/15/09 7,280,000
USD 52,320,000 Brazil FLIRB (Registered),
Variable Rate, Step Up, 5.00%, due 4/15/09 29,299,200
USD 11,966,415 Brazil MYDFA Trust Certificates,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 9/15/07 7,748,254
USD 81,000,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 53,459,999
-------------
116,314,240
-------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Bulgaria -- 4.0%
USD 6,551,707 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 7.00%, due 7/28/24 4,389,644
USD 18,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%,
due 7/28/24 2,061,000
USD 39,844,572 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.25%, due 7/28/12 24,105,966
USD 5,000,000 Bulgaria Par Bond, Series B Strips, Tranche B, 0.00%, due 7/28/24 572,500
-------------
31,129,110
-------------
Costa Rica -- 0.1%
USD 1,000,000 Central Bank of Costa Rica Principal Bond Series A, 6.25%,
due 5/21/10 820,000
-------------
Dominican Republic -- 1.4%
USD 17,957,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 8/30/24 10,774,200
-------------
Ecuador -- 4.9%
USD 43,465,000 Republic of Ecuador Discount Bond (Global Registered),
Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/28/25 15,104,088
USD 24,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step Up, 4.00%, due 2/28/25 7,500,000
USD 26,430,745 Republic of Ecuador PDI (Global Bearer Capitalization Bond),
PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/27/15 6,079,071
USD 40,789,509 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/27/15 9,381,587
-------------
38,064,746
-------------
Ivory Coast -- 3.8%
FRF 25,000,000 Ivory Coast Discount Bond,
Variable Rate, Step Up, 3.00%, due 3/31/28 1,368,771
FRF 538,720,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 3/29/18 17,350,221
FRF 263,649,750 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 3/29/18 11,038,565
-------------
29,757,557
-------------
Jordan -- 3.7%
USD 8,894,737 Hashemite Kingdom of Jordan IAB, 144A,
Variable Rate, 6 mo. LIBOR + .81%, 6.19%, due 12/23/05 8,135,835
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Jordan -- continued
USD 25,780,215 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 5.50%, due 12/23/23 14,436,920
USD 11,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 6,270,000
-------------
28,842,755
-------------
Macedonia -- 1.2%
USD 23,179,272 Macedonia Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.39%, due 7/02/12 9,387,606
-------------
Mexico -- 14.6%
USD 19,000 Mexico Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 12/31/19 14,773
USD 26,500,000 Mexico Discount Bond Series D,
Variable Rate, 6 mo. LIBOR + .81%, 6.07%, due 12/31/19 21,995,000
DEM 30,000,000 Mexico Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.49%, due 12/31/19 11,827,700
FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 42,378,965
CHF 72,000,000 Mexico Par Bond, 3.75%, due 12/31/19 27,324,929
USD 3,000,000 Mexico Par Bond, Series A, 6.25%, due 12/31/19 2,145,000
USD 10,659,000 Mexico Par Bond, Series B, 6.25%, due 12/31/19 7,613,235
-------------
113,299,602
-------------
Nigeria -- 3.4%
USD 28,750,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 16,675,000
USD 17,835,440 Nigeria Odd Lot, Variable Rate, 6.25%, due 11/15/20(a) 9,452,781
-------------
26,127,781
-------------
Peru -- 2.2%
USD 4,325,000 Peru Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/08/27 2,573,375
USD 7,775,000 Peru FLIRB,
Variable Rate, Step Up, 3.75%, due 3/07/17 3,955,531
USD 5,150,000 Peru FLIRB,
Variable Rate, Step Up, 144A, 3.75%, due 3/07/17 2,620,063
USD 14,000,000 Peru Par Bond,
Variable Rate, Step Up, 3.00%, due 3/07/27 6,020,000
USD 3,200,000 Peru PDI,
Variable Rate, Step Up, 4.50%, due 3/07/17 1,860,000
-------------
17,028,969
-------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Qatar -- 0.3%
USD 2,000,000 State of Qatar, 9.50%, due 5/21/09 2,035,000
-------------
Russia -- 0.3%
RUB 17,435,150 Russia Federal Loan Bond Series 25021, 15.00%, due 1/17/01 34,752
RUB 107,450,000 Russia Federal Loan Bond Series 25023, 14.00%, due 9/12/01 214,172
RUB 35,910,546 Russia Federal Loan Bond Series 26003, 10.00%, due 3/15/05 271,995
USD 9,623,679 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, due 12/15/15* 1,389,419
-------------
1,910,338
-------------
South Korea -- 0.8%
USD 6,000,000 Export Import Bank of Korea, 7.10%, due 3/15/07 5,829,600
-------------
Supra National -- 0.8%
ZAR 250,000,000 International Bank for Reconstruction and Development,
Zero Coupon, due 5/14/12 6,449,359
-------------
Tunisia -- 1.0%
JPY 200,000,000 Banque Centrale De Tunisie, 4.35%, due 8/15/17 1,532,218
JPY 800,000,000 Banque National Development Touristique, 4.75%, due 6/09/17 6,055,908
-------------
7,588,126
-------------
United States -- 3.9%
Asset Backed Securities -- 2.6%
USD 715,164 Americredit Automobile Receivables Trust 97-C Class A2,
Variable Rate, 1 mo. LIBOR + .10%, 5.31%, due 3/05/01 714,807
USD 15,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 14,964,844
USD 5,000,000 SHYPPCO Finance Company Series B Class A-2B,
6.64%, due 6/15/10 4,647,500
-------------
20,327,151
-------------
U.S. Government Agency -- 1.3%
USD 1,125,125 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.61%, due 10/01/12 1,091,371
USD 9,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 8,590,500
-------------
9,681,871
-------------
Total United States 30,009,022
-------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Venezuela -- 6.0%
USD 1,753,423 Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due
12/18/08 1,231,780
USD 1,192,035 Republic of Venezuela DCB IL, Odd Lot
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due
12/18/08 807,604
USD 16,852,032 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due
12/18/08 11,417,252
USD 5,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due
3/31/20 3,100,000
USD 464,001 Republic of Venezuela FLIRB Series A,
Variable Rate, 6 mo. LIBOR + .88%, 6.00%, due
3/31/07 314,277
USD 288,001 Republic of Venezuela FLIRB Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 6.00%, due
3/31/07 197,856
CHF 30,476,192 Republic of Venezuela FLIRB,
Variable Rate, 6 mo. CHF LIBOR + .88%, 2.19%, due
3/31/07 12,618,121
USD 9,498,223 Republic of Venezuela New Money Bond Series A Odd
Lot, Variable Rate, 6 mo. LIBOR + 1%, 6.44%, due
12/18/05 6,553,774
USD 6,653,064 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1%, 6.44%, due
12/18/05 4,590,614
USD 919,578 Republic of Venezuela New Money Bond Series B Odd
Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.31%,
due 12/18/05 634,508
DEM 1,180,000 Republic of Venezuela New Money Bond Series B,
Variable Rate, 6 mo. LIBOR + .88%, 3.56%, due
12/18/05 407,867
FRF 39,175,000 Republic of Venezuela Par Bond, 7.71%, due 3/31/20 4,179,331
=============
46,052,984
=============
Vietnam -- 1.2%
USD 3,000,000 Vietnam Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 5.94%, due
3/13/28 1,500,000
USD 19,000,000 Vietnam Par Bond,
Variable Rate, Step Up, 3.00%, due 3/12/28 5,391,250
USD 6,591,000 Vietnam PDI,
Variable Rate, Step Up, 3.50%, due 3/14/16 2,669,355
=============
9,560,605
-------------
TOTAL DEBT OBLIGATIONS
(Cost $665,138,613) 591,642,127
=============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOAN ASSIGNMENTS -- 13.4%
Algeria -- 4.9%
JPY 376,793,704 Algeria Tranche 1, JPY 6 mo. LIBOR + .8125%,
(1.125%) 1,443,325
USD 3,342,857 Algeria Tranche 2, 6 mo. LIBOR + .8125%, (6.00%) 2,223,000
FRF 90,564,324 Algeria Tranche 3, FRF 6 mo. LIBOR + 8.125%,
(3.9375%) 5,979,335
JPY 8,431,773,548 Algeria Tranche 3, JPY LIBOR + .8125%, (1.125%) 28,453,247
-------------
38,098,907
-------------
Cameroon -- 0.0%
FRF 18,396,841 Republic of Cameroon Tranche B* 325,873
-------------
325,873
-------------
Congo Republic -- 0.4%
EUR 8,195,761 Republic of Congo Loan Agreement* 822,432
USD 4,179,127 Republic of Congo Loan Agreement* 438,808
FRF 102,097,964 Republic of Congo Loan Agreement* 1,561,898
USD 1,116,117 Republic of Congo Loan Agreement* 117,192
-------------
2,940,330
-------------
Morocco -- 2.1%
JPY 2,522,692,281 Morocco Restructuring and Consolidating Agreement
Tranche A, Long Term Prime + .1175% (2.3175%) 15,932,915
-------------
15,932,915
-------------
Russia -- 6.0%
DEM 15,000,000 International Bank For Economic Cooperation Loan
Agreement* 567,082
EUR 5,000,000 International Bank For Economic Cooperation Loan
Agreement* 475,335
DEM 5,208,190 Russia Foreign Trade Obligations(a)* 214,478
USD 406,440,310 Russia Vnesh Restructured Loan Agreements* 45,216,483
-------------
46,473,378
-------------
Yugoslavia -- 0.0%
USD 1,400,368 Yugoslavia New Financing Agreement Tranche A* 70,018
USD 1,499,573 Yugoslavia New Financing Agreement Tranche C* 74,978
-------------
144,996
-------------
TOTAL Loan Assignments
(Cost $256,299,334) 103,916,399
-------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOAN PARTICIPATIONS -- 3.5%
Algeria -- 0.1%
JPY 118,636,364 Algeria Tranche 1. JPY 6 mo. LIBOR + .8125%,
(1.125%),
(Participation with Bank of America) 454,442
-------------
Cameroon -- 0.2%
NLG 28,052,902 Cameroon Loan Agreement, (Participation with Bank
of America and Salomon)* 1,479,120
-------------
Indonesia -- 0.4%
USD 1,600,000 Republic of Indonesia Loan Agreement,
LIBOR + .625%, (5.6875%), (Participation with
Salomon) 1,032,000
USD 1,900,000 Republic of Indonesia Loan Agreement,
LIBOR + .625%, (5.6875%), (Participation with
Salomon) 1,206,500
USD 1,860,000 Republic of Indonesia Loan Agreement,
LIBOR + .625%, (5.6875%), (Participation with
Salomon) 1,162,500
-------------
3,401,000
-------------
Jamaica -- 0.5%
USD 4,687,500 Jamaica Refinancing Agreement Tranche B,
LIBOR + .8125%, (5.8125), (Participation with
Chase Manhattan Bank and Salomon) 3,750,000
-------------
Morocco -- 2.2%
JPY 2,350,901,665 Morocco Restructuring and Consolidating Agreement
Tranche A, Long Term Prime + .1175%, (2.3175%),
(Participation with J.P. Morgan and Chase
Manhattan Bank) 14,847,913
JPY 347,700,763 Morocco Restructuring and Consolidating Agreement
Tranche A, Long Term Prime + .2175%, (3.0175%),
(Participation with J.P. Morgan) 2,196,022
-------------
17,043,935
-------------
Russia -- 0.1%
CHF 1,500,000 International Bank For Economic Cooperation Loan
Agreement, (Participation with Oppenheimer)* 59,402
DEM 3,500,000 International Bank For Economic Cooperation Loan
Agreement, (Participation with Salomon)* 132,319
JPY 900,000,000 International Investment Bank Loan Agreement,
(Participation with Bank of America)* 738,748
-------------
930,469
-------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yugoslavia -- 0.0%
USD 2,100,416 Yugoslavia New Financing Agreement Tranche B,
(Participation with Chase Manhattan Bank)* 105,021
USD 352,431 Yugoslavia New Financing Agreement Tranche C,
(Participation with Chase Manhattan Bank)* 17,622
-------------
122,643
-------------
TOTAL LOAN PARTICIPATIONS
(Cost $31,694,333) 27,181,609
-------------
PROMISSORY NOTES -- 0.9%
Kenya -- 0.6%
GBP 5,058,280 Republic of Kenya Promissory Notes,
0.00%, due 7/30/01 -1/30/03(a) 4,917,477
------------
Nigeria -- 0.2%
USD 3,000,000 Nigeria Promissory Notes, 5.09%, due 1/05/10 1,140,000
-------------
Romania -- 0.1%
USD 1,242,873 Romania Trade Finance Promissory Notes,
0.00%, due 6/05/01 - 12/05/01(a) 749,995
-------------
TOTAL PROMISSORY NOTES
(Cost $8,144,138) 6,807,472
-------------
Shares
------------
RIGHTS AND WARRANTS -- 0.3%
Argentina-- 0.0%
38,500 Republic of Argentina Warrants, Expires
2/25/00** 231,000
-------------
Mexico-- 0.3%
32,500 United Mexican States Warrants, Expires
2/18/00** 2,356,250
164,946,000 United Mexican States Warrants, Expires
6/30/03** --
-------------
2,356,250
-------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <S> <S> <C>
Nigeria -- 0.0%
44,255 Central Bank of Nigeria Payment Adjusted
Warrants, Expires 11/15/20** --
-------------
Venezuela -- 0.0%
74,355 Republic of Venezuela Recovery Warrants, Expires
04/15/20** --
-------------
TOTAL RIGHTS AND WARRANTS
(Cost $2,416,250) 2,587,250
-------------
SHORT-TERM INVESTMENTS -- 0.5%
Cash Equivalents -- 0.3%
USD 113,303 BankBoston Eurodollar Time Deposit, 5.4325%, due
10/29/99(c) 113,303
184,969 Merrimac Cash Fund Premium Class(c) 184,969
USD 2,000,000 Prudential Securities Group Inc, Master Note, 5.625%,
due 3/10/00(c) 2,000,000
-------------
2,298,272
-------------
Commercial Paper -- 0.2%
USD 1,645,000 Merrill Lynch & Co., Inc., 5.55%, due 9/01/99 1,645,000
-------------
Repurchase Agreements -- 0.0%
USD 1,032 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/99, due 9/1/99, with a maturity value
of $1,032 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with
a rate of 8.125%, maturity date of 8/15/21 and
market value, including accrued interest, of
$1,052. 1,032
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $3,944,304) 3,944,304
-------------
TOTAL INVESTMENTS-- 95.0%
(Cost $967,636,972) 736,079,161
Other Assets and Liabilities (net) -- 5.0% 38,394,735
-------------
TOTAL NET ASSETS -- 100% $ 774,473,896
=============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
Notes to the Schedule of Investments:
DCB - Debt Conversion Bond
FLIRB - Front Loaded Interest Reduction Bond
IAB - Interest Arrears Bond
IAN - Interest Arrears Note
PIK - Payment In Kind
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, 1999, which are
subject to change based on the terms of the
security, including varying reset dates.
Currency Abbreviations:
ARS - Argentinian Peso JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark RUB - Russian Ruble
EUR - Euro TRL - Turkish Lira
FRF - French Franc USD - United States Dollar
GBP - British Pound ZAR - South African Rand
(a) Valued by management (Note 1).
(b) All or a portion of this security has been
segregated to cover margin requirements on open
financial futures contracts (Note 6).
(c) Represents investments of security lending
collateral (Note 1).
* Non-performing. Borrower not currently paying
interest.
** Non-income producing security.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $967,636,972) (Note 1) $736,079,161
Cash at interest on deposit at brokers (Note 1) 6,222,366
Receivable for open swap contracts (Notes 1 and 6) 23,876,168
Receivable for investments sold 692,092
Interest receivable 14,141,022
Receivable for expenses waived or borne by Manager (Note 2) 22,753
Receivable for closed swap contracts (Notes 1 and 6) 8,253
------------
Total assets 781,041,815
------------
Liabilities:
Payable for investments purchased 487,500
Payable upon return of securities loaned (Note 1) 2,298,272
Net payable for open forward foreign currency contracts (Notes 1 and 6) 3,256,511
Payable for variation margin on open futures contracts (Notes 1 and 6) 12,893
Payable for Fund shares repurchased 68,275
Payable to affiliate for (Note 2):
Management fee 228,919
Shareholder service fee 83,735
Accrued expenses and other liabilities 131,814
------------
Total liabilities 6,567,919
------------
Net assets $774,473,896
============
Net assets consist of:
Paid-in capital $953,957,676
Accumulated undistributed net investment income 28,688,862
Accumulated net realized gain 2,693,353
Net unrealized depreciation (210,865,995
------------
$774,473,896
============
Net assets attributable to:
Class III shares $485,295,457
============
Class IV shares $289,178,439
============
Shares outstanding:
Class III 67,373,696
============
Class IV 40,144,106
============
Net asset value per share:
Class III $ 7.20
============
Class IV $ 7.20
============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest (including securities lending income of $7,634) $ 49,652,189
------------
Total income 49,652,189
------------
Expenses:
Management fee (Note 2) 1,446,875
Custodian fees 246,229
Audit fees 41,582
Legal fees 22,787
Transfer agent fees 17,664
Trustees fees (Note 2) 4,687
Registration fees 637
Miscellaneous 2,851
Fees waived or borne by Manager (Note 2) (90,208)
------------
1,693,104
Shareholder service fee (Note 2)
Class III 360,928
Class IV 172,765
------------
Net expenses 2,226,797
------------
Net investment income 47,425,392
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (1,470,482)
Closed futures contracts 397,160
Closed swap contracts 3,835,129
Written options (10,985,695)
Foreign currency, forward contracts and foreign currency related transactions 12,398,441
------------
Net realized gain 4,174,553
------------
Change in net unrealized appreciation (depreciation) on:
Investments 14,744,996
Open futures contracts 531,971
Open swap contracts 2,709,187
Written options 10,871,437
Foreign currency, forward contracts and foreign currency related transactions (9,594,527)
------------
Net unrealized gain 19,263,064
------------
Net realized and unrealized gain 23,437,617
------------
Net increase in net assets resulting from operations $ 70,863,009
============
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
----------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 47,425,392 $ 80,159,030
Net realized gain (loss) 4,174,553 (59,206,097)
Change in net unrealized appreciation (depreciation) 19,263,064 (318,647,695)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 70,863,009 (297,694,762)
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class III (19,870,056) (7,987,181)
Class IV (13,280,962) (9,997,511)
--------------- ---------------
Total distributions from net investment income (33,151,018) (17,984,692)
--------------- ---------------
Net realized gains
Class III (784,344) (33,861,250)
Class IV (522,530) (42,566,783)
--------------- ---------------
Total distributions from net realized gains (1,306,874) (76,428,033)
--------------- ---------------
In excess of net realized gains
Class III -- (58,659)
Class IV -- (73,741)
--------------- ---------------
Total distributions in excess of net realized gains -- (132,400)
--------------- ---------------
(34,457,892) (94,545,125)
--------------- ---------------
Net share transactions: (Note 5)
Class III 15,512,306 168,649,238
Class IV (51,064,487) 226,245,142
--------------- ---------------
Increase (decrease) in net assets resulting from net
share transactions $ (35,552,181) $ 394,894,380
--------------- ---------------
Total increase in net assets 852,936 2,654,493
Net assets:
Beginning of period 773,620,960 770,966,467
--------------- ---------------
End of period (including accumulated undistributed net
investment income of $28,688,862 and $14,414,488,
respectively) $ 774,473,896 $ 773,620,960
=============== ===============
</TABLE>
See accompanying notes to the financial statements.
13
<PAGE>
GMO Emerging Country Debt Fund
(A series of GMO Trust)
Financial Highlights
(For Class III shares outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1999 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995*
---------------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 6.89 $ 11.64 $ 14.09 $ 11.76 $ 8.39 $ 10.00
--------- --------- --------- --------- --------- ---------
Income from investment
operations:
Net investment income 0.42+ 0.92+ 1.13+ 1.48 1.35 0.48
Net realized and
unrealized gain
(loss) 0.20 (4.41) 1.51 6.40 3.84 (1.59)
--------- --------- --------- --------- --------- ---------
Total from investment
operations 0.62 (3.49) 2.64 7.88 5.19 (1.11)
--------- --------- --------- --------- --------- ---------
Less distributions to
shareholders:
From net investment
income (0.30) (0.23) (0.84) (1.58) (1.17) (0.40)
From net realized gains (0.01) (1.03) (4.25) (3.97) (0.65) --
In excess of net
realized gains -- --(a) -- -- -- (0.10)
--------- --------- --------- --------- --------- ---------
Total distributions (0.31) (1.26) (5.09) (5.55) (1.82) (0.50)
--------- --------- --------- --------- --------- ---------
Net asset value, end
of period $ 7.20 $ 6.89 $ 11.64 $ 14.09 $ 11.76 $ 8.39
========= ========= ========= ========= ========= =========
Total Return (b) 8.96% (32.94)% 22.27% 74.32% 63.78% (11.65)%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $485,295 $450,336 $460,387 $555,452 $615,485 $243,451
Net expenses to average
daily net assets 0.56%** 0.56% 0.53% 0.57% 0.50% 0.50%**
Net investment income
to average daily net 11.38%** 10.99% 8.62% 8.35% 12.97% 10.57%**
assets
Portfolio turnover rate 49% 272% 255% 152% 158% 104%
Fees and expenses
voluntarily waived
or borne by the
Manager consisted of
the following per --(c) 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.01
share amounts:
</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) The distribution in excess of 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.
(c) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
14 See accompanying notes to the financial statements.
<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
August 31, 1999 Year Ended February 28,
--------------- ------------------------
(Unaudited) 1999 1998 **
--------------- ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $ 6.90 $ 11.63 $ 10.99
-------- ------- --------
Income from investment operations:
Net investment income 0.43+ 0.91+ 0.10+
Net realized and unrealized gain (loss) 0.19 (4.37) 0.54
-------- ------- --------
Total from investment operations 0.62 (3.46) 0.64
-------- ------- --------
Less distributions to shareholders:
From net investment income (0.31) (0.24) --
From net realized gains (0.01) (1.03) --
In excess of net realized gains -- --(b) --
-------- ------- --------
Total distributions (0.32) (1.27) --
-------- ------- --------
Net asset value, end of period $ 7.20 $ 6.90 $ 11.63
======== ======= ========
Total Return (a) 8.97% (32.82)% 5.82%
Ratios/Supplemental Data:
Net assets, end of period (000's) $289,178 $323,285 $310,580
Net expenses to average daily net assets 0.51%* 0.51% 0.50%*
Net investment income to average daily net
assets 11.60%* 10.87% 7.17%*
Portfolio turnover rate 49% 272% 255%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: --(c) $ 0.02 --(c)
</TABLE>
* Annualized.
** Period from January 9, 1998 (commencement of operations) to February 28,
1998.
+ 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) The distribution in excess of net realized gains was $.002.
(c) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 to earn high total return through investment in sovereign
debt of developing countries in Asia, Latin America, the Middle East,
Africa and Europe. The Fund's current benchmark is the J.P. Morgan Emerging
Markets Bond Index Plus.
The Fund offers two classes of shares: Class III and Class IV. 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. 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 another source)
because the Manager has reasons to suspect that a price supplied may not be
reliable.
16
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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. The prices provided by
principal market makers may differ from the value that would be realized if
the securities were sold 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
gains and losses on disposition of foreign currencies and forward foreign
currency contracts, 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 and agency 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, 1999.
17
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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
18
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 and credit risk. 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
a default of the underlying security. In connection with these agreements,
cash or securities may be set aside as collateral by the Fund's custodian
in accordance with the terms of the swap agreement. The Fund earns interest
on cash set aside as collateral, which is paid by the counterparty. At
August 31, 1999, $6,222,366 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. Net payments of
interest on interest rate swap agreements are recorded as interest income.
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
will be 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, 1999.
19
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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.
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had not entered into a reverse
repurchase agreement.
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, 1999, the Fund loaned securities having a market
value of $2,159,563 collateralized by cash in the amount of $2,298,272,
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.
20
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 dividends 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 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 interest income.
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 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, 1999, the Fund
received $308,785 in purchase premiums and $301,327 in redemption fees.
There is no premium for reinvested distributions.
21
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 .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 the average daily net assets of each class at the annual rate of .15%
for Class III shares and .10% for Class IV shares.
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding custody fees, brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $4,687. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
22
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999,
aggregated $378,254,653 and $391,606,022, respectively.
At August 31, 1999, 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
---------------- ------------------ ------------------ ----------------
$ 967,636,972 $ 23,313,939 $ 254,871,750 $ 231,557,811
4. Principal shareholders
At August 31, 1999, 33.7% 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>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
----------------------------- -----------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 7,722,221 $ 59,284,171 45,405,396 $ 367,745,404
Shares issued to shareholders
in reinvestment of
distributions 2,011,190 14,902,922 3,380,175 32,138,997
Shares repurchased (7,676,300) (58,674,787) (23,019,717) (231,235,163)
-------------- -------------- -------------- --------------
Net increase 2,057,111 $ 15,512,306 25,765,854 $ 168,649,238
============== ============== ============== ==============
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
----------------------------- -----------------------------
Class IV: Shares Amount Shares Amount
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 4,699,412 $ 35,002,726 21,916,084 $ 239,168,023
Shares issued to shareholders
in reinvestment of
distributions 1,780,755 13,195,400 5,400,677 51,286,039
Shares repurchased (13,221,257) (99,262,613) (7,130,859) (64,208,920)
-------------- -------------- -------------- --------------
Net increase (decrease) (6,741,090) $ (51,064,487) 20,185,902 $ 226,245,142
============== ============== ============== ==============
</TABLE>
23
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Short forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver Units of Currency Value (Depreciation)
--------------- ------------------ -------------------- --------------- -----------------
<S> <C> <C> <C> <C>
10/14/99 CHF 66,400,000 $ 44,071,225 $ 945,724
10/15/99 EUR 92,500,000 98,056,933 1,195,567
9/23/99 GBP 1,500,000 2,412,632 (56,342)
9/09/99 JPY 8,000,000,000 73,065,400 (5,268,790)
10/07/99 ZAR 35,000,000 5,711,465 (72,670)
----------------
$ (3,256,511)
================
<CAPTION>
Short futures contracts
Number Net Unrealized
of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
----------- ------------------------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
95 German Government Bond September 1999 $ 10,824,601 $ 621,636
6 Japanese Government Bond 10 yr March 2000 7,058,051 (14,027)
-------------
$ 607,609
=============
</TABLE>
At August 31, 1999, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
24
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts
Principal Amount
of Contracts
(000's omitted) Premiums
------------------ ----------------
<S> <C> <C>
Outstanding, beginning of period $ 17,500 $ 713,125
Options written -- --
Options exercised -- --
Options expired (17,500) (713,125)
Options sold -- --
------------------ ----------------
Outstanding, end of period $ -- $ --
================== ================
<CAPTION>
Calls
Principal Amount
of Contracts
(000's omitted) Premiums
------------------ ----------------
<S> <C> <C>
Outstanding, beginning of period $ 17,500 $ 836,938
Options written -- --
Options exercised -- --
Options expired -- --
Options sold (17,500) (836,938)
------------------ ----------------
Outstanding, end of period $ -- $ --
================== ================
</TABLE>
25
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
Credit Default Swaps
10,000,000 USD 9/15/00 Agreement with Morgan Guaranty Trust Company $ (286,611)
dated 9/10/98 to pay 2.20% per year times
the notional amount. The Fund receives
payment only upon a default event in Poland,
the notional amount times the difference
between the par value and the then-market
value of Republic of Poland Past Due
Interest "PDI" Bond due 10/27/14.
15,000,000 USD 11/03/00 Agreement with Credit Suisse Financial (179,201)
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.
10,000,000 USD 11/07/00 Agreement with Credit Suisse Financial (51,220)
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.
</TABLE>
26
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 12/18/00 Agreement with Morgan Guaranty Trust Company $ (193,469)
dated 12/11/98 to pay 6.50% 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 Republic of Argentina
Floating Rate Bond due 3/31/05.
20,000,000 USD 3/01/01 Agreement with Morgan Guaranty Trust Company (665,153)
dated 2/24/99 to pay 4.60% 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 par value and the
then-market value of Bulgaria IAB Floating
Rate Bond due 7/28/11.
21,500,000 USD 5/29/01 Agreement with Credit Suisse Financial 12,153,413
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 the par value and the
then-market value of 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 12,556,050
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.
</TABLE>
27
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
25,000,000 USD 9/10/01 Agreement with Credit Suisse Financial $ 1,426,088
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.
15,000,000 USD 6/05/02 Agreement with Lehman Brothers International (442,721)
(Europe) dated 5/25/99 to pay 3.75% per year
times the notional amount. The Fund
receives payment only upon a default event
in Mexico, the notional amount times the
difference between the purchase cost of
96.25 USD and the then-market value of
United Mexican States, 9.875% due 1/15/07.
10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 5/12/98 227,681
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 par value and the
then-market value of any series of Banco
Latinoamericano de Exportaciones S.A. Euro
Medium Term Notes.
10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 10/01/98 (539,967)
to pay 3.50% per year times the notional
amount. The Fund receives payment only upon
a default event, the notional amount times
the difference between the par value and the
then-market value of any series of Banco
Latinoamericano de Exportaciones S.A. Euro
Medium Term Notes.
</TABLE>
28
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 6/20/03 Agreement with Goldman Sachs International $ 1,927,726
dated 1/14/99 to receive 11.60% per year
times the notional amount. The Fund pays
only upon a default event in Colombia, the
notional amount times the difference between
the par value and the then-market value of
Republic of Colombia, 7.625% due 2/15/07.
Interest Rate Swaps
2,400,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company (1,273)
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 2,323
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 218,620
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.
13,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (10,076)
dated 9/30/98 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>
29
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
Total Return Swaps
16,818,200 USD/ 9/03/99 Agreement with Morgan Guaranty Trust Company $ 27,105
24,600,000 USD dated 6/01/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accrued interest) of Republic
of Argentina Discount L Floating Rate Note due
3/31/23 and to pay initial market value
multiplied by 3 month LIBOR adjusted by a
specified spread.
15,677,924 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company 541,707
14,500,000 USD dated 8/2/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accrued interest) of United
Mexican States, 11.50% due 5/15/26 and to pay
initial market value multiplied by 2 month
LIBOR adjusted by a specified spread.
10,024,743 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company 548,348
11,000,000 USD dated 8/3/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accrued interest) of Republic
of Argentina, 11.75% due 4/07/09 and to pay
initial market value multiplied by 2 month
LIBOR adjusted by a specified spread.
24,239,854 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company (166,848)
26,000,000 USD dated 8/02/99 to receive (pay) the notional
amount multiplied by the change in market value
(including accrued interest) of Republic of
Argentina, 12.125% due 2/25/19 and to pay
initial market value multiplied by 2 month
LIBOR 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
6,480,278 USD/ 9/15/99 Agreement with Morgan Guaranty Trust Company $ (73,654)
10,000,000 USD dated 8/11/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Republic of Venezuela,
9.25% due 9/15/27 and to pay initial
market value multiplied by 5.25%.
7,462,292 USD/ 9/15/99 Agreement with Morgan Guaranty Trust Company (101,522)
7,000,000 USD dated 6/10/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Korea Republic, 8.875% due
4/15/08 and to pay initial market value
multiplied by 3 month LIBOR adjusted by
a specified spread.
4,407,968 USD/ 9/27/99 Agreement with Morgan Guaranty Trust Company 74,674
6,000,000 USD dated 8/24/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Brazilian Capitalization
Floating Rate Note due 4/15/14 and to
pay initial market value multiplied by 1
month LIBOR adjusted by a specified
spread.
10,289,049 USD/ 9/27/99 Agreement with Deutsche Bank AG dated (17,953)
11,000,000 USD 8/24/99 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Republic
of Argentina, 11.75% due 4/07/09 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
11,511,889 USD/ 9/27/99 Agreement with Deutsche Bank AG dated $ 237,950
19,000,000 USD 8/24/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accrued interest) of
Republic of Bulgaria FLIRB Series A
Floating Rate Note due 7/28/12 and to
pay initial market value multiplied by
1 month LIBOR adjusted by a specified
spread.
16,806,417 USD/ 10/01/99 Agreement with Morgan Guaranty Trust Company (673,678)
23,500,000 USD dated 6/24/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accrued interest) of
Republic of Argentina Discount L Floating
Rate Note due 3/31/23 and to pay initial
market value multiplied by 4 month LIBOR
adjusted by a specified spread.
11,050,948 USD/ 10/20/99 Agreement with Morgan Guaranty Trust Company 4,668
13,000,000 USD dated 8/18/99 to receive (pay) the notional
amount multiplied by the change in market
value (including accured 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.
4,694,227 USD/ 11/26/99 Agreement with Bank of America dated (2,701,112)
900,000,000,000 TRL 11/25/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Turkey
Indexed Linked Bond due 11/26/99 and to
pay initial market value multiplied by 3
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
14,010,944 USD/ 1/19/00 Agreement with Morgan Guaranty Trust Company $ (482,379)
22,000,000 USD dated 7/08/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Brazil Discount ZL Floating
Rate Note due 4/15/24 and to pay initial
market value multiplied by 6 month LIBOR
adjusted by a specified spread.
15,427,083 USD/ 2/09/00 Agreement with Morgan Guaranty Trust Company 27,542
25,000,000 USD dated 8/11/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Brazil Discount ZL Floating
Rate Note due 4/15/24 and to pay initial
market value multiplied by 5.95%.
10,017,500 USD/ 2/14/00 Agreement with Morgan Guaranty Trust Company 352,698
15,000,000 USD dated 8/11/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Republic of Argentina
Discount L Floating Rate Note due
3/31/23 and to pay initial market value
multiplied by 5.95%.
7,549,667 USD/ 2/18/00 Agreement with Morgan Guaranty Trust Company 61,901
11,000,000 USD dated 8/17/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Republic of Argentina
Discount L Floating Rate Note due
3/31/23 and to pay initial market value
multiplied by 6 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
4,326,073 USD/ 2/29/00 Agreement with Morgan Guaranty Trust Company $ --
7,000,000 USD dated 8/31/99 to receive (pay) the notional
amount multiplied by the change in
market value (including accrued
interest) of Brazil Discount ZL Floating
Rate Note due 4/15/24 and to pay initial
market value multiplied by 1 month LIBOR
adjusted by a specified spread.
15,000,000 USD 5/25/00 Agreement with Morgan Guaranty Trust Company 74,511
dated 5/25/99 to pay the notional amount
multiplied by the return on the Merrill
Lynch High Yield Corporate Index and to
receive the notional amount multiplied by 3
month LIBOR adjusted by a specified spread.
---------------
$ 23,876,168
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
34
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligations -- 99.0%
Argentina -- 0.7%
USD 500,000 Republic of Argentina, 12.13%, due 2/25/19 463,750
USD 1,000,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due
3/31/23 677,500
--------------
1,141,250
--------------
Australia -- 4.5%
GBP 2,000,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 3,507,048
12/07/06
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,809,699
USD 2,500,000 Westralia Airports Corp, 144A, 6.48%, due 4/01/10 2,324,500
--------------
7,641,247
--------------
Brazil -- 1.4%
USD 3,500,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due
4/15/09 2,310,000
--------------
Bulgaria -- 1.8%
USD 1,000,000 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 7.00%, due
7/28/24 670,000
USD 5,000,000 Bulgaria Discount Series B Interest Strips, Basket 2,
0.00%, due 7/28/24 572,500
USD 10,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 1,857,847
--------------
3,100,347
--------------
Canada -- 8.7%
CAD 750,000 Government of Canada, 10.25%, due 3/15/14 716,677
CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 3,848,412
CAD 3,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 2,192,079
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,544,029
GBP 3,500,000 Province of Quebec, 8.62%, due 11/04/11 6,508,218
--------------
14,809,415
--------------
Cayman Islands -- 7.3%
GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due 9/15/02 3,234,974
GBP 2,000,000 Chester Asset Receivables, Inc., Deal 2,
Variable Rate, 3 mo. GBP LIBOR + .10%, 5.24%, due
6/15/01 3,211,498
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 1,424,742
USD 5,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%,
due 5/15/10 4,525,000
--------------
12,396,214
--------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chile -- 1.9%
USD 3,500,000 Banco Santander, 6.50%, due 11/01/05 3,320,625
--------------
Ecuador -- 0.4%
USD 2,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step Up, 4.00%, due 2/28/25 625,000
--------------
France -- 1.4%
FRF 14,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 2,457,347
--------------
Germany -- 1.8%
GBP 3,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 3,145,248
--------------
Japan -- 9.0%
GBP 2,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,429,864
GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 3,563,328
2/16/05
USD 1,030,000 Japan Highway Public Corporation, 7.63%, due 9/22/04 1,063,475
GBP 4,000,000 Kobe City, 9.50%, due 10/20/04 7,190,975
--------------
15,247,642
--------------
Jordan -- 0.5%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 5.50%, due 12/23/23 560,000
USD 500,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 285,000
--------------
845,000
--------------
Mexico -- 3.8%
FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,896,151
CHF 12,000,000 Mexico Par Bond, 3.75%, due 12/31/19 4,554,155
--------------
6,450,306
--------------
New Zealand -- 2.0%
NZD 6,800,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 3,479,952
--------------
Nigeria -- 0.4%
USD 1,228,385 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 651,044
--------------
Norway -- 0.5%
SEK 6,300,000 A/S Eksportfinans, 7.50%, due 8/16/01 796,749
--------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Russia -- 0.0%
USD 331,679 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due
12/15/15* 47,886
--------------
Supra National -- 3.2%
AUD 14,000,000 European Bank for Reconstruction and Development,
Zero Coupon, due 2/10/28 1,147,215
CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 520,239
GBP 2,000,000 International Bank for Reconstruction and
Development, 11.50%, due 11/09/03 3,801,312
--------------
5,468,766
--------------
Sweden -- 7.1%
SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due 2,422,085
12/01/20
SEK 76,600,000 Kingdom of Sweden, 6.00%, due 2/09/05 9,588,215
--------------
12,010,300
--------------
United States -- 42.2%
Asset Backed Securities -- 34.0%
USD 5,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due
5/15/24 4,964,648
USD 3,000,000 American Express Credit Account Master Trust Series 98-1A,
Variable Rate, 1 mo. LIBOR + .09%, 5.36%, due 1/17/06 2,984,414
USD 5,000,000 Augusta Funding Ltd X, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due
6/30/17 4,729,688
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.61%, due 4/25/03 4,912,500
USD 6,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.48%, due
10/15/06 5,973,516
USD 3,500,000 Discover Card Master Trust I Series 99-3 Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
9/15/04(b) 3,492,344
USD 5,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due
10/15/06 4,988,281
USD 4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%,
due 7/15/09 4,724,498
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 5,073,438
USD 5,966,000 SMS Student Loan Trust 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 5.88%, due
7/26/21 5,961,227
USD 5,000,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 5.93%, due
7/25/03 5,009,000
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 5,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%,
due 7/30/11 4,824,219
--------------
57,637,773
--------------
Corporate Debt -- 1.0%
SEK 14,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 1,763,434
--------------
U.S. Government Agency -- 7.2%
USD 2,500,990 Agency for International Development Floater (Support of
Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.23%,
due 10/01/11 2,413,455
USD 1,000,000 Agency for International Development Floater (Support
of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due
2/01/27 980,000
USD 1,737,241 Agency for International Development Floater (Support of
Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 5.66%,
due 11/15/14 1,689,467
USD 3,276,433 Agency for International Development Floater (Support of
Peru),
Series A, Variable Rate, 6 mo. U.S. Treasury
Bill + .35%, 5.56%, due 5/01/14 3,145,375
USD 166,667 Agency for International Development Floater (Support of
Peru),
Variable Rate, 3 mo. U.S. Treasury Bill x 114%, 5.21%,
due 2/01/02 165,834
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(c) 3,818,000
--------------
12,212,131
--------------
Total United States 71,613,338
--------------
Venezuela -- 0.4%
USD 1,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due
3/31/20 620,000
--------------
TOTAL DEBT OBLIGATIONS (COST $174,636,068) 168,177,676
--------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOAN ASSIGNMENTS -- 0.7%
Russia -- 0.7%
USD 9,646,950 Russia Vnesh Restructured Loan Agreements* 1,073,223
--------------
TOTAL LOAN ASSIGNMENTS (COST $4,624,582) 1,073,223
--------------
Principal Amount
----------------
CALL OPTIONS PURCHASED -- 0.1%
Options on Currency -- 0.1%
USD 12,880,000 Euro, Expires 5/03/00, Strike 1.12 155,848
USD 6,300,000 Japanese Yen, Expires 11/16/99, Strike 112.70 58,590
--------------
214,438
--------------
TOTAL CALL OPTIONS PURCHASED
(COST $674,121) 214,438
--------------
PUT OPTIONS PURCHASED -- 0.4%
Options on Currency -- 0.4%
USD 12,305,000 Euro, Expires 5/03/00, Strike 1.07 396,221
USD 6,300,000 Japanese Yen, Expires 11/16/99, Strike 112.70 328,230
--------------
724,451
--------------
TOTAL PUT OPTIONS PURCHASED
(COST $455,351) 724,451
--------------
Shares
------
RIGHTS AND WARRANTS -- 0.0%
Argentina -- 0.0%
1,000 Republic of Argentina Warrants, Expires 2/25/00** 6,000
--------------
Mexico -- 0.0%
10,614,000 United Mexican States Warrants, Expires 6/30/03** --
--------------
Nigeria -- 0.0%
1,227 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20** --
--------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Venezuela -- 0.0%
7,140 Republic of Venezuela Recovery Warrants,
Expires 04/15/20** --
--------------
TOTAL RIGHTS AND WARRANTS (COST $28,221) 6,000
--------------
SHORT-TERM INVESTMENTS -- 1.6%
Cash Equivalents -- 0.3%
USD 392,419 BankBoston Eurodollar Time Deposit, 5.4325%, due 392,419
10/29/99(d)
104,953 Merrimac Cash Fund Premium Class(d) 104,953
--------------
497,372
--------------
Commercial Paper -- 1.3%
USD 2,124,000 Merrill Lynch, 5.55%, due 9/01/99 2,124,000
--------------
Repurchase Agreements -- 0.0%
USD 449 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of $449
and an effective yield of 4.68%, collateralized by a
U.S. Treasury Obligation with a rate of 8.125%,
maturity date of 8/15/21 and market value, including
accrued interest, of $457. 449
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,621,821) 2,621,821
--------------
TOTAL INVESTMENTS -- 101.8%
(Cost $183,040,164) 172,817,609
Other Assets and Liabilities (net)-- (1.8)% (2,979,952)
--------------
TOTAL NET ASSETS-- 100% $ 169,837,657
==============
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Notes to the Schedule of Investments:
CPI - Consumer Price Index
EMTN - Euromarket Medium Term Note
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, 1999, which are
subject to change based on the terms of the
security, including varying reset dates.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Currency Abbreviations
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc NZD - New Zealand Dollar
EUR - Euro SEK - Swedish Krona
FRF - French Franc USD - United States Dollar
</TABLE>
(a) Valued by management (Note 1).
(b) All or a portion of this security has been
segregated to cover collateral requirements on the
reverse repurchase agreement (Note 6).
(c) All or a portion of this security has been
segregated to cover margin requirements on open
financial futures contracts (Note 6).
(d) Represents investments of security lending
collateral (Note 1).
* Non-performing. Borrower not currently paying
interest.
** Non-income producing security.
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $183,040,164) (Note 1) $172,817,609
Cash at interest on deposit at brokers (Note 1) 1,773,574
Foreign currency, at value (cost $40,067) (Note 1) 39,876
Interest receivable 3,570,862
Receivable for variation margin on open futures contracts (Notes 1 and 6) 99,323
Net receivable for open forward foreign currency contracts (Notes 1 and 6) 1,544,833
Receivable for expenses waived or borne by Manager (Note 2) 15,133
------------
Total assets 179,861,210
------------
Liabilities:
Payable for investments purchased 4,925,278
Payable upon return of securities loaned (Note 1) 497,372
Written options outstanding, at value (premiums $869,022) (Notes 1 and 6) 335,160
Payable for open swap contracts (Notes 1 and 6) 456,864
Payable to affiliate for (Note 2):
Management fee 35,895
Shareholder service fee 20,345
Interest payable for open swap contracts (Note 1) 255,158
Payable for reverse repurchase agreement (Notes 1 and 6) 3,394,000
Accrued expenses and other liabilities 103,481
------------
Total liabilities 10,023,553
------------
Net assets $169,837,657
============
Net assets consist of:
Paid-in capital $180,364,689
Accumulated undistributed net investment income 7,289,569
Accumulated net realized loss (7,826,133)
Net unrealized depreciation (9,990,468)
============
$169,837,657
============
Net assets attributable to:
Class III shares $169,837,657
============
Shares outstanding:
Class III 17,732,326
============
Net asset value per share:
Class III $ 9.58
============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $311) $ 5,784,472
Dividends 165,875
----------
Total income 5,950,347
----------
Expenses:
Management fee (Note 2) 218,596
Custodian and transfer agent fees 70,169
Interest expense (Notes 1 and 6) 43,596
Audit fees 27,422
Legal fees 2,950
Trustees fees (Note 2) 1,015
Registration fees 364
Miscellaneous 1,472
Fees waived or borne by Manager (Note 2) (103,392)
----------
262,192
Shareholder service fee (Note 2)
Class III 131,155
----------
Net expenses 393,347
----------
Net investment income 5,557,000
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments
Closed futures contracts (2,628,785)
Closed swap contracts 270,990
Foreign currency, forward contracts and foreign currency related (263,732)
transactions (5,230,637)
----------
Net realized loss (7,852,164)
----------
Change in net unrealized appreciation (depreciation) on:
Investments
Open futures contracts (4,291,435)
Open swap contracts (833,003)
Written options 900,670
Foreign currency, forward contracts and foreign currency related 418,950
transactions 3,617,619
----------
Net unrealized loss (187,199)
----------
Net realized and unrealized loss (8,039,363)
----------
Net decrease in net assets resulting from operations $(2,482,363)
==========
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,557,000 $ 17,115,565
Net realized gain (loss) (7,852,164) 11,107,758
Change in net unrealized appreciation (depreciation) (187,199) (16,558,967)
----------- ------------
Net increase (decrease) in net assets resulting from operations (2,482,363) 11,664,356
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (2,630,046) (8,308,647)
----------- ------------
Total distributions from net investment income (2,630,046) (8,308,647)
----------- ------------
In excess of net investment income
Class III -- (1,994,554)
----------- ------------
Total distributions in excess of net investment income -- (1,994,554)
----------- ------------
Net realized gains
Class III (3,231,690) (5,508,618)
----------- ------------
Total distributions from net realized gains (3,231,690) (5,508,618)
----------- ------------
(5,861,736) (15,811,819)
----------- ------------
Net share transactions: (Note 5)
Class III (3,647,140) (107,045,783)
----------- ------------
Decrease in net assets resulting from net share transactions (3,647,140) (107,045,783)
----------- ------------
Total decrease in net assets (11,991,239) (111,193,246)
Net assets:
Beginning of period 181,828,896 293,022,142
----------- ------------
End of period (including accumulated undistributed net investment
income of $7,289,569 and $4,362,615, respectively) $169,837,657 $181,828,896
============ ============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond 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, 1999 --------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.06 $ 10.45 $ 10.78 $ 10.92 $ 9.64 $ 9.96
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.32 0.71 0.59 0.71 0.62 0.98
Net realized and unrealized
gain (loss) (0.46) (0.42) 0.08 0.65 1.55 (0.21)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations (0.14) 0.29 0.67 1.36 2.17 0.77
---------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.15) (0.36) (0.54) (0.81) (0.59) (0.75)
In excess of net investment
income -- (0.09) -- -- -- --
From net realized gains (0.19) (0.23) (0.10) (0.54) (0.30) (0.34)
In excess of net realized gains -- -- (0.36) (0.15) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.34) (0.68) (1.00) (1.50) (0.89) (1.09)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end
of period $ 9.58 $ 10.06 $ 10.45 $ 10.78 $ 10.92 $ 9.64
========== ========== ========== ========== ========== ==========
Total Return (a) (1.29)% 2.48% 6.32% 12.39% 22.72% 8.23%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 169,838 $ 181,829 $ 293,022 $ 235,783 $ 193,920 $ 151,189
Net operating expenses to
average daily net assets 0.40%* 0.40% 0.40% 0.40% 0.40% 0.40%
Interest expense to average
daily net assets 0.05%* -- -- -- -- --
Total net expenses to
average daily net assets 0.45%* 0.40% 0.40% 0.40% 0.40% 0.40%
Net investment income to average
daily net assets 6.36%* 6.45% 6.24% 6.93% 8.17% 7.51%
Portfolio turnover rate 31% 106% 105% 95% 99% 141%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.01 $ 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.
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 through investment in foreign bond and
currency markets. The Fund's current benchmark is the J.P. Morgan Non-U.S.
Government Bond 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 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. 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 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. The prices provided by
principal market makers may differ from the value that
12
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
would be realized if the securities were sold 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
gains and losses on disposition of foreign currencies and forward foreign
currency contracts, 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 and agency 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, 1999.
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
13
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the 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, 1999.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
14
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 and credit risk. 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
a default of the underlying security. In connection with these agreements,
cash or securities may be set aside as collateral by the Fund's custodian
in accordance with the terms of the swap agreement. The Fund earns interest
on cash set aside as collateral, which is paid by the counterparty. At
August 31, 1999, $1,773,574 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. Net payments of
interest on interest rate swap agreements are recorded as interest income.
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
will be 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, 1999.
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.
15
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had entered into reverse repurchase
agreements having a market value of $3,394,000, collateralized by
securities with a market value of $3,492,344. See Note 6 for a summary of
open reverse repurchase agreements as of August 31, 1999.
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, 1999, the Fund loaned securities having a market
value of $480,193 collateralized by cash in the amount of $497,372, 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 dividends 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
16
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 these securities adjusted for inflation is recorded as
interest 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 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 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. For the six months ended August 31, 1999, the Fund
received $6,651 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
17
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.40% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $1,015. 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, 1999,
aggregated $54,058,261 and $61,553,784, respectively.
At August 31, 1999, 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>
$ 183,040,164 $ 2,610,880 $ 12,833,435 $ 10,222,555
</TABLE>
4. Principal shareholders
At August 31, 1999, 49.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
18
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
---------------------------------- ----------------------------------
Class III: Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 441,381 $ 4,434,084 5,484,951 $ 57,695,554
Shares issued to shareholders
in reinvestment of distributions 541,178 5,054,601 1,255,142 13,253,099
Shares repurchased (1,315,750) (13,135,825) (16,723,091) (177,994,436)
------------- ------------- ------------- -------------
Net decrease (333,191) $ (3,647,140) (9,982,998) $(107,045,783)
============= ============= ============= =============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 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
9/16/99 AUD 8,400,000 $ 5,353,958 $ (259,556)
9/30/99 CAD 22,400,000 15,019,243 (209,544)
10/15/99 EUR 79,500,000 84,275,959 (1,005,571)
9/23/99 GBP 10,900,000 17,531,795 22,714
9/09/99 JPY 5,880,000,000 53,703,069 3,601,169
-----------------
$ 2,149,212
=================
</TABLE>
19
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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
9/16/99 AUD 19,300,000 $ 12,301,357 $ 236,805
9/30/99 CAD 5,300,000 3,553,660 (1,323)
10/15/99 EUR 12,200,000 12,932,914 49,475
9/23/99 GBP 25,800,000 41,497,277 (917,917)
9/09/99 JPY 260,000,000 2,374,626 (2,818)
10/22/99 NZD 6,800,000 3,519,209 71,803
--------------
$ (563,975)
==============
</TABLE>
Forward cross currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
------------- ------------------------------- ----------------------------- -----------------
<S> <C> <C> <C> <C> <C>
11/05/99 CHF 12,103,380 EUR 7,600,000 $ 14,998
10/29/99 EUR 1,300,000 SEK 11,330,150 (2,210)
10/29/99 SEK 94,716,000 EUR 10,800,000 (53,192)
---------------
$ (40,404)
===============
</TABLE>
Futures contracts
<TABLE>
<CAPTION>
Net
Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
---------- ------------------------------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Buys
30 Australian Government Bond 3 yr September 1999 $ 2,238,803 $ 7,520
378 German Government Bond September 1999 43,070,519 (1,662,261)
18 Japanese Government Bond March 2000 21,174,153 43,439
10 Swedish Government Bond 10 yr September 1999 1,249,304 (30,565)
1 Swiss Government Bond September 1999 81,222 28
1 Swiss Government Bond December 1999 80,318 (800)
-------------
$ (1,642,639)
=============
</TABLE>
20
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts -- continued
<TABLE>
<CAPTION>
Net
Number of Expiration Contract Unrealized
Contracts Type Date Value Appreciation
------------ ------------------------------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sales
32 Australian Government Bond 10 yr September 1999 $ 2,879,443 $ 29,109
66 Canadian Government Bond 10 yr September 1999 5,464,616 110,955
80 U.K. Gilt December 1999 14,128,316 23,697
103 U.S. Long Bond December 1999 11,738,781 62,776
243 U.S. Treasury Note 10 yr December 1999 26,574,328 98,194
------------
$ 324,731
============
</TABLE>
At August 31, 1999, 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 6,300 $ 396,522 6,300 $ 472,500
Options written -- -- -- --
Options closed -- -- -- --
Options exercised -- -- -- --
Options expired -- -- -- --
--------------- ------------- --------------- ------------
Outstanding, end
of period 6,300 $ 396,522 6,300 $ 472,500
=============== ============= =============== =============
</TABLE>
21
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
USD Call/JPY Put 6,300 USD 112.7 JPY 11/16/99 $ 73,080
USD Put/JPY Call 6,300 USD 112.7 JPY 11/16/99 262,080
----------------
$ 335,160
================
</TABLE>
Reverse repurchase agreement
<TABLE>
<CAPTION>
Face Value Description Market Value
---------- ----------- ------------
<S> <C> <C>
$ 3,394,000 Bear Stearns, 4.95%, dated 6/25/99, to be repurchased at $ 3,394,000
$3,482,202 on 12/31/99.
Average balance outstanding ...................................................... $ 517,733
Average interest rate ............................................................ 4.96%
Maximum balance outstanding ...................................................... $ 4,793,000
Average shares outstanding ....................................................... 17,618,545
Average balance per share outstanding ............................................ $ .20
</TABLE>
Average balance outstanding was calculated based on daily balances outstanding
during the period that the Fund had entered into reverse repurchase agreements.
22
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
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 $ (138,500)
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 par value 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 (139,328)
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 par value and the
then-market value of Kingdom of Belgium,
5.75% due 3/28/08.
Interest Rate Swaps
16,800,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust (8,911)
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 10,206
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>
23
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligations -- 102.8%
Argentina -- 0.5%
USD 1,000,000 Republic of Argentina, 12.13%, due 2/25/19 927,500
------------
Australia -- 1.2%
USD 2,500,000 Westralia Airports Corp, 144A, 6.48%, due
4/01/10 2,324,500
------------
Brazil -- 1.2%
USD 1,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%,
due 4/15/24 597,500
USD 2,500,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 1,650,000
------------
2,247,500
------------
Bulgaria -- 0.3%
USD 2,000,000 Bulgaria Discount Series B Interest Strips, Basket 2,
0.00%, due 7/28/24 229,000
USD 500,000 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.25%, due 7/28/12 302,500
------------
531,500
------------
Canada -- 0.8%
CAD 2,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 1,539,365
------------
Cayman Islands -- 7.2%
USD 7,446,154 Great Point CBO Ltd. Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due
10/15/10 7,383,327
USD 7,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%,
due 5/15/10 6,335,000
------------
13,718,327
------------
Chile -- 1.0%
USD 2,000,000 Banco Santander, 6.50%, due 11/01/05 1,897,500
------------
Ecuador -- 0.1%
USD 500,000 Republic of Ecuador Par Bond,
Variable Rate, Step Up, 4.00%, due 2/28/25 156,250
------------
France -- 2.1%
FRF 23,650,000 Credit Foncier, 6.50%, due 10/13/08 4,036,909
------------
Jordan -- 0.1%
USD 500,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 285,000
------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments--(Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mexico -- 4.3%
FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 632,050
CHF 20,000,000 Mexico Par Bond, 3.75%, due 12/31/19 7,590,258
------------
8,222,308
------------
New Zealand -- 1.2%
NZD 4,500,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 2,302,909
------------
Nigeria -- 0.3%
USD 1,206,672 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 664,537
------------
Russia -- 0.0%
USD 68,763 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due
12/15/15* 9,928
------------
Supra National -- 1.2%
AUD 4,600,000 European Bank for Reconstruction and Development,
Zero Coupon, due 2/10/28 376,942
GBP 1,000,000 International Bank for Reconstruction and
Development, 11.50%, due 11/09/03 1,900,656
------------
2,277,598
------------
Sweden -- 1.6%
SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 605,521
SEK 20,000,000 Kingdom of Sweden, 6.00%, due 2/09/05 2,503,451
------------
3,108,972
------------
United States -- 79.5%
Asset Backed Securities -- 70.5%
USD 5,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due
5/15/24 4,964,648
USD 5,000,000 Augusta Funding Ltd X, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due
6/30/17 4,729,688
USD 4,000,000 Chase Credit Card Master Trust 98-6 Class A,
Variable Rate, 1 mo. LIBOR + .26%, 5.53%, due
9/15/04 4,005,156
USD 20,800,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.42%, due
10/16/06 20,715,499
USD 4,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.48%, due 3,982,344
10/15/06
USD 2,130,231 Constellation 99-1A, 144A, 5.73%, due 4/18/02 2,130,231
USD 16,045,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.62%, due 16,091,379
10/16/04(a)
</TABLE>
2 See accompanying notes to financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments--(Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25%, 5.31%, due
10/03/01 3,001,500
USD 5,000,000 First Deposit Master Trust Series 96-1 Class A,
Variable Rate, 1 mo. LIBOR +.17%, 5.44%, due
8/15/07 4,979,102
USD 5,000,000 First USA Credit Card Master Trust Series 98-5 Class A,
Variable Rate, 1 mo. LIBOR + .10%, 5.38%, due
4/18/06 4,974,805
USD 15,000,000 Fleet Credit Card Master Trust II Series 99-A Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
9/15/04 14,971,289
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due
10/15/02 4,997,070
USD 3,000,000 MBNA Master Credit Card Trust Series 95-J Class A,
Variable Rate, 1 mo. LIBOR + .23%, 5.50%, due 3,001,758
4/15/05
USD 4,000,000 MBNA Master Credit Card Trust Series 96-A Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due
7/15/05 4,000,000
USD 3,000,000 MBNA Master Credit Card Trust Series 98-A Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due
8/15/05 2,988,281
USD 10,000,000 MBNA Master Credit Card Trust Series 98-I Class A,
Variable Rate, 1 mo. LIBOR + .26%, 5.53%, due
10/15/03 10,018,359
USD 5,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due
2/01/03 4,860,000
USD 10,000,000 Pacific Life CBO Series 98-1A Class A2A,
Variable Rate, Step Up, 6.56%, due 2/15/10 9,434,375
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 5,073,438
USD 3,166,423 SMS Student Loan Trust 94-B Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 5.46%, due
4/25/16 3,169,273
USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%,
due 7/30/11 2,894,531
------------
134,982,726
------------
Structured Notes -- 4.3%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR), 4.94%, due
9/22/03(b) 4,775,000
USD 3,500,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due
1/07/05 3,443,672
------------
8,218,672
------------
U.S. Government Agency -- 4.7%
USD 4,000,000 Agency for International Development Floater (Support
of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due
2/01/27 3,920,000
USD 2,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 1,909,000
USD 1,158,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,158,000
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments--(Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- continued
USD 2,000,000 Small Business Administration Series 95-C, 6.88%, due
9/01/05 1,976,000
------------
8,963,000
============
Total United States 152,164,398
------------
Venezuela -- 0.2%
USD 500,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due
3/31/20 310,000
------------
Total Debt Obligations (Cost $201,924,124) 196,725,001
============
Loan Assignments -- 0.1%
Russia -- 0.1%
USD 2,000,000 Russia Vnesh Restructured Loan Agreements* 222,500
------------
Total Loan Assignments (Cost $1,278,949) 222,500
------------
Principal Amount
------------------
Call Options Purchased -- 0.1%
Options on Currency -- 0.1%
USD 13,888,000 Euro, Expires 5/03/00, Strike 1.12 168,045
USD 3,500,000 Japanese Yen, Expires 11/16/99, Strike 112.70 32,550
------------
200,595
============
Total Call Options Purchased (Cost $518,923) 200,595
------------
Put Options Purchased -- 0.3%
Options on Currency -- 0.3%
USD 13,268,000 Euro, Expires 5/03/00, Strike 1.07 427,230
USD 3,500,000 Japanese Yen, Expires 11/16/99, Strike 112.70 182,350
------------
609,580
============
Total Put Options Purchased (Cost $420,845) 609,580
------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rights And Warrants -- 0.0%
Argentina -- 0.0%
1,000 Republic of Argentina Warrants, Expires 2/25/00** 6,000
------------
Mexico -- 0.0%
14,211,000 United Mexican States Warrants, Expires 6/30/03** --
------------
Nigeria -- 0.0%
1,206 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 $28,221) 6,000
------------
Short-Term Investments -- 2.9%
Cash Equivalents -- 0.5%
USD 747,605 BankBoston Eurodollar Time Deposit, 5.4325%, due
10/29/99(c) 747,605
199,947 Merrimac Cash Fund Premium Class(c) 199,947
------------
947,552
------------
Commercial Paper -- 2.4%
USD 4,450,000 Liquidity Management System, 5.35%, due 9/02/99 4,449,339
------------
Repurchase Agreements -- 0.0%
USD 137,147 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$137,164 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with a
rate of 8.125%, maturity date of 8/15/21 and market
value, including accrued interest, of $139,889. 137,147
------------
Total Short-Term Investments (COST $5,534,038) 5,534,038
------------
</TABLE>
See accompanying notes to financial statements. 5
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
------------
<S> <C> <C>
Total Investments -- 106.2%
(Cost $209,705,100) 203,297,714
Other Assets and Liabilities (net) -- (6.2)% (11,929,756
------------
TOTAL NET ASSETS -- 100% $191,367,958
============
Notes to the Schedule of Investments:
CPI - Consumer Price Index
IAN - Interest Arrears Note
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, 1999, 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 NZD - New Zealand Dollar
EUR - Euro SEK - Swedish Krone
FRF - French Franc USD - United States Dollar
(a) All or a portion of this security has been segregated
to cover collateral requirements on the reverse
repurchase agreement (Note 6).
(b) All or a portion of this security has been segregated
to cover margin requirements on open financial futures
contracts (Note 6).
(c) Represents investments of security lending collateral
(Note 1).
* Non-performing. Borrower not currently paying
interest.
** Non-income producing security.
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $209,705,100) (Note 1) $203,297,714
Cash at interest on deposit at brokers (Note 1) 1,252,800
Interest receivable 1,787,398
Receivable for variation margin on open futures contracts (Notes 1 and 6) 25,339
Net receivable for open forward foreign currency contracts (Notes 1 and 6) 1,454,438
Receivable for expenses waived or borne by Manager (Note 2) 15,994
-------------
Total assets 207,833,683
-------------
Liabilities:
Payable for investments purchased 4,925,278
Payable upon return of securities loaned (Note 1) 947,552
Written options outstanding, at value (premiums $482,790) (Notes 1 and 6) 186,200
Payable to affiliate for (Note 2):
Management fee 30,726
Shareholder service fee 24,200
Payable for open swap contracts (Notes 1 and 6) 326,640
Interest payable for open swap contracts (Note 1) 206,658
Payable for reverse repurchase agreement (Notes 1 and 6) 9,754,500
Accrued expenses and other liabilities 63,971
------------
Total liabilities 16,465,725
------------
Net assets $191,367,958
============
Net assets consist of:
Paid-in capital $200,269,759
Accumulated undistributed net investment income 5,057,741
Accumulated net realized loss (7,831,990)
Net unrealized depreciation (6,127,552)
============
$191,367,958
============
Net assets attributable to:
Class III shares $191,367,958
============
Shares outstanding:
Class III 19,679,036
============
Net asset value per share:
Class III $ 9.72
============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $456) 6,125,860
----------
Total income 6,125,860
----------
Expenses:
Management fee (Note 2) 184,942
Interest expense (Notes 1 and 6) 232,230
Custodian and transfer agent fees 59,954
Audit fees 26,035
Legal fees 2,849
Trustees fees (Note 2) 1,011
Registration fees 364
Miscellaneous 1,011
Fees waived or borne by Manager (Note 2) (91,224)
----------
417,172
Shareholder service fee (Note 2)
Class III 146,003
----------
Net expenses 563,175
----------
Net investment income 5,562,685
----------
Net realized gain (loss) on:
Net realized loss on:
Investments (1,472,059)
Closed futures contracts (3,075,613)
Closed swap contracts (122,438)
Foreign currency, forward contracts and foreign currency related
transactions (3,360,809)
-----------
Net realized loss (8,030,919)
----------
Change in net unrealized appreciation (depreciation) on:
Investments (3,648,710)
Open futures contracts (253,368)
Open swap contracts 401,230
Written options 232,750
Foreign currency, forward contracts and foreign currency related
transactions 2,889,142
----------
Net unrealized loss (378,956)
-----------
Net realized and unrealized loss (8,409,875)
----------
Net decrease in net assets resulting from operations $(2,847,190)
===========
</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>
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Six Months
Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- ------------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,562,685 $ 8,148,695
Net realized gain (loss) (8,030,919) 362,534
Change in net unrealized appreciation (depreciation) (378,956) (6,074,290)
----------- -----------
Net increase (decrease) in net assets resulting from
operations (2,847,190) 2,436,939
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (5,497,905)
------------ ------------
Total distributions from net investment income -- (5,497,905)
------------ ------------
In excess of net investment income
Class III -- (1,386,848)
------------ ------------
Total distributions in excess of net investment -- (1,386,848)
income
------------ ------------
Net realized gains
Class III -- (793,938)
------------ ------------
Total distributions from net realized gains -- (793,938)
------------ ------------
In excess of net realized gains
Class III -- (907,937)
------------ ------------
Total distributions in excess of net realized gains -- (907,937)
------------ ------------
-- (8,586,628)
------------ ------------
Net share transactions: (Note 5)
Class III 31,004,654 64,308,107
----------- ------------
Increase in net assets resulting from net share
transactions 31,004,654 64,308,107
----------- ------------
Total increase in net assets 28,157,464 58,158,418
Net assets:
Beginning of period 163,210,494 105,052,076
----------- ------------
End of period (including accumulated undistributed
net investment income of $5,057,741 and
distributions in excess of net investment income of
$504,944, respectively) $191,367,958 $163,210,494
============ ============
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended February 28/29,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited) 1999 1998 1997 1996 *
--------- --------- -------- ------- ------
Net asset value, beginning of $ 9.87 $ 10.15 $ 10.16 $ 9.89 $10.00
period -------- -------- ------- ------ ------
Income from investment operations:
Net investment income 0.29 0.55 0.65+ 0.61 0.05
Net realized and unrealized
gain (loss) (0.44) (0.25) 0.36 0.59 (0.16)
-------- -------- ------- ------ ------
Total from investment (0.15) 0.30 1.01 1.20 (0.11)
operations ------- ------- ------ ------ ------
Less distributions to shareholders:
From net investment income -- (0.37) (0.56) (0.57) --
In excess of net investment
income -- (0.09) -- -- --
From net realized gains -- (0.06) (0.28) (0.36) --
In excess of net realized
gains -- (0.06) (0.18) -- --
-------- -------- ------- ------ ------
Total distributions -- (0.58) (1.02) (0.93) --
--------- --------- -------- ------- -------
Net asset value, end of period $ 9.72 $ 9.87 $ 10.15 $10.16 $ 9.89
========= ========= ======== ======= =======
Total Return (a) (1.42)% 2.69% 10.19% 12.01% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $191,368 $163,210 $105,052 $70,768 $31,072
Net operating expenses to
average daily net assets 0.34%** 0.34% 0.34% 0.34% 0.34%**
Interest expense to average
daily net assets 0.24%** -- -- -- --
Total net expenses to
average daily net assets 0.58%** 0.34% 0.34% 0.34% 0.34%**
Net investment income to
average daily net assets 5.71%** 5.86% 6.21% 6.31% 6.16%**
Portfolio turnover rate 23% 75% 103% 72% --
Fees and expenses
voluntarily waived or borne
by the Manager consisted of
the following per share
amounts: $ 0.01 $ 0.03 $ 0.04 $ 0.04 $ 0.01
* 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.
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 through investment in global bond and
currency markets. The Fund's current benchmark is the J.P. Morgan Global
Government Bond 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 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. 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 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 Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. The prices provided by the
principal market makers may differ from the value that would be realized if
the securities were sold 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
gains and losses on disposition of foreign currencies and forward foreign
currency contracts, 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 and agency 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, 1999.
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 Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the 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, 1999.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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 Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 and credit risk. 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
a default of the underlying security. In connection with these agreements,
cash or securities may be set aside as collateral by the Fund's custodian
in accordance with the terms of the swap agreement. The Fund earns interest
on cash set aside as collateral, which is paid by the counterparty. At
August 31, 1999, $1,252,800 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. Net payments of
interest on interest rate swap agreements are recorded as interest income.
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
will be 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, 1999.
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 Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had entered into reverse repurchase
agreements having a market value of $9,754,500, collateralized by
securities with a market value of $10,028,906. See Note 6 for a summary of
open reverse repurchase agreements as of August 31, 1999.
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,
1999, the Fund loaned securities having a market value of $917,009,
collateralized by cash in the amount of $947,552, 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. 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
15
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
increase in the principal or face amount of the securities adjusted for
inflation is recorded as interest 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 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 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. For the six months ended August 31, 1999, the Fund
received $81,216 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .19% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses to the extent that the Fund's annual expenses
(including the management fee but excluding brokerage commissions, certain
16
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
other transaction costs (including transfer taxes), shareholder service
fees and extraordinary expenses) exceeded .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, 1999, was $1,011. 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, 1999,
aggregated $88,503,908 and $45,160,566, respectively.
At August 31, 1999, 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>
$209,705,100 $909,266 $7,316,652 $6,407,386
</TABLE>
4. Principal shareholders
At August 31, 1999, 65.8% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
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
August 31, 1999 February 28, 1999
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Class III: Shares Amount Shares Amount
-------------- ----------------- ------------- ---------------
Shares sold 5,449,840 $ 54,143,952 8,321,672 $ 86,437,108
Shares issued to shareholders
in reinvestment of -- -- 780,362 8,048,789
distributions
Shares repurchased (2,307,117) (23,139,298) (2,915,212) (30,177,790)
============== ================= ============= ===============
Net increase 3,142,723 $ 31,004,654 6,186,822 $ 64,308,107
============== ================= ============= ===============
</TABLE>
17
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Forward currency contracts
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
------------- ----------------- ---------------- ------------ ------------------
<S> <C> <C> <C> <C>
Buys
9/16/99 AUD 9,300,000 $ 5,927,597 $ (287,135)
9/30/99 CAD 36,600,000 24,540,371 (358,330)
10/15/99 EUR 65,900,000 69,858,939 (802,751)
9/23/99 GBP 19,700,000 31,685,905 301,455
9/09/99 JPY 4,770,000,000 43,565,245 2,800,681
=================
$ 1,653,920
=================
Sales
9/16/99 AUD 17,800,000 $ 11,345,293 $ 180,986
9/30/99 CAD 5,400,000 3,620,711 (5,122)
10/15/99 EUR 12,800,000 13,568,959 31,267
9/23/99 GBP 13,700,000 22,035,376 (460,536)
9/09/99 JPY 230,000,000 2,100,630 (2,492)
10/22/99 NZD 4,500,000 2,328,888 47,517
=================
$ (208,380)
=================
<CAPTION>
Forward cross currency contracts
Net
Settlement Unrealized
Date Deliver/Units of Currency Receive/In Exchange For Appreciation
(Depreciation)
-------------- --------------------------- -------------------------- ---------------
<S> <C> <C> <C>
11/05/99 CHF 17,518,050 EUR 11,000,000 $ 21,707
10/29/99 EUR 2,900,000 SEK 25,274,950 (4,929)
10/29/99 SEK 14,032,000 EUR 1,600,000 (7,880)
===============
$ 8,898
===============
</TABLE>
18
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Futures contracts
Net Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
---------- ------------------------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Buys
28 Australian Government Bond 3 Yr. September 1999$ 2,089,550 $ 7,032
28 Australian Government Bond 10 Yr. September 1999 2,519,512 (16,068)
27 Canadian Government Bond December 1999 2,217,069 (31,847)
308 German Government Bond 10 Yr September 1999 35,094,497 (1,088,926)
14 Japanese Government Bond 10Yr March 2000 16,468,786 38,878
67 Swedish Government Bond 10 Yr. September 1999 8,370,335 (311,109)
38 U.K. Gilt December 1999 6,710,950 (2,533)
201 U.S. Long Bond December 1999 22,907,719 (143,502)
=================
$ (1,548,075)
=================
<CAPTION>
Sales
<S> <C> <C> <C> <C>
3 Japanese Government Bond March 2000 $ 3,532,309 $ 251
152 Swiss Government Bond September 1999 12,345,799 356,518
55 Swiss Government Bond December 1999 4,417,497 40,449
207 U.S. 10 Yr. Note December 1999 22,637,391 83,656
=================
$ 480,874
=================
</TABLE>
At August 31, 1999, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
19
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 3,500 $ 220,290 3,500 $ 262,500
Options written -- -- -- --
Options closed -- -- -- --
Options exercised -- -- -- --
Options expired -- -- -- --
=============== ============= =============== =============
Outstanding, end
of period 3,500 $ 220,290 3,500 $ 262,500
=============== ============= =============== =============
Summary of written options outstanding
Principal Amount
of Contracts Expiration
(000's omitted) Exercise Price Date Value
------------------ --------------- ------------------ ----------------
USD Call/JPY Put 3,500 USD 112.7 JPY 11/16/99 $ 40,600
USD Put/JPY Call 3,500 USD 112.7 JPY 11/16/99 145,600
===========
$ 186,200
===========
</TABLE>
20
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Reverse repurchase agreement
Face Value Description Market Value
---------- ----------- ------------
<S> <C> <C>
$ 9,754,500 Bear Stearns, 5.03%, dated 8/27/99, to be repurchased at $ 9,754,500
$9,926,337 on 12/31/99.
Average balance outstanding................................................... $ 11,646,542
Average interest rate......................................................... 7.24%
Maximum balance outstanding................................................... $ 21,454,500
Average shares outstanding.................................................... 19,725,807
Average balance per share outstanding......................................... $ .59
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
<CAPTION>
Swap agreements
Net
Unrealized
Notional Amount Expiration Appreciation
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 $ (55,400)
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 par value 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 (55,731)
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 par value and the then-market value of
Kingdom of Belgium, 5.75% due 3/28/08.
21
</TABLE>
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Swap agreements -- continued
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------------- -------------------------- --------------------- -------------------------
<S> <C> <C> <C>
Interest Rate Swaps
7,100,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company $ (3,766)
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 5,208
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.
2,300,000 CHF 6/10/05 Agreement with Credit Suisse Financial 23,910
Products dated 10/01/98 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 (2,951)
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.
6,800,000 CHF 9/16/05 Agreement with Morgan Guaranty Trust Company 72,080
dated 9/14/98 to pay the notional amount
multiplied by 3.1175% and to receive the
notional amount multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a specified
spread.
</TABLE>
22
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Swap agreements -- continued
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depriciation)
- ---------------------- -------------- -------------------------------------------- --------------
<S> <C> <C> <C>
22,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust Company $ (279,302)
dated 7/27/99 to receive the notional amount
multiplied by 6.664% and to pay the notional
amount multiplied by 3 month LIBOR adjusted
by a specific spread.
Total Return Swap
30,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company (30,688)
dated 7/1/99 to receive (pay) the notional
amount multiplied by the return on the JP
Morgan Non-U.S. Traded Total Return
Government Bond Index and to pay the notional
amount multiplied by 1 month LIBOR adjusted
by a specified spread.
----------------
$ (326,640)
================
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
23
</TABLE>
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 95.2%
Argentina -- 0.2%
USD 1,000,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due
3/31/23 677,500
------------
Australia -- 5.7%
GBP 8,700,000 Commonwealth Bank Australia Series EMTN, 8.13%, due
12/07/06 15,255,659
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,809,699
------------
17,065,358
------------
Austria -- 2.7%
GBP 4,500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 8,254,105
------------
Brazil -- 1.5%
USD 3,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due
4/15/24 1,792,500
USD 4,000,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due
4/15/09 2,640,000
------------
4,432,500
------------
Bulgaria -- 1.5%
USD 10,000,000 Bulgaria Discount Series B Interest Strips, Basket 2,
0.00%, due 7/28/24 1,145,000
USD 15,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 2,786,771
USD 1,000,000 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.25%, due 7/28/12 605,000
------------
4,536,771
------------
Canada -- 8.1%
CAD 3,750,000 Government of Canada, 10.25%, due 3/15/14 3,583,384
CAD 8,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 6,157,459
CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 3,653,465
GBP 6,000,000 Province of Quebec, 8.62%, due 11/04/11 11,156,947
------------
24,551,255
------------
Cayman Islands -- 6.8%
GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due 9/15/02 3,234,974
GBP 3,000,000 Chester Asset Receivables, Inc., Deal 2,
Variable Rate, 3 mo. GBP LIBOR + .10%, 5.24%, due
6/15/01 4,817,246
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 2,849,484
USD 3,723,077 Great Point CBO Ltd. Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due
10/15/10 3,691,663
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cayman Islands -- continued
USD 6,650,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%,
due 5/15/10 6,018,250
------------
20,611,617
------------
Chile -- 1.5%
USD 4,750,000 Banco Santander, 6.50%, due 11/01/05 4,506,563
------------
Denmark -- 0.5%
DKK 9,680,000 Kingdom of Denmark Bullet, 8.00%, due 3/15/06 1,591,216
------------
Ecuador -- 0.0%
USD 557,621 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due
2/27/15 128,253
------------
France -- 2.9%
FRF 21,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 3,686,020
FRF 30,000,000 Auxiliare Credit Foncier, 6.25%, due 3/28/03 5,072,505
------------
8,758,525
------------
Japan -- 6.6%
GBP 2,300,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,944,344
GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due
2/16/05 5,344,992
GBP 6,000,000 Kobe City, 9.50%, due 10/20/04 10,786,464
------------
20,075,800
------------
Jordan -- 0.2%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 5.50%, due 12/23/23 560,000
------------
Mexico -- 3.2%
FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,264,100
CHF 22,000,000 Mexico Par Bond, 3.75%, due 12/31/19 8,349,284
------------
9,613,384
------------
New Zealand -- 1.1%
NZD 6,200,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 3,172,897
------------
Nigeria -- 0.3%
USD 1,603,625 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 849,922
------------
Norway -- 0.6%
SEK 13,700,000 A/S Eksportfinans, 7.50%, due 8/16/01 1,732,613
------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Russia -- 0.0%
USD 488,893 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due
12/15/15(b) 70,584
------------
Supra National -- 3.0%
AUD 16,100,000 European Bank for Reconstruction and Development,
Zero Coupon, due 2/10/28 1,319,297
CAD 2,700,000 European Investment Bank, 8.50%, due 8/30/05 2,006,635
GBP 3,000,000 International Bank for Reconstruction and
Development, 11.50%, due 11/09/03 5,701,968
------------
9,027,900
------------
Sweden -- 4.7%
SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 4,238,649
SEK 44,300,000 Kingdom of Sweden, 6.00%, due 2/09/05 5,545,143
SEK 6,100,000 Kingdom of Sweden, 6.50%, due 10/25/06 784,011
SEK 24,800,000 Kingdom of Sweden, 8.00%, due 8/15/07 3,483,831
------------
14,051,634
------------
United States -- 43.1%
Asset Backed Securities -- 32.8%
USD 17,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due
5/15/24 16,879,804
USD 4,000,000 American Express Credit Account Master Trust Series
98-1A,
Variable Rate, 1 mo. LIBOR + .09%, 5.36%, due 1/17/06 3,979,219
USD 10,000,000 American Express Credit Account Master Trust Series
99-5 Class A,
Variable Rate, 1 mo. LIBOR + .24%, 5.52%, due 2/15/07 9,991,406
USD 2,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3mo.
LIBOR + .25%, 5.58%, due 6/30/17 1,891,875
USD 7,500,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 7,107,422
USD 5,000,000 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due
1/15/10 4,785,156
USD 1,500,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.62%, due
10/16/04 1,504,336
USD 5,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due
10/15/06 4,988,281
USD 5,000,000 Honda Auto Lease Trust Series 99-A Class A4, 6.45%,
due 9/16/02 4,977,734
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due
10/15/02 4,997,070
USD 5,000,000 Navistar Financial Dealer Note Master Trust Series
97-1 Class A,
Variable Rate, 1 mo. LIBOR + .15%, 5.49%, due
8/25/03 4,972,852
USD 3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due
2/01/03 2,916,000
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 5,500,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due
6/01/03 5,439,500
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 5,073,438
USD 10,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due
6/15/10 9,295,000
USD 5,000,000 Student Loan Marketing Association Series 96-4 Class
A2, Variable Rate, 3 mo. U.S. Treasury Bill +
.64%, 5.29%, due 7/25/09 4,887,500
USD 2,000,000 Team Fleet Financing Corp Series 98-3A Class A, 144A,
6.13%, due 10/25/04 1,915,000
USD 3,465,000 TMS Auto Grantor Trust Series 96-1 Class CTFS, 7.10%, due
12/20/02 3,471,237
------------
99,072,830
------------
Corporate Debt -- 4.8%
USD 9,995,713 Continental Airlines Series 99-1A, 6.55%, due 2/02/19 9,096,099
SEK 44,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 5,542,221
------------
14,638,320
------------
U.S. Government -- 1.6%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/14 3,688,859
USD 1,013,410 U.S. Treasury Inflation Indexed Note, 3.88%, due
1/15/09(c) 999,317
------------
4,688,176
------------
U.S. Government Agency -- 3.9%
USD 5,000,000 Agency for International Development Floater (Support
of India), Variable Rate, 3 mo. LIBOR + .10%,
5.41%, due 2/01/27 4,900,000
USD 2,083,334 Agency for International Development Floater (Support of
Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill
x 115%, 5.14%, due 1/01/12 2,000,000
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(c) 4,772,500
------------
11,672,500
------------
Total United States 130,071,826
------------
Venezuela -- 1.0%
USD 500,000 Republic of Venezuela, 9.25%, due 9/15/27 300,000
USD 2,271,725 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due
12/18/08 1,539,094
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Venezuela -- continued
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due
3/31/20 1,240,000
------------
3,079,094
------------
TOTAL DEBT OBLIGATIONS (COST $297,917,370) 287,419,317
------------
LOAN ASSIGNMENTS -- 0.6%
Russia -- 0.6%
USD 15,750,278 Russia Vnesh Restructured Loan Agreements* 1,752,218
------------
1,752,218
------------
TOTAL LOAN ASSIGNMENTS (COST $10,049,552) 1,752,218
Principal Amount
----------------
CALL OPTIONS PURCHASED -- 0.1%
Options on Currency -- 0.1%
USD 22,176,000 Euro, Expires 5/03/00, Strike 1.12 268,330
USD 8,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 79,980
------------
348,310
------------
TOTAL CALL OPTIONS PURCHASED
(COST $1,018,765) 348,310
------------
PUT OPTIONS PURCHASED -- 0.4%
Options on Currency -- 0.4%
USD 21,186,000 Euro, Expires 5/03/00, Strike 1.07 682,189
USD 8,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 448,060
------------
1,130,249
------------
TOTAL PUT OPTIONS PURCHASED
(COST $736,135) 1,130,249
------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico-- 0.0%
16,414,000 United Mexican States Warrants, Expires 6/30/03** --
------------
Nigeria -- 0.0%
1,602 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20** --
------------
Venezuela-- 0.0%
14,280 Republic of Venezuela Recovery Warrants, Expires
04/15/20** --
------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
------------
SHORT-TERM INVESTMENTS -- 2.8%
Cash Equivalents -- 0.0%
USD 36,802 BankBoston Eurodollar Time Deposit, 5.4325%, due
10/29/99(d) 36,802
9,843 Merrimac Cash Fund Premium Class(d) 9,843
------------
46,645
------------
Commercial Paper -- 2.8%
USD 4,300,000 GE Capital, 5.30%, due 10/05/99 4,278,476
USD 4,000,000 Glencore Assets, 5.40%, due 10/05/99 3,979,600
------------
8,258,076
------------
Repurchase Agreements -- 0.0%
USD 107,085 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/99, due 9/1/99, with a maturity value of
$107,099 and an effective yield of 4.68%,
collateralized by a U.S. Treasury Obligation with a
rate of 8.125%, maturity date of 8/15/21 and market
value, including accrued interest, of $109,227. 107,085
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $8,411,806) 8,411,806
------------
TOTAL INVESTMENTS -- 99.1%
(COST $318,133,628) 299,061,900
Other Assets and Liabilities (net) -- 0.9% 2,852,174
------------
TOTAL NET ASSETS -- 100% $301,914,074
============
</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, 1999 (Unaudited)
Notes to the Schedule of Investments:
DCB -- Debt Conversion Bond
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.
Variable and step up rates -- The rates shown on variable and
step up rate notes are the current interest rates at
August 31, 1999, 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 NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krona
EUR - Euro USD - United States Dollar
FRF - French Franc
(a) Valued by management (Note 1).
(b) Security is in default.
(c) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts (Note 6).
(d) Represents investments of security lending collateral
(Note 1).
* Non-performing. Borrower not currently paying interest.
** Non-income producing security.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $318,133,628) (Note 1) $299,061,900
Cash at interest on deposit at brokers (Note 1) 2,643,649
Foreign currency, at value (cost $154,190) (Note 1) 153,801
Interest receivable 6,113,664
Receivable for variation margin on open futures contracts (Notes 1 and 6) 187,332
Receivable for expenses waived or borne by Manager (Note 2) 21,886
------------
Total assets 308,182,232
------------
Liabilities:
Payable for investments purchased 1,970,338
Payable upon return of securities loaned (Note 1) 46,645
Written options outstanding, at value (premiums $1,186,284) (Notes 1 and 6) 457,520
Net payable for open forward foreign currency contracts (Notes 1 and 6) 2,086,208
Payable for open swap contracts (Notes 1 and 6) 592,821
Interest payable for open swap contracts (Note 1) 468,390
Payable for Fund shares repurchased 458,000
Payable to affiliate for (Note 2):
Management fee 64,130
Shareholder service fee 37,209
Accrued expenses 86,897
------------
Total liabilities 6,268,158
------------
Net assets $301,914,074
============
Net assets consist of:
Paid-in capital $313,882,752
Accumulated undistributed net investment income 9,290,283
Accumulated undistributed net realized gain 2,679,404
Net unrealized depreciation (23,938,365)
============
$301,914,074
============
Net assets attributable to:
Class III shares $301,914,074
============
Shares outstanding:
Class III 31,384,881
============
Net asset value per share:
Class III $ 9.62
============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $785) $10,522,209
Dividends 331,750
-----------
Total income 10,853,959
-----------
Expenses:
Management fee (Note 2) 405,345
Custodian and transfer agent fees 103,289
Audit fees 30,730
Legal fees 5,886
Trustees fees (Note 2) 2,034
Registration fees 364
Miscellaneous 1,830
Fees waived or borne by Manager (Note 2) (144,133)
-----------
405,345
Shareholder service fee (Note 2)
Class III 243,202
-----------
Net expenses 648,547
-----------
Net investment income 10,205,412
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (3,099,403)
Closed futures contracts 2,332,272
Closed swap contracts (274,828)
Foreign currency, forward contracts and foreign currency related
transactions 3,939,362
-----------
Net realized gain 2,897,403
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (8,805,706)
Open futures contracts (2,049,075)
Open swap contracts 1,450,068
Written options 571,900
Foreign currency, forward contracts and foreign currency related
transactions (2,216,285)
-----------
Net unrealized loss (11,049,098)
-----------
Net realized and unrealized loss (8,151,695)
-----------
Net increase in net assets resulting from operations $ 2,053,717
===========
</TABLE>
See accompanying notes to the financial statements. 9
<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, 1999 Year Ended
(Unaudited) February 28, 1999
------------------ -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 10,205,412 $ 24,198,721
Net realized gain 2,897,403 7,292,715
Change in net unrealized appreciation (depreciation) (11,049,098) (20,892,066)
------------ ------------
Net increase in net assets resulting from operations 2,053,717 10,599,370
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (20,481,830) (6,307,979)
------------ ------------
Total distributions from net investment income (20,481,830) (6,307,979)
------------ ------------
Net realized gains
Class III (3,563,277) (14,428,617)
------------ ------------
Total distributions from net realized gains (3,563,277) (14,428,617)
------------ ------------
(24,045,107) (20,736,596)
------------ ------------
Net share transactions: (Note 5)
Class III 194,164 12,943,319
------------ ------------
Increase in net assets resulting from net share
transactions 194,164 12,943,319
------------ ------------
Total increase (decrease) in net assets (21,797,226) 2,806,093
Net assets:
Beginning of period 323,711,300 320,905,207
------------ ------------
End of period (including accumulated undistributed net
investment income of $9,290,283 and $19,566,701,
respectively) $301,914,074 $323,711,300
============ ============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended August Year Ended February 28/29,
31, 1999 -------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995 *
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.47 $ 10.66 $ 12.16 $ 10.92 $ 9.99 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.33+ 0.74 0.88 0.66 1.05 0.24
Net realized and unrealized
gain (loss) (0.32) (0.39) 0.73 2.07 1.62 (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations .01 0.35 1.61 2.73 2.67 0.15
----------- ----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.73) (0.16) (0.88) (0.60) (1.04) (0.16)
From net realized gains (0.13) (0.38) (2.23) (0.45) (0.42) --
In excess of net realized gains -- -- -- (0.44) (0.28) --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions (0.86) (0.54) (3.11) (1.49) (1.74) (0.16)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end
of period $ 9.62 $ 10.47 $ 10.66 $ 12.16 $ 10.92 $ 9.99
=========== =========== =========== =========== =========== ===========
Total Return (a) 0.04% 3.20% 14.44% 25.57% 27.36% 1.49%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 301,914 $ 323,711 $ 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% 0.40%**
Net investment income
to average daily net
assets 6.29%** 6.30% 6.50% 6.86% 8.54% 8.46%**
Portfolio turnover rate 54% 116% 135% 90% 85% 64%
Fees and expenses
voluntarily waived
or borne by the
Manager consisted of
the following per $ 0.01 $ 0.04 $ 0.05 $ 0.03 $ 0.03 $ 0.01
share amounts:
</TABLE>
* Period from September 30, 1994 (commencement of operations) to February 28,
1995.
** Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 through investment in foreign bond and
currency markets. The Fund's current benchmark is the J.P. Morgan Non-U.S.
Government Bond Index (Hedged).
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. 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 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.
12
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. The prices provided by the
principal market makers may differ from the value that would be realized if
the securities were sold 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
gains and losses on disposition of foreign currencies and forward foreign
currency contracts, 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 and agency 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, 1999.
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,
13
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the 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, 1999.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
14
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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 and credit risk. 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 national
amount of principal. Total return swap agreements involve commitments to
pay interest in exchange for a market-linked return based on a national
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 national amount. The Fund receives payment upon
a default of the underlying security. In connection with these agreements,
cash or securities may be set aside as collateral by the Fund's custodian
in accordance with the terms of the swap agreement. The Fund earns interest
on cash set aside as collateral, which is paid by the counterparty. At
August 31, 1999, $2,643,649 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. Net payments of
interest on interest rate swap agreements are recorded as interest income.
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
will be 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, 1999.
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.
15
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase
agreements. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase under the
agreement. At August 31, 1999, the Fund had not entered into a reverse
repurchase agreement.
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,
1999, the Fund loaned securities having a market value of $43,181,
collateralized by cash in the amount of $46,645, 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 dividends 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.
16
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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. 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
interest 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 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 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. For the six months ended August 31, 1999, the Fund
received $103,533 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .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.
17
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including transfer taxes), shareholder service fees and extraordinary
expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.50% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $2,034. 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, 1999, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------ -------------------
<S> <C> <C>
U.S. Government securities $ 2,004,682 $ 2,008,492
Investments (non-U.S. Government securities) 159,419,344 162,169,587
</TABLE>
At August 31, 1999, 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>
$318,133,628 $3,704,227 $22,775,955 $19,071,728
</TABLE>
4. Principal shareholders
At August 31, 1999, 85.1% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
18
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
------------------------------ -------------------------------
Class III: Shares Amount Shares Amount
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 6,559,977 $ 69,021,750 12,392,112 $ 135,897,894
Shares issued to shareholders in
reinvestment of distributions 2,387,142 23,298,514 1,908,812 20,116,214
Shares repurchased (8,481,317) (92,126,100) (13,476,925) (143,070,789)
------------- ------------- ------------ --------------
Net increase 465,802 $ 194,164 823,999 $ 12,943,319
============= ============= ============ ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 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
9/16/99 AUD 14,200,000 $ 9,050,739 $ (439,210)
9/30/99 CAD 39,600,000 26,551,877 (385,236)
10/15/99 EUR 3,600,000 3,816,270 14,310
9/23/99 GBP 19,700,000 31,685,905 55,100
9/09/99 JPY 1,070,000,000 9,772,497 547,422
-------------------
$ (207,614)
===================
Sales
9/16/99 AUD 37,000,000 $ 23,582,912 $ 572,143
9/30/99 CAD 21,900,000 14,683,992 22,743
10/15/99 EUR 48,100,000 50,989,605 332,628
9/23/99 GBP 65,800,000 105,834,141 (2,404,412)
9/09/99 JPY 710,000,000 6,484,554 (374,779)
10/22/99 NZD 6,300,000 3,260,444 66,523
-------------------
$ (1,785,154)
===================
</TABLE>
19
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (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> <C> <C>
11/05/99 CHF 25,321,545 EUR 15,900,000 31,377
10/29/99 EUR 3,600,000 SEK 31,375,800 (6,120)
10/29/99 SEK 211,357,000 EUR 24,100,000 (118,697)
-------------------
(93,440)
===================
<CAPTION>
Futures contracts
Net Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
-------------- ---------------------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Buys
54 Australian Government Bond 3 yr. September 1999 $ 4,029,845 $ 13,536
713 German Government Bond September 1999 81,241,481 (3,348,935)
34 Japanese Government Bond 10 yr. March 2000 39,995,622 86,628
44 Swedish Government Bond 10 yr. September 1999 5,496,937 (147,017)
----------------
$ (3,395,788)
================
Sales
95 Canadian Government Bond 10 yr. September 1999 $ 7,865,735 $ 164,660
1 Japanese Government Bond March 2000 1,177,436 84
35 Swiss Government Bond September 1999 2,842,783 51,394
12 Swiss Government Bond December 1999 963,818 8,829
181 U.K. Gilt December 1999 31,965,316 56,604
45 U.S. Treasury Note 5yr. December 1999 4,857,187 5,332
552 U.S. Treasury Note 10yr. December 1999 60,366,750 223,076
187 U.S. Long Bond December 1999 21,312,156 116,675
----------------
$ 626,654
================
</TABLE>
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any
margin requirements on open futures contracts.
20
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Written option transactions
Puts Calls
Principal
Principal Amount Amount of
of Contracts Contracts
(000's omitted) Premiums (000's omitted) Premiums
------------------ --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period 8,600 $ 541,284 8,600 $ 645,000
Options written -- -- -- --
Options closed -- -- -- --
Options exercised -- -- -- --
Options expired -- -- -- --
================== =============== ================= ===============
Outstanding, end
of period 8,600 $ 541,284 8,600 $ 645,000
================== =============== ================= ===============
</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>
USD Call/JPY Put 8,600 USD 112.7 JPY 11/16/99 $ 99,760
USD Put/JPY Call 8,600 USD 112.7 JPY 11/16/99 357,760
---------------
$ 457,520
===============
</TABLE>
21
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Net
National Unrealized
Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------------- ------------ ------------------------------------------------ --------------
<S> <C> <C> <C>
Credit Default Swaps
288,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (147,733)
dated 3/26/98 to pay .07% per year times the
national amount. The Fund receives payment
only upon a default event in Italy, the
notional amount times the difference between
the par value 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 (148,616)
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 par value and the then-market value of
Kingdom of Belgium, 5.75% due 3/28/08.
Interest Rate Swaps
27,300,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company (14,480)
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 16,682
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 Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements -- continued
Net
Notional Unrealized
Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------------- ------------ ------------------------------------------------ --------------
<S> <C> <C> <C>
14,200,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company $ (10,746)
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.
10,700,000 CHF 9/16/05 Agreement with Morgan Guaranty Trust Company 233,136
dated 9/14/98 to pay the notional amount
multiplied by 3.1175% and to receive the
notional amount multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a specified
spread.
35,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust Company (444,345)
dated 7/27/99 to receive the notional amount
multiplied by 6.664% and to pay the notional
amount multiplied by 3 month LIBOR adjusted by
a specific spread.
Total Return Swap
75,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company (76,719)
dated 7/1/99 to receive (pay) the notional
amount multiplied by the return on the JP
Morgan Non-U.S. Traded Total Return Government
Bond Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
--------------
$ (592,821)
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations. 23
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 95.1%
Automotive - 5.2%
7,000 Fuji Heavy Industries Ltd 55,671
4,000 Honda Motor Co Ltd 160,518
19,000 Mitsubishi Motors 103,105
53,000 Nissan Motor Co 308,395
10,000 Suzuki Motor Corp 168,726
-------------
796,415
-------------
Banking - 11.6%
22,000 Asahi Bank 134,434
5,000 Dai-Ichi Kangyo Bank 52,488
32,000 Daiwa Bank 101,856
37,000 Fuji Bank 381,322
20,000 Industrial Bank of Japan 203,384
10,000 Mitsubishi Trust & Banking 104,884
28,000 Mitsui Trust & Banking Co Ltd 57,714
60,000 Sakura Bank Ltd 317,388
2,000 Sumitomo Bank 27,361
20,000 Sumitomo Trust & Banking 133,157
23,000 Tokai Bank 145,998
11,000 Toyo Trust & Banking Co Ltd 46,851
28,000 Yasuda Trust & Banking * 48,009
-------------
1,754,846
-------------
Chemicals - 4.1%
39,000 Daicel Chemical Industries Ltd 160,062
8,000 Dainippon Ink & Chemicals Inc 31,009
32,000 Mitsui Petrochemical Industries Ltd 233,481
15,000 Sekisui Chemical 83,451
2,000 Shin-Etsu Chemical Co Ltd 81,353
4,000 Sumitomo Bakelite Co Ltd 41,735
-------------
631,091
-------------
Construction - 9.8%
164,000 Aoki Corp * 92,736
5,300 Daito Trust Construction Co Ltd 68,881
17,000 Daiwa House Industry Co Ltd 170,550
5,000 INAX Corp 36,846
16,000 Kajima Corp 69,023
39,000 Maeda Corp 152,948
77,000 Marubeni Corp 181,887
5,000 Nishimatsu Construction 28,957
8,000 Obayashi Corp 43,121
15,000 Okumura Corp 56,774
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Construction - continued
22,000 Onoda Cement Co Ltd 57,586
63,000 Sato Kogyo Co Ltd 45,392
20,000 Sekisui House Ltd 214,693
10,000 Shimizu Corp 44,598
10,000 Sumitomo Realty and Development Co Ltd 40,038
12,000 Taisei Corp 26,814
8,000 Tostem Corp 164,166
-------------
1,495,010
-------------
Consumer Goods - 4.3%
14,000 Ezaki Glico Co Ltd 76,739
1,000 Fuji Photo Film Co Ltd 36,481
11,000 Itochu Corp 33,608
2,900 Nintendo Co Ltd 502,531
-------------
649,359
-------------
Electric - 3.9%
7,000 Furukawa Electric Co Ltd 39,582
4,000 Matsushita Electric Industrial Co Ltd 78,800
60,000 Mitsubishi Electric Corp 303,160
37,000 Oki Electric Industry 172,101
-------------
593,643
-------------
Electronics - 6.3%
300 Advantest Corp 40,631
3,000 Aiwa Co 86,461
4,000 Canon Inc 116,740
2,900 Fanuc Co 174,563
7,000 Fuji Electric Co 31,985
1,000 Hirose Electric Co. Ltd 125,861
2,300 Kyocera Corp 151,033
5,000 Nichicon Corp 98,044
9,000 Sanyo Electric Company 38,989
11,000 Toshiba Corp 97,615
-------------
961,922
-------------
Financial Services - 5.7%
1,000 Acom Ltd 101,327
2,000 Credit Saison Co 45,054
21,000 Daiwa Securities Co Ltd 189,807
34,000 New Japan Securities Co Ltd * 107,912
15,000 Nikko Securities 129,691
400 Orix Corp 38,451
3,000 Promise Co 248,985
-------------
861,227
-------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage - 2.9%
5,000 House Foods Corp 75,471
1,000 Ito-Yokado 73,510
9,000 Kirin Brewery Co Ltd 109,171
7,000 Nippon Meat Packers Inc 95,764
700 Q.P. Corp 4,916
18,000 Snow Brand Milk Products Co Ltd 82,247
-------------
441,079
-------------
Health Care - 1.4%
6,000 Sankyo Co Ltd 166,902
3,000 Shiseido Co Ltd 41,862
-------------
208,764
-------------
Leisure - 0.8%
4,000 Heiwa Corp 121,118
-------------
Machinery - 4.7%
21,000 Amada Co Ltd 176,205
57,000 Ishikawajima-Harima Heavy Industries 111,770
47,000 Kawasaki Heavy Industries Ltd 107,164
15,000 Kubota Corp 47,335
55,000 Mitsubishi Heavy Industries 239,272
5,000 NHK Spring Co Ltd 29,276
-------------
711,022
-------------
Manufacturing - 0.8%
5,000 Toyo Seikan Kaisha 116,284
-------------
Metals and Mining - 5.5%
6,000 Fujikara Ltd 38,415
157,000 Kobe Steel Ltd 137,462
20,000 Mitsubishi Material 56,364
6,000 Nitto Denko Corp 165,808
194,000 NKK Corp 180,473
6,000 NSK Ltd 38,524
111,000 Sumitomo Metal Industries 148,817
77,000 Tomen Corp 78,654
-------------
844,517
-------------
Oil and Gas - 3.0%
58,000 Cosmo Oil Co Ltd 105,796
50,900 Nippon Oil Co Ltd 225,149
19,600 Showa Shell Sekiyu 131,924
-------------
462,869
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Paper and Allied Products - 1.0%
8,000 New Oji Paper Co Ltd 55,452
12,000 Sumitomo Forestry Co Ltd 94,997
-------------
150,449
-------------
Pharmaceuticals - 2.7%
10,000 Chugai Pharmaceutical Co Ltd 110,356
9,000 Daiichi Seiyaku Co Ltd 138,803
4,000 Taisho Pharmaceutical Co Ltd 168,179
-------------
417,338
-------------
Retail Trade - 0.5%
1,000 Aoyama Trading 37,302
2,000 Jusco Co Ltd 38,488
-------------
75,790
-------------
Services - 3.3%
9,000 Canon Sales Co Inc 142,907
1,400 CSK Corp 39,582
7,000 Nippon Shinpan Co 24,260
111,000 Nissho Iwai Corp 120,471
1,000 Secom Co Ltd 136,349
6,000 Sumitomo Corp 42,683
-------------
506,252
-------------
Technology - 7.1%
76,000 Hitachi Ltd 770,085
700 Keyence Corp 158,648
1,200 TDK Corp 145,561
-------------
1,074,294
-------------
Telecommunications - 0.5%
5,000 Tokyo Broadcasting System Inc 80,943
-------------
Textiles - 1.3%
27,000 Nisshinbo Industries Inc 140,608
6,000 Tokyo Style Co Ltd 64,572
-------------
205,180
-------------
Tobacco - 2.3%
25 Japan Tobacco Inc 346,573
-------------
Transportation - 1.6%
55,000 Kawasaki Kisen 111,861
18,000 Seino Transportation Co Ltd 114,588
5,000 Toei Co Ltd 18,606
-------------
245,055
-------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Utilities - 4.8%
4,600 Chubu Electric Power Co Inc 85,795
1,400 Hokkaido Electric Power 21,757
800 Hokuriku Electric Power 13,024
3,000 Kokusai Denshin Denwa 233,937
12,500 Kyushu Electric Power Co Inc 199,508
1,300 Shikoku Electric Power 20,867
9,500 Tohoku Electric Power Co Inc 150,759
-------------
725,647
-------------
TOTAL COMMON STOCKS (Cost $11,505,185) 14,476,687
-------------
SHORT-TERM INVESTMENTS - 2.6%
Cash Equivalents - 2.6%
$ 400,000 First National Bank of Chicago Time Deposit,
5.50% due 9/01/99 400,000
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost $400,000) 400,000
-------------
TOTAL INVESTMENTS - 97.7%
(Cost $11,905,185) 14,876,687
Other Assets and Liabilities (net) - 2.3% 349,008
-------------
TOTAL NET ASSETS - 100.0% $ 15,225,695
=============
</TABLE>
* Non-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $11,905,185) (Note 1) $ 14,876,687
Foreign currency, at value (cost $293,069) (Note 1) 318,267
Cash 61,102
Dividends and interest receivable 17,201
Receivable for variation margin on open futures contracts (Notes 1 and 6) 4,378
Receivable for expenses waived or borne by Manager (Note 2) 15,593
-------------
Total assets 15,293,228
-------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 6,282
Shareholder service fee 1,848
Accrued expenses 59,403
-------------
Total liabilities 67,533
-------------
Net assets $ 15,225,695
=============
Net assets consist of:
Paid-in capital $ 57,806,852
Undistributed net investment income 351,107
Accumulated net realized loss (45,934,903)
Net unrealized appreciation 3,002,639
-------------
$ 15,225,695
=============
Net assets attributable to Class III Shares $ 15,225,695
=============
Shares outstanding - Class III 1,752,961
=============
Net asset value per share - Class III $ 8.69
=============
</TABLE>
6 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, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $97,825) $ 554,339
Interest 55,508
--------------
Total income 609,847
--------------
Expenses:
Management fee (Note 2) 184,419
Custodian fees 70,508
Audit fees 24,842
Transfer agent fees 14,166
Legal fees 1,751
Trustees fees (Note 2) 645
Registration fees 364
Miscellaneous 643
Fees waived or borne by Manager (Note 2) (112,919)
--------------
184,419
Shareholder service fee - Class III (Note 2) 51,228
--------------
Net expenses 235,647
--------------
Net investment income 374,200
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 15,177,576
Closed futures contracts 1,497,701
Foreign currency and foreign currency related
transactions (127,201)
--------------
Net realized gain 16,548,076
--------------
Change in net unrealized appreciation (depreciation) on:
Investments 8,776,597
Open futures contracts (31,096)
Foreign currency and foreign currency related transactions 18,202
--------------
Net unrealized gain 8,763,703
--------------
Net realized and unrealized gain 25,311,779
--------------
Net increase in net assets resulting from operations $ 25,685,979
==============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
-------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 374,200 $ 350,253
Net realized gain (loss) 16,548,076 (26,170,871)
Change in net unrealized appreciation (depreciation) 8,763,703 20,479,042
-------------------- --------------------
Net increase (decrease) in net assets resulting from operations 25,685,979 (5,341,576)
-------------------- --------------------
Net share transactions - Class III (Note 5) (138,849,756) (15,421,445)
-------------------- --------------------
Total decrease in net assets (113,163,777) (20,763,021)
Net assets:
Beginning of period 128,389,472 149,152,493
-------------------- --------------------
End of period (including undistributed net investment
income of $351,107 and distributions in excess of net
investment income of $23,093, respectively) $ 15,225,695 $ 128,389,472
==================== ====================
</TABLE>
8 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, 1999 -------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.20 $ 6.36 $ 7.02 $ 8.52 $ 9.12 $ 11.13
------------------- --------- --------- --------- ------------ ---------
Income (loss) from investment operations:
Net investment income (loss) 0.04 (c) 0.01 0.01 - (c) (0.01)(c) - (c)
Net realized and unrealized gain (loss) 2.45 (0.17) (0.67) (1.50) 0.79 (1.08)
------------------- --------- --------- --------- ------------ ---------
Total from investment operations 2.49 (0.16) (0.66) (1.50) 0.78 (1.08)
------------------- --------- --------- --------- ------------ ---------
Less distributions to shareholders:
From net investment income - - - - - -
In excess of net investment income - - - (0.00) - -
From net realized gains - - - - (1.38) (0.93)
------------------- --------- --------- --------- ------------ ---------
Total distributions - - - (0.00) (1.38) (0.93)
------------------- --------- --------- --------- ------------ ---------
Net asset value, end of period $ 8.69 $ 6.20 $ 6.36 $ 7.02 $ 8.52 $ 9.12
=================== ========= ========= ========= ============ =========
Total Return (a) 40.16% (2.52%) (9.40%) (17.69%) 8.29% (10.62%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 15,226 $ 128,389 $ 149,152 $ 218,797 $ 126,107 $ 60,123
Net expenses to average
daily net assets 0.69% * 0.69% 0.69% 0.70% (d) 0.92% 0.83%
Net investment income (loss) to
average daily net assets 1.10% * 0.25% 0.21% 0.01% (0.13%) (0.02%)
Portfolio turnover rate 30% 102% 128% 4% 23% 60%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ - (b)
</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 approximate .01% of average daily net assets.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in equity securities of
Japanese companies. The Fund's current benchmark is the MSCI Japan 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts,
10
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. There were no forward foreign
currency contracts outstanding as of August 31, 1999.
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 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 and agency obligations in accordance with
the initial margin requirements of the broker or exchange. Futures
contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is subsequently settled. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts as of August 31, 1999.
11
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 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 will be no
liquid market for these agreements, that the counterparty to the agreements
may default on its obligation to perform or that there may be unfavorable
changes in the price of the security or index underlying these
transactions. There were no open swap agreements outstanding as of August
31, 1999.
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, 1999, 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, 1999, the Fund had a capital loss carryforward
available to offset future capital gains, if any, of $43,013, $22,345,866
and $34,928,863, expiring in 2005, 2006 and 2007, respectively.
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 dividends 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.
12
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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 .20%
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, 1999, the Fund received $6,438
in purchase premiums and $123,280 in redemption fees. There is no premium
for reinvested distributions. While no purchase premium is normally 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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .54% 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.
13
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
Prior to March 1, 1999 GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $645. 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, 1999,
aggregated $18,940,361 and $152,191,791, respectively.
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$11,905,185 $3,141,346 $169,844 $2,971,502
4. Principal shareholders
At August 31, 1999, 82% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares. Investment activities of these shareholders could have a material
effect.
14
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999 February 28, 1999
--------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 870,012 $ 6,178,489 7,008,018 $ 42,026,700
Shares
repurchased (19,833,678) (145,028,245) (9,737,557) (57,448,145)
--------------- ---------------- -------------- ---------------
Net decrease (18,963,666) $ (138,849,756) (2,729,539) $ (15,421,445)
=============== ================ ============== ===============
</TABLE>
6. Financial instruments
A summary of outstanding futures contracts purchased at August 31, 1999 is
as follows:
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
----------- ------- ----------------- ----------------- ----------------
3 TOPIX September 1999 $ 360,198 $ 4,378
================
At August 31, 1999, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
15
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 94.4%
Austria - 1.9%
747 Allgemeine Baugesellschaft AG 66,278
18,523 Austrian Airlines 431,406
1,721 Bau Holdings AG 60,079
15,810 Boehler Uddeholm (Bearer) 759,652
6,789 Brau Union AG 325,917
2,070 BWT AG 385,906
3,089 Interunfall Versicherung AG 329,538
1,203 Oesterreichische Brau Beteiligungs AG 54,893
12,238 Radex-Heraklith AG 347,203
3,175 Universale Bau AG 107,315
226 Wiener Allianz Versicherungs AG 32,704
2,510 Wolford AG 125,931
--------------
3,026,822
--------------
Canada - 4.8%
24,990 Air Canada Inc * 151,561
9,750 Alberta Energy Ltd 300,563
19,590 Anderson Exploration Ltd * 282,258
16,690 BCE Mobile Communications * 647,042
1,969 BCT Telus Communications Inc Class A (Non Voting) 42,555
16,690 CAE Industries Inc 99,545
11,480 Cameco Corp 214,644
11,580 Canadian Natural Resources * 287,133
12,740 Canadian Tire Corp Ltd Class A 325,287
8,200 Cominco Ltd 141,502
20,460 Cott Corp * 74,041
14,860 Dofasco Inc 253,443
28,180 Domtar Inc 307,823
24,600 Donohue Inc Class A 398,130
58,000 Echo Bay Mines Ltd * 77,738
18,960 Ipsco Inc 393,888
8,680 Loewen Group Inc * 6,108
14,570 Mackenzie Financial Corp 142,556
21,910 Macmillan Bloedel Ltd 331,102
24,410 Methanex Corp * 71,977
17,270 Mitel Corp * 119,207
10,710 Molson Co Ltd Class A 183,381
2,100 Molson Co Ltd Class B 35,887
13,900 Moore Corporation Ltd 130,877
27,210 National Bank of Canada Montreal 330,050
28,200 Nexfor Inc 172,919
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
14,200 NS Power Holdings Inc 156,065
5,110 Quebecor Inc Class B 128,418
16,846 Ranger Oil Ltd * 76,768
9,360 Rio Algom Ltd 142,702
6,470 Rogers Communications Class B * 113,817
10,520 Sears Canada Inc 227,715
5,736 Sobeys Inc * 69,768
21,330 Stelco Inc Class A 163,670
9,070 Torstar Corp Class B 97,252
18,140 Transalta Corp 240,700
200 TVA Group Inc Class B 2,553
42,070 TVX Gold Inc * 33,268
5,980 United Dominion Industries Ltd 141,064
15,250 Westcoast Energy Inc 297,907
--------------
7,412,884
--------------
Denmark - 0.0%
800 Hafnia Holdings (Registered) Class A (c) * 1
--------------
Finland - 1.1%
3,000 Asko Oyj 50,637
1,200 Finnilines 33,209
800 Huhtamaki Oyj Class I 27,716
175 Instrumentarium Oyj Class A 6,562
6,000 Kemira Oyj 34,096
4,200 Kesko Oyj 51,549
250 Kone Corp Class B 31,027
3,400 Metra AB Class B 61,051
9,374 Metso Oyj * 118,815
3,000 Orion-Yhtyma Oyj Class B 72,501
3,600 Oyj Hartwall Abp 48,672
2,500 Pohjola Group Insurance Class B 121,733
15,400 Raisio Group Plc Class V 155,505
8,310 Rautaruukki Oyj 59,687
3,200 Sampo Insurance Co Ltd Class A 104,780
2,000 Stockmann AB Class B 28,624
3,800 Tieto Corp 128,440
14,623 Tietoenator Oyj * 486,902
--------------
1,621,506
--------------
France - 10.1%
7,620 BIC SA 399,212
1,200 Cap Gemini SA 205,969
3,800 Casino Guichard-Perrachon SA 400,171
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
1,260 Castorama Dubois Investment 328,726
6,750 Club Mediterranee SA * 698,709
12,630 Compagnie Generale d'Industrie et de Participations 624,332
3,280 Compagnie Parisienne de Reescompte 148,974
9,270 Credit Commercial de France 1,162,244
2,020 Eridania Beghin-Say SA 267,130
2,230 Essilor International 744,318
4,179 Gaz Et Eaux 214,744
730 Groupe Andre 108,720
2,530 Hermes International 276,584
4,330 Imetal 689,693
11,190 Moulinex * 109,093
3,450 Pathe SA 400,847
9,660 Pechiney SA Class A 562,206
5,630 Pernod Ricard 431,730
6,725 Peugeot SA 1,235,971
670 Sagem SA 173,737
17,316 Sanofi-Synthelabo SA * 720,627
2,210 Seb SA 168,187
18,140 Seita 988,675
3,550 Simco Union Habit (Registered) 312,161
799 Societe Eurafrance 490,331
5,140 Sodexho Alliance 844,229
5,140 Technip SA 567,886
5,560 TV Francaise 1,385,969
1,749 Unibail (Bearer) 241,083
46,270 Usinor Sacilor 715,985
--------------
15,618,243
--------------
Germany - 7.4%
6,080 Adidas Salomon AG 565,136
4,290 Altana AG 283,207
1,210 Ava Allgemeine Handelsgesellschaft der
Verbraucher AG 451,156
6,950 Axa Colonia Konzern AG 675,366
290 Axel Springer Verlag AG 346,133
22,870 Bankgesellschaft Berlin AG 406,794
6,170 Beiersdorf AG (Bearer) 415,137
30,070 Berliner Kraft & Licht AG Class A 457,365
23,550 BHF Bank AG 1,111,899
5,450 Bilfinger & Berger 131,250
24,960 Buderus AG 421,824
22,580 Continental AG 519,933
857 DBV-Winterthur Holding AG 403,722
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
6,250 Degussa-Huels AG * 241,617
4,290 Douglas Holdings AG 185,784
9,790 FAG Kugelfischer 102,890
7,910 Gehe AG 380,150
1,740 Hamburgische Electricitaets-Werke AG 38,595
7,045 Heidelberg Port-Zement 710,642
4,730 Hochtief AG 205,338
630 Holzmann (Philipp) * 111,794
14,470 IWKA AG 267,469
870 Karstadt AG 411,684
1,800 Linde AG 109,892
17,400 MAN AG 588,120
12,830 Metallgesellschaft 290,006
1,400 Preussag AG 79,705
770 Schmalbach-Lubeca 105,487
3,520 Schwarz Pharma AG 144,444
2,220 SGL Carbon AG 161,796
13,610 SKW Trostberg AG 310,512
720 Suedzucker AG 292,640
7,496 Thyssen Krupp AG * 174,980
7,720 Vereins Und Westbank 225,465
8,840 Wella AG 210,088
--------------
11,538,020
--------------
Hong Kong - 1.7%
18,000 Asia Satellite Telecom 44,043
131,000 Associated International Hotels 52,298
188,000 Chinese Estates Holdings Ltd 30,748
66,000 Cross Harbour Tunnel Co Ltd 56,097
48,400 Dah Sing Financial Services 192,599
59,000 Great Eagle Holdings Ltd 86,618
572,000 Guangdong Investment Ltd 117,123
40,000 Guoco Group 118,736
108,000 Hang Lung Development Co Ltd 123,784
135,000 Henderson Investment Ltd 93,012
134,400 HKR International Ltd 103,849
85,500 Hong Kong Aircraft Engineering Co Ltd 151,948
54,000 Hong Kong & Shanghai Hotels 42,768
138,000 Hopewell Holdings Ltd 94,190
96,000 Hysan Development Co Ltd 124,866
100,000 Kumagai Gumi Ltd 48,937
434,000 Lai Sun Garment International Ltd 25,710
26,000 New World Infrastructure * 36,496
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
27,100 Realty Development Corp Ltd Class A 51,128
300,000 Regal Hotels International Ltd 32,066
66,000 Shangri La Asia 74,796
840,000 South China Morning Post Ltd 530,061
24,000 Television Broadcasting Ltd 107,557
664,000 Top Glory International Holdings 65,843
96,101 Tsim Sha Tsui Properties Ltd 63,117
14,000 Varitronix International 30,830
108,000 Wheelock and Co Ltd 139,778
14,000 Wing On International Holdings Ltd 12,891
125,500 Winsor Properties Holdings Ltd 34,748
--------------
2,686,637
--------------
Italy - 2.1%
716,220 Banca Nazionale dell'Agricultura (BNA)
(Non Convertible) 821,567
53,490 Finmeccanica SPA (Non Convertible) * 40,059
102,000 Fornara SPA (c) * -
213,400 Grassetto SPA (c) * 1
3,500 Recordati Industria Chimica e Farmaceutica SPA 29,944
51,140 Recordati Industria Chimica e Farmaceutica SPA
(Non Convertible) 230,651
69,713 Reno de Medici SPA 231,212
45,350 Rinascente 198,789
308,800 Snia BPD SPA (Non Convertible) 241,366
333,464 Unicem Di Risp 1,482,852
--------------
3,276,441
--------------
Japan - 25.1%
89,000 Amada Co Ltd 746,774
23,000 Amano Corp 178,303
221,000 Aoki Corp * 124,967
9,000 Aoki International 41,124
20,800 Aoyama Trading 775,886
83,000 Atsugi Nylon Industrial 96,138
13,000 Bandai Co 207,488
46,000 Canon Sales Co Inc 730,412
2,000 Chudenko Corp 34,292
70,000 Citizen Watch Co 601,395
202,000 Cosmo Oil Co Ltd 368,462
16,700 CSK Corp 472,160
43,000 Daicel Chemical Industries Ltd 176,479
90,000 Daido Steel Co Ltd 155,958
17,000 Dainippon Pharmaceutical Co Ltd 104,501
22,000 Daio Paper Corp 153,094
46,900 Daito Trust Construction Co Ltd 609,535
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
94,000 Denki Kagaku Kogyo 220,329
3,000 Denny's Japan Co Ltd 73,328
39,000 Ezaki Glico Co Ltd 213,772
23,000 Fujitec Co 240,184
61,000 Fukuyama Transporting Co Ltd 350,495
45,000 Furukawa Co Ltd 69,771
111,000 Gakken Co Ltd 168,051
89,000 General Sekiyu (KK) 262,183
44,000 Hankyu Department Stores Inc 305,787
8,000 Hanwa Co Ltd 11,017
165,000 Haseko Corp * 112,864
24,000 Hitachi Maxell Ltd 590,998
96,000 Hitachi Metals Ltd 656,665
27,000 Hokuetsu Paper Mills 183,456
15,000 House Foods Corp 226,413
25,000 Hyogo Bank Ltd (c) 2
66,000 INAX Corp 486,370
35,000 Intec Inc 478,499
12,000 Itoham Foods Inc 47,061
28,000 Izumiya Co Ltd 259,200
22,000 Japan Airport Terminal Co Ltd 262,848
64,000 Japan Steel Works Ltd 79,967
99,000 Japan Synthetic Rubber Co Ltd 827,069
46,000 JGC Corp 124,183
33,000 Joshin Denki Co Ltd 122,495
25,000 Kamigumi Co Ltd 150,486
34,000 Kandenko Co 201,249
78,000 Kaneka Corp 889,233
10,000 Katokichi Co Ltd 188,335
155,000 Keihin Electric Express Railway Co Ltd 555,566
194,000 Keio Teito Electric Railway Co Ltd 769,666
20,000 Kikkoman Corp 163,984
14,000 Kissei Pharmaceutical Co Ltd 274,522
5,000 Kokuyo Co Ltd 88,923
22,000 Komori Corp 471,522
48,000 Koyo Seiko Co Ltd 446,094
108,000 Kurabo Industries Ltd 132,975
207,000 Kureha Chemical Industry Co Ltd 613,571
10,000 Kyowa Exeo Corp 97,588
6,000 Kyudenko Corp 30,261
69,000 Lion Corp 264,308
55,000 Maeda Corp 215,696
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
35,000 Maeda Road Construction 225,044
51,000 Makino Milling Machine Co Ltd 378,157
45,000 Makita Corp 533,540
25,000 Matsushita Refrigeration Co 91,431
51,000 Mitsubishi Belting 138,611
152,000 Mitsubishi Gas Chemical Co Inc 436,682
27,000 Mori Seiki Co Ltd 446,942
12,000 Nagase & Co 57,458
36,000 Nagoya Railroad Co Ltd 107,365
34,000 Nankai Electric Railway Co Ltd 139,541
10,000 NHK Spring Co Ltd 58,553
23,000 Nichicon Corp 451,001
3,000 Nihon Unisys Ltd 90,839
101,000 Nippon Chemi-Con Corp 491,897
33,000 Nippon Hodo Co 210,981
45,000 Nippon Meat Packers Inc 615,623
900 Nippon Oil Co Ltd 3,981
23,000 Nippon Paint Co 58,735
88,000 Nippon Sheet Glass Co Ltd 409,321
22,000 Nippon Shokubai Corp 131,625
54,000 Nippon Suisan Kaisha Ltd 105,887
38,000 Nissan Fire & Marine Insurance Co Ltd 117,488
31,000 Nisshin Oil Mills Ltd 122,705
259,000 Nisshin Steel Co Ltd 368,498
41,000 Nisshinbo Industries Inc 213,516
55,000 Nitto Boseki Co Ltd 126,910
41,000 Nitto Denko Corp 1,133,020
35,000 Okamoto Industries Inc 80,761
31,000 Olympus Optical Co Ltd 461,134
255,600 Onoda Cement Co Ltd 669,043
51,000 Onward Kashiyama Co Ltd 778,640
2,000 Oyo Corp 37,393
22,000 Q.P. Corp 154,499
273,000 Renown Inc * 373,478
5,000 Rinnai Corp 121,073
45,000 Royal Co Ltd 586,073
5,000 Ryosan Co 128,141
20,000 Sanden Corp 173,287
69,000 Sankyo Aluminum Industry Co Ltd * 64,818
20,000 Sanrio Co Ltd 946,692
145,000 Sanyo Securities Co Ltd (c) * 1,322
47,000 Seino Transportation Co Ltd 299,202
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
6,000 Shimachu Co 111,086
89,000 Shionogi and Co Ltd 763,008
325,000 Showa Denko 444,617
33,000 Showa Electric Wire & Cable 51,466
124,000 Showa Shell Sekiyu 834,621
5,000 Skylark Co Ltd 131,333
61,000 Stanley Electric Co Ltd 258,142
43,000 Sumitomo Bakelite Co Ltd 448,648
24,000 Taiyo Yuden Co Ltd 514,387
27,895 Takara Standard Co 177,325
63,000 Tanabe Seiyaku Co Ltd 422,892
69,000 Teikoku Oil Co Ltd 254,239
95,000 Toda Corp 521,592
52,000 Tokai Carbon Co Ltd 105,285
42,000 Tokuyama Corp 173,524
14,000 Tokyo Broadcasting System Inc 226,641
107,000 Tokyo Construction Co Ltd * 94,660
76,000 Tokyo Electric Co Ltd 285,576
88,000 Tokyo Ink Manufacturing Co Ltd 195,029
38,000 Tokyo Rope Manufacturing Co Ltd 72,434
30,000 Tokyo Style Co Ltd 322,860
24,000 Toshiba Tungaloy Co Ltd 73,765
17,000 Toyo Engineering Corp 18,140
10,000 Toyo Suisan Kaisha 109,444
36,000 Tsubakimoto Chain 208,491
162,000 Victor Co of Japan Ltd 1,233,709
49,000 Wacoal Corp 518,400
10,000 Yamatake Honeywell 112,180
62,000 Yodogawa Steel Works 275,380
18,000 Yokogawa Electric Corp 125,587
89,000 Yokohama Rubber Co 231,338
--------------
38,960,660
--------------
Malaysia - 0.1%
81,000 Guinness Anchor Berhad 90,379
357,000 Promet Berhad * 27,245
312,000 Rekapacific Berhad * 37,768
--------------
155,392
--------------
Norway - 0.0%
1 SAS Norge ASA Class B 10
--------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Singapore - 1.8%
141,000 Asia Food & Properties Ltd * 82,485
1,263,000 Chuan Hup Holdings Ltd 1,064,810
30,000 Datacraft Asia Ltd 115,800
16,000 Elec & Eltek International Co Ltd 57,920
30,000 Fraser & Neave 113,994
70,000 Hotel Properties Ltd 64,418
7,000 Jurong Shipyard 31,586
60,500 Keppel FELS Energy & Infrastructure * 48,851
102,000 Keppel Land Ltd 156,849
65,000 Natsteel Electronics 324,170
41,000 Parkway Holdings Ltd 86,172
28,000 Singapore Land Ltd 67,826
77,000 United Industrial Corp Ltd 44,116
31,000 Venture Manufacturing 296,325
67,000 Want Want Holdings 120,600
146,000 Wing Tai Holdings 156,896
--------------
2,832,818
--------------
Sweden - 5.1%
13,900 AGA AB Class A 234,780
14,570 AGA AB Class B 246,097
10,330 Atlas Copco AB 297,680
6,370 Atlas Copco AB Class B 181,636
31,650 Avesta Sheffield AB 155,970
16,622 Celsius Industrier AB Class B 193,209
19,270 Gambro AB Class A 199,490
11,160 Gambro AB Class B 115,532
34,034 Industrivarden AB Class A 581,038
16,210 Kinnevik Investment Class B 294,406
25,670 Mo Och Domsjo AB Class B 783,247
2,100 Modern Times Group AB * 58,482
6,370 Sandivik AB Class B 174,695
13,700 Scancem AB Class A 655,225
37,830 Securitas AB Class B 540,494
11,770 SKF AB Class B 267,921
17,370 SSAB Swedish Steel Class A 241,863
233,084 Stena Line AB Class B 285,040
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Sweden - continued
9,937 Svedala Industries 208,149
13,535 Svenska Kullagerfabriken AB 288,432
50,080 Sydkraft AB Class A 1,000,509
40,488 Sydkraft AB Class C 750,050
8,398 Tryggtia Compulsory Acq Shs 248,107
--------------
8,002,052
--------------
Switzerland - 3.1%
80 Ares-Serono SA Class B (Bearer) 120,916
260 Ascom Holding AG (Registered) 98,673
150 Baloise Holdings 125,437
270 Banque Cantonale Vaudoise (Bearer) 84,648
1,900 BK Vision AG (Bearer) * 405,056
60 Bobst AG (Registered) 35,839
40 Bobst SA (Bearer) 47,786
1,250 Clariant AG (Registered) 600,620
50 Ems-Chemie Holding AG (Bearer) * 242,558
190 Forbo Holdings AG (Registered) 75,243
210 Helvetia Patria Holding 171,870
300 Hero AG * 39,601
280 Hilti AG (Participating Certificate) 191,275
180 Intershop Holdings AG (Bearer) 106,924
60 Jelmoli (Bearer) 60,788
190 Jelmoli (Registered) 39,126
40 Julius Baer Holdings (Bearer) 123,292
45 Kuoni Reisen Holdings AG (Registered) 179,840
50 Motor-Columbus (Bearer) 96,363
140 Movenpick Holdings (Bearer) 61,910
1,540 Oerlikon-Buhrle (Registered) 223,616
90 Pargesa Holdings SA (Bearer) 142,565
190 Pharma Vision * 131,674
300 Rieter Holdings AG (Registered) 189,096
1,340 Sairgroup Zuerich (Registered) 281,691
190 Saurer Group Holdings (Registered) * 88,912
60 Schindler-Holding AG (Participant Certificates) 91,400
100 Schindler-Holding AG (Registered) 161,706
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland - continued
170 Schweizerische Industrie-Gesellschaft Holding AG
(Registered) 105,359
320 Sika Finanz AG (Bearer) 96,416
90 Societe Generale de Surveillance Holding SA
(Registered) 24,058
370 Sulzer Gebrueder AG (Registered) * 232,242
80 Vontobel Holding AG Class B 132,004
60 Zellweger Luwa AG (Bearer) 36,354
--------------
4,844,858
--------------
United Kingdom - 30.1%
140,600 AMEC 607,019
113,680 Arjo Wiggins Appleton Plc 395,744
163,660 Associated British Ports 890,787
111,540 Barratt Development 581,096
124,200 Beazer Holmes Plc 368,460
87,052 Berisford International 420,626
217,900 BICC Group 395,921
69,390 Blue Circle Industries 478,102
68,710 Bowthorpe Holdings 663,998
131,240 BPB Industries Plc 796,628
129,790 British Land Co 1,087,305
198,925 Bunzl Co 1,034,752
204,000 Caradon Plc 569,118
140,660 Carillion Plc * 312,120
23,870 Charter Plc (Registered) 147,194
43,710 Christian Salvesen Plc 93,828
47,908 Cobham Group Plc 658,638
68,800 Cordiant Communications Group 214,063
132,331 Debenhams Plc 834,104
65,330 Delta Plc 171,752
180,450 Electrocomponents Plc 1,468,182
213,574 Elementis Plc 401,797
51,962 Express Dairies Plc 105,276
80,580 First Leisure Plc 318,739
46,170 Glynwed International 174,833
79,810 Great Portland Estates Plc 289,385
99,891 Greenalls Group Plc 604,733
127,896 Hammerson Plc 1,023,111
102,310 Hazlewood Foods 215,507
91,670 Hepworth Plc 336,074
34,063 Hyder Plc 307,816
29,069 Inchcape Plc 181,123
109,820 Johnson Matthey 1,081,584
</TABLE>
See accompanying notes to the financial statement. 11
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
628,787 Ladbroke Group 2,403,791
46,130 Laird Group 226,604
680,817 Lasmo Plc 1,674,921
73,980 Lex Service 735,149
186,776 Lonrho Africa Plc 141,153
173,646 Lonrho Plc 1,591,520
50,998 Meyer International 369,010
260,260 MFI Furniture Group 196,688
111,550 Mirror Group Plc 455,592
120,430 Morgan Crucible 603,205
286,460 NFC Plc 1,013,349
95,425 Northern Foods Plc 201,772
56,262 Ocean Group Plc 915,973
247,720 Pilkington 430,187
112,130 Premier Farnell Plc 515,656
89,355 Provident Financial Plc 1,149,427
142,920 Racal Electronics 865,228
148,911 Rexam Plc 702,761
219,340 Rugby Group 389,720
19,130 Saatchi & Saatchi Plc 71,056
176,600 Scottish Hydro-Electric Plc 1,621,434
259,097 Securicor Plc 2,447,613
58,960 Slough Estates 345,089
131,810 Smith (WH) Group Plc 1,221,857
38,036 Southwest Water 655,941
183,250 St James's Place Capital 605,520
206,742 Storehouse Plc 380,633
140,660 Tarmac Plc * 1,144,442
52,770 Tate & Lyle 341,952
653,480 Taylor Woodrow Plc 1,938,658
121,770 Telewest Communications Plc * 473,347
25,616 Thames Water Plc 368,232
56,199 Transport Development Group Plc 235,401
52,590 Unigate 322,182
206,610 United Biscuits Plc 644,504
110,760 Wilson (Connolly) Holdings 316,121
402,435 Wimpey (George) 983,585
135,780 Yorkshire Water 897,326
--------------
46,826,014
--------------
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
United States - 0.0%
2,125 Ultramar Diamond Shamrock Corp 55,516
--------------
TOTAL COMMON STOCKS (Cost $146,805,840) 146,857,874
--------------
PREFERRED STOCKS - 1.2%
Germany - 1.2%
4,290 Fresenius Medical Care AG (Non Voting) 715,947
480 Friedrich Grohe AG (Non Voting) 137,144
4,340 GEA AG 144,400
7,200 MAN AG 155,522
290 Porsche AG (Non Voting) 730,555
--------------
1,883,568
--------------
TOTAL PREFERRED STOCKS (Cost $1,845,181) 1,883,568
--------------
RIGHTS & WARRANTS - 0.0%
Singapore - 0.0%
1,650 Haw Par Brothers International Ltd Warrants
7/18/2001 * 960
--------------
TOTAL RIGHTS & WARRANTS (Cost $3,322) 960
--------------
SHORT-TERM INVESTMENTS - 5.3%
Cash Equivalents - 3.4%
$ 3,700,000 First National Bank of Chicago Time Deposit,
5.50% due 9/01/99 3,700,000
1,578,247 The Boston Global Investment Trust (b) 1,578,247
--------------
5,278,247
--------------
U.S. Government - 1.9%
$ 3,025,000 U. S. Treasury Bill, 4.61% due 1/06/2000 (a) 2,973,777
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $8,256,601) 8,252,024
--------------
TOTAL INVESTMENTS - 100.9%
(Cost $156,910,944) 156,994,426
Other Assets and Liabilities (net) - (0.9%) (1,452,652)
--------------
TOTAL NET ASSETS - 100.0% $ 155,541,774
==============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (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.
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector
Construction 11.4%
Services 10.3
Machinery 8.3
Consumer Goods 7.5
Electronic Equipment 5.5
Conglomerates 5.0
Retail Trade 4.7
Chemicals 4.2
Health Care 3.9
Metals and Mining 3.8
Utilities 3.3
Transportation 3.0
Banking 3.0
Oil and Gas 2.9
Real Estate 2.8
Financial Services 2.7
Paper and Allied Products 2.6
Communications 2.4
Textiles 2.2
Insurance 1.4
Food and Beverage 1.4
Automotive 1.3
Aerospace 1.0
Telecommunications 0.9
Computers 0.2
Miscellaneous 4.3
=======
100.0%
=======
See accompanying notes to the financial statements. 15
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $156,910,944) (Note 1) $ 156,994,426
Foreign currency, at value (cost $240,532) (Note 1) 241,875
Cash 10,761
Receivable for variation margin on open futures contracts (Notes 1 and 6) 4,820
Dividends and interest receivable 193,263
Receivable for investments sold 148,911
Foreign withholding taxes receivable 119,315
Receivable for expenses waived or borne by Manager (Note 2) 37,163
--------------
Total assets 157,750,534
--------------
Liabilities:
Net payable for open forward foreign currency contracts (Notes 1 and 6) 474,577
Accrued Malaysian repatriation taxes (Note 1) 12,958
Payable upon return of securities loaned (Note 1) 1,578,247
Payable to affiliate for (Note 2):
Management fee 79,504
Shareholder service fee 19,877
Accrued expenses 43,597
--------------
Total liabilities 2,208,760
--------------
Net assets $ 155,541,774
==============
Net assets consist of:
Paid-in capital $ 156,559,565
Accumulated undistributed net investment income 4,711,835
Accumulated net realized loss (4,939,995)
Net unrealized depreciation (789,631)
--------------
$ 155,541,774
==============
Net assets attributable to Class III Shares $ 155,541,774
==============
Shares outstanding - Class III 12,436,699
==============
Net asset value per share - Class III $ 12.51
==============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $307,859) $ 2,591,538
Interest (including securities lending income of $11,731) 270,899
-------------
Total income 2,862,437
-------------
Expenses:
Management fee (Note 2) 480,522
Custodian fees 134,547
Audit fees 27,604
Transfer agent fees 14,534
Legal fees 2,578
Trustees fees (Note 2) 829
Registration fees 364
Miscellaneous 1,379
Fees waived or borne by Manager (Note 2) (181,835)
-------------
480,522
Shareholder service fee - Class III (Note 2) 120,132
-------------
Net expenses 600,654
-------------
Net investment income 2,261,783
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,613,388
Closed futures contracts (1,755,932)
Foreign currency, forward contracts and foreign
currency related transactions (2,523,557)
-------------
Net realized loss (1,666,101)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 20,992,371
Open futures contracts (127,125)
Foreign currency, forward contracts and foreign
currency related transactions 543,321
-------------
Net unrealized gain 21,408,567
-------------
Net realized and unrealized gain 19,742,466
-------------
Net increase in net assets resulting from operations $ 22,004,249
=============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,261,783 $ 3,486,990
Net realized gain (loss) (1,666,101) 8,155,069
Change in net unrealized appreciation (depreciation) 21,408,567 (20,794,784)
----------------- ------------------
Net increase (decrease) in net assets resulting from operations 22,004,249 (9,152,725)
----------------- ------------------
Distributions to shareholders from:
Net investment income - Class III (1,936,570) (3,362,663)
Net realized gains - Class III - (6,450,138)
----------------- ------------------
(1,936,570) (9,812,801)
----------------- ------------------
Net share transactions - Class III (Note 5) (22,667,439) (57,047,497)
----------------- ------------------
Total decrease in net assets (2,599,760) (76,013,023)
Net assets:
Beginning of period 158,141,534 234,154,557
----------------- ------------------
End of period (including accumulated undistributed net
investment income of $4,711,835 and $4,386,622, respectively) $ 155,541,774 $ 158,141,534
================= ==================
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies 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, 1999 ----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.02 $ 12.22 $ 13.46 $ 12.95 $ 11.95 $ 14.45
------------------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.17 + 0.55 0.27 0.23 0.18 0.18
Net realized and unrealized gain (loss) 1.47 (1.15) 0.42 0.55 1.16 (1.52)
------------------- --------- --------- --------- --------- ---------
Total from investment operations 1.64 (0.60) 0.69 0.78 1.34 (1.34)
------------------- --------- --------- --------- --------- ---------
Less distributions to shareholders from:
Net investment income (0.15) (0.21) (0.26) (0.07) (0.17) (0.20)
In excess of net investment income - - - - (0.02) -
Net realized gains - (0.39) (1.67) (0.20) (0.15) (0.96)
In excess of net realized gains - - - (0.00) - -
------------------- --------- --------- --------- --------- ---------
Total distributions (0.15) (0.60) (1.93) (0.27) (0.34) (1.16)
------------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 12.51 $ 11.02 $ 12.22 $ 13.46 $ 12.95 $ 11.95
=================== ========= ========= ========= ========= =========
Total Return (a) 14.93% (5.06%) 6.92% 5.99% 11.43% (9.66%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 155,542 $ 158,142 $ 234,155 $ 235,653 $ 218,964 $ 186,185
Net expenses to average
daily net assets 0.75% * 0.75% 0.75% 0.76% (b) 0.76% (b) 0.76% (b)
Net investment income to average
daily net assets 2.82% * 1.67% 1.93% 1.75% 1.84% 1.45%
Portfolio turnover rate 2% 8% 79% 13% 13% 58%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.01 $ 0.27 $ 0.12 $ 0.10 $ 0.07 $ 0.08
</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 taxes not waived or borne by the Manager, which
approximate .01% of average daily net assets.
See accompanying notes to the financial statements. 19
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1999
- --------------------------------------------------------------------------------
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 high total return through investment in equity securities of
non-U.S. issuers. The Fund's current benchmark is the Salomon Smith Barney
EMI World ex-U.S. 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, currency gains and losses realized between the trade
and settlement dates on securities transactions and
20
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Fund's portfolio securities. A forward
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange
rates. Forward currency contracts are marked to market daily and the change
in value is recorded by the Fund as an unrealized gain or loss. Realized
gains or losses equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed are
recorded upon delivery or receipt of the currency or, if a forward currency
contract is offset by entering into another forward currency contract with
the same broker, upon settlement of the net gain or loss. These contracts
may involve market risk in excess of the unrealized gain or loss reflected
in the Fund's Statement of Assets and Liabilities. In addition, the Fund
could be exposed to risk if the counterparties are unable to meet the terms
of the contracts or if the value of the currency changes unfavorably to the
U.S. dollar. The U.S. dollar value of the currencies the Fund has committed
to sell is shown under Note 6, and represents the currency exposure the
Fund has acquired or hedged through currency contracts as of August 31,
1999.
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 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 and agency 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, 1999.
21
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
When the Fund writes a call or put option, an amount equal to the premium
received is recorded as a liability and subsequently marked to market to
reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At August 31, 1999 there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund 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 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 will be 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, 1999, there were no open swap agreements.
22
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1999, the Fund loaned securities having a market
value of $1,488,845 collateralized by cash in the amount of $1,578,247,
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.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $12,958 for potential repatriation
tax on principal invested prior to February 15, 1999. Effective September
1, 1999, the Malaysian government exempted funds invested prior to February
15, 1999 from all levies, and such funds may now be freely repatriated.
Accordingly, effective September 1, 1999 no accrual for potential Malaysian
repatriation taxes 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 dividends 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.
23
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 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, 1999, the Fund received $550 in purchase premiums and
$143,917 in redemption fees. There is no premium for reinvested
distributions. While no purchase premium is normally charged with respect
to in-kind purchases of Fund shares, a 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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .60% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
24
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
1.25% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $829. 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, 1999,
aggregated $3,338,861 and $30,764,023, respectively.
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$156,910,944 $25,054,388 $24,970,906 $83,482
4. Principal shareholders
At August 31, 1999, 32.6% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
25
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999 February 28, 1998
------------------------------- -------------------------------
Shares Amount Shares Amount
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 4,888 $ 55,000 816,456 $ 9,903,936
Shares issued to
shareholders in
reinvestment of
distributions 92,333 1,120,000 718,062 8,300,432
Shares
repurchased (2,005,850) (23,842,439) (6,353,000) (75,251,865)
-------------- --------------- -------------- ---------------
Net decrease (1,908,629) $ (22,667,439) (4,818,482) $ (57,047,497)
============== =============== ============== ===============
</TABLE>
26
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 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
10/08/99 AUD 8,960,240 $ 5,712,494 $ 19,345
10/08/99 CAD 4,511,826 3,025,545 35,713
03/03/00 CHF 7,669,015 5,173,721 9,401
03/03/00 EUR 27,847,774 29,834,384 (31,413)
03/03/00 GBP 5,396,253 8,694,888 17,467
10/08/99 HKD 20,538,100 2,642,253 1,609
10/08/99 JPY 2,439,596,634 22,374,251 1,758,400
03/03/00 NOK 78,836,028 10,037,223 (99,291)
10/08/99 NZD 800,156 413,991 (36,009)
03/03/00 SEK 33,284,868 4,077,125 4,106
10/08/99 SGD 1,290,723 768,791 (2,618)
----------------
$ 1,676,710
================
Sales
10/08/99 AUD 1,190,635 $ 759,075 $ 9,353
10/08/99 CAD 5,066,036 3,397,187 (10,899)
03/03/00 CHF 8,177,182 5,516,544 (30,124)
03/03/00 EUR 3,271,501 3,504,884 58,151
03/03/00 GBP 19,696,272 31,736,255 (41,591)
10/08/99 HKD 5,437,486 699,540 (510)
10/08/99 JPY 3,398,625,035 31,169,780 (2,184,308)
03/03/00 NOK 51,361,244 6,539,196 68,419
03/03/00 SEK 25,212,875 3,088,372 (16,505)
10/08/99 SGD 1,290,723 768,791 (3,273)
----------------
$ (2,151,287)
================
</TABLE>
27
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Currency Abbreviations:
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar NOK Norwegian Kroner
CHF Swiss Franc NZD New Zealand Dollar
EUR Euro SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
HKD Hong Kong Dollar
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------- ----------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Buys
190 ALL ORDS September 1999 $ 8,943,197 $ (96,012)
69 HANG SENG September 1999 6,046,825 (63,913)
23 MIB30 September 1999 4,097,868 (121,545)
1 OMX September 1999 10,168 (90)
----------------
$ (281,560)
================
Sells
30 CAC40 September 1999 $ 1,458,258 $ 128
8 DAX September 1999 1,117,195 35,341
69 FTSE 100 September 1999 6,917,086 278,618
7 TSE September 1999 931,879 10,178
43 TOPIX September 1999 5,759,086 (431,302)
----------------
$ (107,037)
================
</TABLE>
At August 31, 1999, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
28
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 92.9%
Australia - 4.2%
625,600 Amcor Ltd 3,254,577
525,075 Australia and New Zealand Banking Group Ltd 3,409,080
9,800 Bank of Western Australia 21,417
1,283,267 Boral Ltd 1,962,321
42,500 Broken Hill Proprietary Ltd 456,279
165,969 Caltex Australia Ltd 332,046
885,087 Coles Myer Ltd 4,929,340
1,179,500 Colonial Ltd 4,425,692
220,187 Commonwealth Bank of Australia 3,459,043
393,296 Consolidated Rutile Ltd * 170,400
10,500 CRA Ltd 179,963
46,100 CSL Ltd 548,005
1,704,496 CSR Ltd 4,344,079
538,500 Cultus Petroleum * 288,208
171,700 David Jones Ltd 134,560
839,654 Delta Gold 1,181,248
255,000 Email Ltd 454,925
30,482 Energy Resources of Australia Class A 44,670
30,696 Foodland Associated 188,734
504,572 Fosters Brewing Group Ltd 1,475,630
843,728 General Property Trust Units 1,429,966
60,200 GIO Australia Holdings Ltd 97,080
3,026,831 Goodman Fielder Ltd 2,777,105
75,847 Harvey Norman Holdings 794,285
166,000 Jupiters Ltd 386,049
3,200 Leighton Holdings 12,759
461,779 MIM Holdings Ltd 361,894
310,808 National Australia Bank Ltd 4,691,362
868,973 National Food Ltd 1,478,289
1,040,000 National Mutual Holdings 1,583,700
121,400 Newcrest Mining Ltd * 286,195
3,238,307 News Corp Ltd 23,624,640
2,374,711 Normandy Mining Ltd 1,694,613
183,100 North Broken Hill Peko Ltd 403,651
1,100,660 Pacific Dunlop Ltd 1,633,995
1,224,217 Pioneer International Ltd 3,120,039
388,921 PMP Communications Ltd 676,497
1,990,379 Qantas Airways Ltd 6,404,258
41,500 QCT Resources Ltd 27,764
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
506,000 Resolute Ltd 183,767
63,007 Rothmans Holdings Ltd 656,369
657,892 Santos Ltd 1,961,743
977,139 Schroders Property 1,581,364
4,200 Stockland Trust Group 9,631
56,800 Suncorp Metway Ltd 308,702
10,000 Tabcorp Holdings 68,175
85,900 Telstra Corporation 446,059
934,667 Western Mining Corp Holdings Ltd 4,113,278
21,500 Westfarmers Ltd 193,152
2,088,908 Westfield Trust Units 4,245,723
1,281,691 Westpac Banking Corp 7,757,980
-----------------
104,270,301
-----------------
Austria - 3.2%
2,023 Austria Mikro Systeme International 76,177
19,512 Austria Tabakwerke AG 1,063,453
30,969 Austrian Airlines 721,278
55,452 Boehler Uddeholm (Bearer) 2,664,403
82,962 Brau Union AG 3,982,720
18,385 EA-Generali AG 3,145,903
694 Energie-Versorgung Niederoesterreich AG 97,567
124,537 Erste Bank Der Oesterreichischen Sparkassen AG 6,905,966
7,847 Flughafen Wien AG 310,400
7,655 Interunfall Versicherung AG 816,645
9,192 Leykam-Muerztaler Papier und Zellstoff AG 195,832
28,861 Mayr-Melnhof Karton AG (Bearer) 1,383,993
44,545 Oesterreichische Brau Beteiligungs AG 2,032,588
55,388 Oesterreichische Elektrizitaetswirtschafts AG 8,307,508
343,330 Oesterreichische Laenderbank AG 18,222,776
31,770 OMV AG 3,186,243
209,276 Radex-Heraklith AG 5,937,343
1,968 Universale Bau AG 66,518
642,248 Voest-Alpine Stahl AG 20,961,771
-----------------
80,079,084
-----------------
Belgium - 1.3%
25,250 Almanij NV 1,493,538
7,650 Arbed SA 763,590
2,460 Bekaert SA 1,139,647
9,275 CBR Cimenteries NPV 843,497
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Belgium - continued
36,302 Compagnie Benelux Paribas SA 2,281,467
2,050 Compagnie Maritime Belge SA 87,046
28,399 Credit Commercial Dexia 4,148,508
24,566 Electrabel SA 8,207,301
23,800 Electrafina NPV 2,961,345
8,113 Fortis (B) 278,504
3,550 Glaverbel NPV 363,720
18,400 Groupe Bruxelles Lambert NPV 3,515,792
60,238 Solvay Et Cie 4,240,699
5,150 Tessenderlo Chemie 240,434
39,000 Union Miniere NPV 1,561,655
-----------------
32,126,743
-----------------
Canada - 1.8%
82,900 Air Canada Inc * 502,778
900 Alcan Aluminum Ltd 29,614
72,400 Bank of Montreal 2,547,246
226,700 Bank of Nova Scotia 4,922,316
14,900 Biochem Pharma Inc * 385,431
139,899 Boliden Ltd SDR * 328,616
243,400 Bombardier Inc Class B 3,792,421
11,575 Canadian Hunter Exploration Ltd * 188,107
6,400 Canadian Marconi Co 70,982
900 Canadian Pacific Ltd 21,170
700 Cominco Ltd 12,079
2,800 Co-Steel Inc 26,645
51,700 Dofasco Inc 881,762
139,650 Donohue Inc Class A 2,260,118
45,800 Enbridge Inc 979,105
1,700 Fairfax Financial Holdings Ltd * 283,675
800 Falconbridge Ltd 12,492
40,807 Fletcher Challenge Ltd Class A 445,754
125,502 Gulf Canada Resources Ltd 513,043
3,400 Hollinger Inc 34,406
75,010 Hudsons Bay Co 980,227
700 Imperial Oil Ltd 14,730
1,700 Ivaco Inc Class A 5,309
28,300 Magna International Class A 1,405,328
176,980 Methanex Corp * 521,855
32,000 Molson Co Ltd Class A 547,916
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
25,541 Nexfor Inc 156,615
52,700 NS Power Holdings Inc 579,199
41,720 PanCanadian Petroleum Ltd 684,989
96,600 Petro Canada 1,453,337
39,100 Potash Corp of Saskatchewan 2,182,703
66,500 Quebecor Inc Class B 1,671,190
95,954 Rogers Cantel Mobile Communications Class B * 2,089,871
66,366 Seagram Ltd 3,524,665
30,440 Shell Canada Ltd Class A 646,661
83,960 Stelco Inc Class A 644,245
113,000 Transalta Corp 1,499,397
384,874 Transcanada Pipelines Ltd 5,429,297
104,300 Westcoast Energy Inc 2,037,492
-----------------
44,312,786
-----------------
Denmark - 0.0%
3,440 Topdanmark AS 627,978
-----------------
Finland - 0.6%
41,700 Amer Group Class A 742,169
274,300 Enso OY Class R 3,650,590
82,500 Finnair Class A 413,918
200 Huhtamaki OY Class I 6,929
26,238 Instrumentarium OY Class A 983,843
171,800 Kesko OY 2,108,609
6,650 Kone Corp Class B 825,327
92,000 Merita Ltd Class A 485,875
25,200 Metra AB Class A 454,361
6,200 Metra AB Class B 111,329
19,042 Metso OY * 241,357
38,500 Outokumpu Class A 503,034
83,800 Partek OY 1,035,611
185,901 Rautaruukki OY 1,335,234
33,200 Sampo Insurance Co Ltd Class A 1,087,093
42,250 Stockmann AB Class A 758,652
19,400 Stockmann AB Class B 277,656
29,000 UPM-Kymmene OY 1,003,173
-----------------
16,024,760
-----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
France - 12.0%
110 Accor SA 26,468
42,220 Air France * 730,018
21,134 Air Liquide Class L 3,241,269
510 Alcatel Alsthom Cie Generale d'Electricite SA 78,110
200,101 Assurances Generales De France (Bearer) 10,329,001
3,110 Axa SA 386,966
191,170 Banque Nationale de Paris 14,619,248
176,930 Banque Paribas Class A 18,819,049
4,427 Bongrain 1,688,043
8,458 Cap Gemini SA 1,451,736
26,392 Christian Dior 4,237,236
400 Clarins 39,335
89,013 Compagnie Generale d'Industrie et de Participations 4,400,135
20,940 Credit Commercial de France 2,625,392
26,090 Credit Local de France SA 3,397,847
287,901 Credit Lyonnais * 8,192,331
56,084 Elf Aquitaine SA 9,833,628
83,045 Eridania Beghin-Say SA 10,982,078
1,004 Fromageries Bel SA 840,957
47,082 Groupe Danone 11,646,851
28,210 Imetal 4,493,359
2,040 Labinal 288,090
173,869 Lafarge Coppee SA 18,677,117
27,325 Lagardere Groupe 1,108,302
330 LVMH (Louis Vuitton Moet Hennessy) 100,421
55,534 Lyonnaise Des Eaux 9,262,065
39,750 Michelin SA Class B 1,721,843
21,440 Pechiney SA Class A 1,247,795
96,889 Pernod Ricard 7,429,812
124,765 Peugeot SA 22,930,247
87,741 Remy Cointreau SA * 1,682,077
387,850 Renault SA 20,892,995
46,720 Rhodia SA 1,046,178
411,120 Rhone Poulenc SA Class A 19,940,553
132,002 Saint-Gobain 25,515,162
4,410 Seb SA 335,613
5,390 Skis Rossignol 80,103
14,156 Societe Eurafrance 8,687,272
160,433 Societe Generale Paris 31,400,448
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
112,090 SPIE Batignolles 7,518,086
70,883 Thomson CSF 2,590,508
287,316 Usinor Sacilor 4,445,946
800 Vivendi 61,770
-----------------
299,021,460
-----------------
Germany - 7.5%
113,545 AGIV AG 2,458,604
15,800 Axa Colonia Konzern AG 1,535,365
100 Axel Springer Verlag AG 119,356
16,100 Bankgesellschaft Berlin AG 286,375
529,500 BASF AG 23,993,300
422,949 Bayer AG 18,383,346
18,050 Bayerische Hypotheken und Wechsel-Bank AG 324,110
66,300 Bayerische Motoren Werke AG 2,104,383
38,687 Bayerische Vereinsbank 2,292,422
176,780 Berliner Kraft & Licht AG Class A 2,688,824
12,500 BHF Bank AG 590,180
700 Bilfinger & Berger 16,858
6,500 Buderus AG 109,850
102,600 Commerzbank AG 3,673,785
243,197 Continental AG 5,599,915
102,856 Deutsche Bank AG 7,029,115
322,534 Deutsche Telekom AG 14,274,347
114,400 Douglas Holdings AG 4,954,235
54,899 Dresdner Bank 2,528,236
44,328 FAG Kugelfischer 465,873
23,650 Fresenius Medical Care AG 1,721,144
79,697 Heidelberg Port-Zement 8,039,186
2,300 Hochtief AG 99,847
181,963 Klockner Humboldt Deutz * 1,289,651
1,500 Leirheit AG 46,739
73,000 Linde AG 4,456,741
108,500 MAN AG 3,667,300
93,088 Meto AG * 710,079
12,100 Phoenix AG 184,041
22,259 Schering AG 2,473,364
100 Schmalbach-Lubeca 13,700
10,900 Schwarz Pharma AG 447,285
464,221 Siemens AG 39,038,063
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
97,442 SKW Trostberg AG 2,223,139
950 Suedzucker AG 386,123
453,920 Thyssen Krupp AG * 10,595,911
263,452 Veba AG 16,779,752
-----------------
185,600,544
-----------------
Hong Kong - 4.1%
497,000 Amoy Properties Ltd 489,630
4,150,000 Cathay Pacific Airways Ltd 7,054,597
1,459,000 Cheung Kong Holdings 12,729,600
2,646,122 Chinese Estates Holdings Ltd 432,777
1,437,000 CLP Holdings Ltd 6,791,614
689,000 Dairy Farm International 685,555
363,300 Dao Heng Bank 1,656,223
766 Dickson Concept International Ltd 710
906,300 Elec & Eltek International Holdings Ltd 158,731
1,096,128 Great Eagle Holdings Ltd 1,609,223
565,700 Guoco Group 1,679,219
2,703,700 Hang Lung Development Co Ltd 3,098,836
3,713,000 Henderson Investment Ltd 2,558,167
225,000 Henderson Land Development Co Ltd 1,188,000
1,099,200 Hong Kong Aircraft Engineering Co Ltd 1,953,466
2,223,800 Hong Kong Electric Holdings Ltd 7,317,063
598,700 Hong Kong Ferry Co Ltd 678,488
1,906,421 Jardine Matheson Holdings Ltd 9,112,692
3,832,911 Jardine Strategic Holdings Ltd 8,815,695
368,622 Kumagai Gumi Ltd 180,391
700 Lai Sun Garment International Ltd 41
2,735,462 Mandarin Oriental ADR 1,846,437
657,017 Mount Batten Corp 1,269
1,314,800 New Asia Realty & Trust Class A 2,099,576
153,000 New World Development Co Ltd 368,454
200 Paul Y ITC Construction Holdings Ltd 18
42,000 Realty Development Corp Ltd Class A 79,239
30,291,371 Regal Hotels International Ltd 3,237,779
10,000 San Miguel Brewery Ltd 1,674
1,349,000 Shun Tak Holdings Ltd 284,909
2,296,000 Sino Land 1,153,152
5,360,000 South China Morning Post Ltd 3,382,291
1,382,000 Sun Hung Kai Properties Ltd 11,746,328
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
149,000 Swire Pacific Ltd Class A 767,532
268,000 Wharf Holdings Ltd 728,228
3,649,800 Wheelock and Co Ltd 4,723,732
404 Wing Lung Bank 1,670
18,000 Winsor Properties Holdings Ltd 4,984
1,054,200 Yue Yuen Industrial Holdings 3,041,033
-----------------
101,659,023
-----------------
Ireland - 0.0%
2,200 Independent News & Media Plc 10,736
-----------------
Italy - 3.8%
461,315 Alitalia Linee Aeree 1,232,778
92,500 Alleanza Assicurazioni-RNC 618,461
2,885 Assicurazioni Generali SPA 97,361
1,594,000 Banca Commerciale Italiana SPA 10,842,787
6,817,500 Banca di Roma 9,260,466
343,000 Banca Intesa SPA 1,449,175
139,200 Banca Popolare di Bergamo Credit 2,852,382
450,000 Banca Popolare di Milano 3,260,644
1,632,000 Banco Ambrosiano Veneto SPA (Non Convertible) 3,309,696
950,000 Banco di Napoli di Risp 1,184,056
205,300 Burgo (Cartiere) SPA 1,498,421
510,000 Ciga SPA * 363,614
7,800 Compart SPA * 10,636
46,000 Credito Fondiario * 99,119
152,000 Credito Italiano (Non Convertible) 539,448
2,076,700 Dalmine SPA * 478,186
23,150 Ericsson SPA 745,792
203,600 Falck Acciaierie and Ferriere Lombarde 1,483,862
415,390 Fiat SPA 13,382,048
158,672 Fiat SPA (Non Convertible) 2,544,127
2,334,000 Finmeccanica SPA * 1,962,369
96,750 Fondiaria SPA 522,202
588,000 Grassetto SPA (c) * 3
1,750,570 HPI SPA 1,050,254
219,500 IFIL-Finanziaria di Partecipazioni SPA 1,400,355
381,925 IFIL-Finanziaria di Partecipazioni SPA (Non Convertible) 1,637,838
831,100 Industriali Riunite SPA 1,236,012
30,800 Industrie Natuzzi SPA ADR 569,800
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
796,899 Istituto Nazionale Delle Assicurazioni 1,919,132
274,650 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 1,377,971
61,750 Italcementi SPA 841,382
37,300 Italmobiliare SPA 917,582
187,470 Magneti Marelli SPA 491,078
2,000 Marzotto & Figli SPA 16,055
173,898 Mediobanca SPA 1,803,735
2,920,481 Montedison SPA 4,395,780
973,728 Montedison SPA (Non Convertible) 1,151,920
405,000 Parmalat Finanziaria SPA 526,171
766,975 Pirelli & Co 1,490,616
383,069 RAS SPA 3,601,088
295,750 RAS SPA (Non Convertible) 2,467,849
88,000 SAI di Risp 443,372
140,206 San Paolo IMI SPA 1,882,257
215,000 Sirti SPA 1,110,488
982,472 SMI (Societa Metallurgica Italy) 591,510
345,000 SNIA SPA 388,093
77,500 Sopaf SPA * 47,478
137,000 Sorin Biomedica SPA 422,542
543,329 Telecom Italia SPA (Non Convertible) 3,110,491
36,500 Toro Assicurazioni 461,866
3,419,792 Unione Immobiliaer SPA 1,639,919
-----------------
94,730,267
-----------------
Japan - 22.7%
39,000 Acom Ltd 3,951,753
371,000 Amada Co Ltd 3,112,955
15,000 Anritsu Corp 138,857
1,507,000 Aoki Corp * 852,150
65,600 Aoki International 299,746
13,600 Arabian Oil Co Ltd 223,266
627,000 Asahi Bank 3,831,365
183,000 Ashikaga Bank Ltd 375,530
372,000 Atsugi Nylon Industrial 430,881
37,000 Autobacs Seven 1,957,226
86,000 Bandai Co 1,372,612
167,000 Bank of Yokohama 517,853
72,000 Best Denki Co Ltd 689,498
86,000 Brother Industries Ltd 250,992
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
5,000 Canon Inc 145,925
257,000 Canon Sales Co Inc 4,080,779
67,000 Chiba Bank 251,147
160,800 Chubu Electric Power Co Inc 2,999,097
44,000 Chudenko Corp 754,435
111,200 Chugoku Electric Power Co Inc 1,829,585
1,402,000 Cosmo Oil Co Ltd 2,557,344
9,000 Credit Saison Co 202,745
656,000 Daicel Chemical Industries Ltd 2,692,325
145,000 Daido Steel Co Ltd 251,265
150,000 Daiei Inc 638,880
186,000 Daiichi Seiyaku Co Ltd 2,868,585
147,000 Daikyo Inc * 496,055
350,000 Dainippon Pharmaceutical Co Ltd 2,151,489
149,000 Dainippon Screen Manufacturing Co Ltd 1,019,198
107,000 Daio Paper Corp 744,594
44,000 Daishowa Paper Manufacturing * 179,780
145,200 Daito Trust Construction Co Ltd 1,887,090
2,064,000 Daiwa Bank 6,569,711
791,000 Daiwa House Industry Co Ltd 7,935,610
105,000 Daiwa Kosho Lease Co Ltd 482,649
1,372,000 Daiwa Securities Co Ltd 12,400,493
260,000 Ezaki Glico Co Ltd 1,425,145
300 Familymart 15,377
79,500 Fanuc Co 4,785,444
1,254,000 Fuji Bank 12,923,708
600 Fuji Photo Film Co Ltd 21,889
955,000 Fujita Corp 740,344
216,000 Fukuyama Transporting Co Ltd 1,241,096
393,000 Furukawa Co Ltd 609,330
258,000 Gakken Co Ltd 390,606
258,000 General Sekiyu (KK) 760,035
219,000 Gunze Ltd 575,238
238,000 Hankyu Corp 844,380
127,500 Heiwa Corp 3,860,641
111,000 Heiwa Real Estate Co Ltd 343,189
229,000 Hino Motors 916,877
1,000 Hirose Electric Co. Ltd 125,861
3,432,300 Hitachi Ltd 34,778,470
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
54,000 Hitachi Maxell Ltd 1,329,746
540,000 Hitachi Metals Ltd 3,693,739
157,900 Hokkaido Electric Power 2,453,934
113,000 Hokuetsu Paper Mills 767,796
72,000 Hokuriku Bank 145,123
10,200 Hokuriku Electric Power 166,054
58,000 Honda Motor Co Ltd 2,327,512
221,000 House Foods Corp 3,335,811
6,000 Hyogo Bank Ltd (c) * 1
92,000 INAX Corp 677,970
639,000 Industrial Bank of Japan 6,498,108
148,000 Intec Inc 2,023,366
466,000 Ishikawajima-Harima Heavy Industries 913,767
1,048,000 Itochu Corp 3,201,970
98,000 Itoham Foods Inc 384,331
14,000 Ito-Yokado 1,029,140
42,000 JACCS Co 184,249
107,000 Japan Airport Terminal Co Ltd 1,278,398
127,000 Japan Aviation Electronics 523,544
53,000 Japan Energy Co Ltd 67,673
213,000 Japan Radio Co 2,453,546
118,000 Japan Securities Finance Co 714,597
124,000 Japan Steel Works Ltd 154,936
374,000 Japan Synthetic Rubber Co Ltd 3,124,484
1,647 Japan Tobacco Inc 22,832,231
73,000 JGC Corp 197,072
209,000 Joshin Denki Co Ltd 775,804
844,000 Kajima Corp 3,640,950
237,000 Kamigumi Co Ltd 1,426,604
188,000 Kandenko Co 1,112,791
43,000 Kanematsu NNK Corp 120,790
148,000 Kankaku Securities Co Ltd * 372,548
8,000 Kansai Electric Power 153,222
28,000 Katokichi Co Ltd 527,338
801,000 Kawasaki Heavy Industries Ltd 1,826,349
460,000 Kawasaki Kisen 935,565
701,000 Keio Teito Electric Railway Co Ltd 2,781,112
22,000 Keisei Electric Railway 70,227
19,500 Keyence Corp 4,419,490
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
46,000 Kikkoman Corp 377,163
43,000 Kinden Corp 431,392
29,000 Kirin Brewery Co Ltd 351,772
157,000 Kissei Pharmaceutical Co Ltd 3,078,572
1,714,000 Kobe Steel Ltd 1,500,698
46,000 Kokusai Denshin Denwa 3,587,031
157,000 Kokusai Electric 2,408,445
506,000 Komatsu Ltd 3,230,425
140,000 Konica Corp 563,090
77,000 Koyo Seiko Co Ltd 715,609
424,000 Kubota Corp 1,337,991
806,000 Kumagai Gumi Co Ltd * 845,365
403,000 Kurabo Industries Ltd 496,192
115,000 Kyowa Hakko Kogyo Co Ltd 870,537
327,200 Kyushu Electric Power Co Inc 5,222,308
1,000 Kyushu Matsushita Electric 9,759
452,000 Maeda Corp 1,772,630
110,000 Maeda Road Construction 707,283
102,000 Makita Corp 1,209,357
1,676,000 Marubeni Corp 3,958,995
120,000 Marudai Food Co Ltd 257,194
32,000 Maruichi Steel Tube 395,750
68,000 Matsushita Electric Industrial Co Ltd 1,339,596
67,000 Meidensha Corp 135,656
44,000 Misawa Homes 170,550
9,000 Mitsubishi Belting 24,461
2,389,000 Mitsubishi Electric Corp 12,070,829
179,000 Mitsubishi Gas Chemical Co Inc 514,251
3,351,000 Mitsubishi Heavy Industries 14,578,202
830,000 Mitsubishi Material 2,339,094
655,000 Mitsubishi Motors 3,554,426
102,000 Mitsubishi Paper Mills Ltd 183,264
275,000 Mitsubishi Steel Manufacturing 288,431
188,000 Mitsubishi Trust & Banking 1,971,818
40,000 Mitsui Engineering & Shipbuilding * 43,048
86,000 Mitsui Mining Co Ltd * 100,397
1,054,000 Mitsui Petrochemical Industries Ltd 7,690,273
2,737,000 Mitsui Trust & Banking Co Ltd 5,641,498
58,000 Mitsui-Soko 193,078
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
2,000 Mochida Pharmaceutical Co Ltd 14,228
23,000 MOS Food Services 360,591
49,000 Nagase & Co 234,621
208,000 Nagoya Railroad Co Ltd 620,329
200 Namco Ltd 7,533
38,000 National House Industrial 311,916
371,000 New Japan Securities Co Ltd* 1,177,509
122,000 New Oji Paper Co Ltd 845,638
106,000 Nichicon Corp 2,078,526
630,000 Nichii Co Ltd 3,792,239
78,000 Nichimen Corp 100,306
467,000 Nichirei 1,277,760
1,320,000 Nikko Securities 11,412,832
6,000 Nikon Corp 101,564
84,100 Nintendo Co Ltd 14,573,396
72,000 Nippon Chemical 219,326
239,000 Nippon Express Co Ltd 1,824,461
66,000 Nippon Hodo Co 421,962
44,000 Nippon Kayaku Co Ltd 252,816
326,000 Nippon Light Metal 448,958
150,000 Nippon Meat Packers Inc 2,052,077
112,000 Nippon Metal Industries 146,071
2,343,975 Nippon Oil Co Ltd 10,368,260
54,000 Nippon Paint Co 137,900
166,000 Nippon Paper Industries 1,090,063
421,000 Nippon Shinpan Co 1,459,072
232,000 Nippon Suisan Kaisha Ltd 454,923
35,000 Nippon Synthetic Chemical 77,249
2,100 Nippon Television Network 1,149,163
252,000 Nishimatsu Construction 1,459,437
2,337,000 Nissan Motor Co 13,598,486
271,000 Nisshin Oil Mills Ltd 1,072,680
588,000 Nisshin Steel Co Ltd 836,591
1,001,000 Nisshinbo Industries Inc 5,212,924
2,373,000 Nissho Iwai Corp 2,575,466
4,000 Nitto Denko Corp 110,539
4,036,000 NKK Corp 3,754,590
56,000 NOF Corp 136,367
163,000 Obayashi Corp 878,590
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
14,000 Odakyu Electric Railway 44,945
1,027,000 Oki Electric Industry 4,776,962
339,000 Okumura Corp 1,283,095
257,000 Omron Corp 5,238,679
34,000 Ono Pharmaceutical Co Ltd 1,110,128
650,000 Onoda Cement Co Ltd 1,701,400
144,000 Onward Kashiyama Co Ltd 2,198,513
214,000 Orient Corp 620,658
2,600 Orix Corp 249,934
64,000 Penta Ocean Construction 112,071
56,000 Promise Co 4,647,727
200,000 Q.P. Corp 1,404,533
900,000 Renown Inc * 1,231,246
58,500 Rinnai Corp 1,416,549
29,000 Rohm Co Ltd 5,765,881
166,000 Royal Co Ltd 2,161,959
83,000 Ryosan Co 2,127,138
290,000 Sagami Railway Co Ltd 785,535
3,434,000 Sakura Bank Ltd 18,165,169
106,000 Sankyo Co Ltd 2,948,607
5,000 Sanwa Bank Ltd 68,403
83,000 Sanwa Shutter Corp 405,746
554,000 Sanyo Electric Company 2,400,018
370,000 Sato Kogyo Co Ltd 266,588
4,500 Secom Co Ltd 613,571
636,000 Seino Transportation Co Ltd 4,048,776
553,000 Sekisui Chemical 3,076,565
893,000 Sekisui House Ltd 9,586,037
62,000 Sharp Corp 944,320
326,200 Shikoku Electric Power 5,236,098
478,000 Shimizu Corp 2,131,807
435,000 Shionogi and Co Ltd 3,729,308
15,300 Sho Bond Construction Co 376,761
923,000 Showa Denko 1,262,711
383,000 Showa Shell Sekiyu 2,577,901
86,000 Skylark Co Ltd 2,258,927
379,000 Snow Brand Milk Products Co Ltd 1,731,762
251,000 Stanley Electric Co Ltd 1,062,192
4,000 Sumitomo Bakelite Co Ltd 41,735
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
1,020,000 Sumitomo Corp 7,256,145
7,000 Sumitomo Electric 95,125
116,000 Sumitomo Forestry Co Ltd 918,309
701,000 Sumitomo Metal Industries 939,824
1,304,000 Sumitomo Trust & Banking 8,681,837
332,000 Suzuki Motor Corp 5,601,715
664,000 Taisei Corp 1,483,697
95,000 Taisho Pharmaceutical Co Ltd 3,994,254
123,000 Takara Standard Co 781,896
163,000 Takuma Corp 1,748,260
401,000 Tanabe Seiyaku Co Ltd 2,691,742
900 TDK Corp 109,171
15,000 Teijin Ltd 63,614
1,140,000 Teikoku Oil Co Ltd 4,200,465
33,000 TOA Corp 57,486
5,000 Toda Corp 27,452
318,000 Toei Co Ltd 1,183,310
276,200 Tohoku Electric Power Co Inc 4,383,127
449,000 Tokai Bank 2,850,144
98,000 Tokuyama Corp 404,889
27,000 Tokyo Broadcasting System Inc 437,092
315,000 Tokyo Construction Co Ltd * 278,672
264,000 Tokyo Electric Co Ltd 992,001
100 Tokyo Electric Power 2,326
145,000 Tokyo Ink Manufacturing Co Ltd 321,355
384,400 Tokyo Steel Manufacturing Co 1,795,000
71,000 Tokyo Style Co Ltd 764,102
93,000 Tokyu Department Store Co Ltd 117,899
522,000 Tomen Corp 533,212
129,000 Tostem Corp 2,647,180
2,000 Toto Limited 14,775
218,000 Toyo Seikan Kaisha 5,069,999
126,000 Toyo Suisan Kaisha 1,378,996
1,238,000 Toyobo Co Ltd 1,975,922
60,000 Tsugami Corp * 148,297
86,000 Tsumura and Co 360,801
36,000 Uniden Corp 387,761
90,000 Victor Co of Japan Ltd 685,394
92,000 Wacoal Corp 973,323
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
115,000 Yakult Honsha Co Ltd 1,667,655
53,000 Yamaha Corp 580,054
188,000 Yamazaki Baking Co Ltd 2,486,205
2,152,000 Yasuda Trust & Banking * 3,689,872
9,000 Yodogawa Steel Works 39,974
21,200 Yoshitomi Pharmaceutical Industries Ltd 298,728
-----------------
559,885,384
-----------------
Malaysia - 1.0%
212,000 Aluminum Co of Malaysia 92,053
1,151,000 Arab Malaysian Finance (Foreign Registered) 981,379
109,000 Carlsberg Brew Malaysia 321,263
627,000 Cement Industries of Malaysia Berhad 544,500
551,800 Edaran Otomobil Berhad 2,032,947
183,200 Esso Berhad 145,596
1,541,000 Golden Hope Plantations Berhad 1,265,242
1,096,000 Highlands and Lowlands Berhad 666,253
48,000 Jaya Tiasa Holdings Berhad 89,684
2,295,000 Kumpulan Guthrie Berhad 1,226,013
212,000 Malaysian International Shipping 387,737
1,143,600 Malaysian International Shipping (Foreign Registered) 1,745,495
59,000 Malaysian Oxygen Berhad 123,434
67,000 Malaysian Pacific Industries 239,789
42,710 Matsushita Electric Co Berhad 160,724
511,000 MBF Holdings Berhad * 27,567
75,000 Nestle Malaysia 290,132
1,864,600 Oriental Holdings Berhad 4,097,213
127,600 Pan Malaysia Cement 49,361
434,500 Perlis Plantations 455,082
2,740,000 Perusahaan Otomobil Nasional Berhad 5,443,947
49,000 Petaling Garden Berhad 30,561
264,000 Petronas Gas Berhad 590,526
751,000 Promet Berhad * 57,313
605,400 Shell Refinery Co 777,461
36,540 Silverstone * 433
1,298,000 Tan Chong Motor Holdings Berhad 771,968
581,000 UMW Holdings Berhad 1,253,737
234,000 Westmont Industries Berhad (c) * 616
-----------------
23,868,026
-----------------
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Netherlands - 0.3%
9,000 ASR Verzekeringsgroep NV 586,536
7,100 Gamma Holdings NV 326,223
24,800 Hoogovens & Staalf CVA 1,434,176
15,300 KLM-Konin Luchtvaart Mij NV 420,176
62,600 Kon Bolswessanen 767,007
54,950 Koninklijke Pakhoed 1,413,297
27,100 Koninklijke Volker Wessels 542,432
27,200 Nedlloyd 775,710
45,700 Stork NV 987,134
18,800 VIB NV 530,195
4,200 Wereldhave NV 206,507
-----------------
7,989,393
-----------------
New Zealand - 0.2%
224,600 Air New Zealand Class B 406,414
3,300,200 Brierley Investment Ltd * 784,854
902,200 Carter Holt Harvey Ltd 1,068,142
23,200 Fisher and Paykel Industries Ltd 68,368
108,400 Fletcher Challenge Energy 281,794
62,800 Fletcher Challenge Energy 160,715
524,900 Lion Nathan Ltd 1,166,905
3,800 Wharehouse Group Ltd 14,538
-----------------
3,951,730
-----------------
Norway - 0.8%
39,400 Aker RGI ASA Class A 604,995
89,400 Bergesen d.y. ASA Class A 1,338,579
25,600 Bergesen d.y. ASA Class B 373,520
701,000 Christiania Bank OG Kreditkasse 2,974,616
1,114,637 Den Norske Bank Class A 4,445,765
17,300 Dyno Industrier AS 365,951
58,400 Elkem AS Class A 1,041,860
91,500 Fred Olsen Energy * 880,312
115,100 Kvaerner Industrier AS 2,552,074
9,900 Leif Hoegh and Co AS 114,801
24,300 Norsk Hydro AS 1,012,565
35,850 Norske Skogindustrier AS Class A 1,498,414
42,600 Petroleum Geo-Services * 852,271
65,500 SAS Norge ASA Class B 625,996
-----------------
18,681,719
-----------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Portugal - 0.3%
67,532 Banco Espirito Santo e Commercial de Lisboa (Registered) 1,712,650
16,933 Cimpor Cimentos de Portugal SA (Registered) 289,208
258,615 Electricidade de Portugal 4,370,594
-----------------
6,372,452
-----------------
Singapore - 5.2%
558,461 Asia Food & Properties Ltd * 326,700
356,000 Cerebos Pacific Ltd 828,546
3,648,000 Comfort Group 1,841,002
442,950 Creative Technology Ltd 4,391,893
314,000 Cycle & Carriage Ltd 1,771,062
166,048 DBS Bank Ltd 1,902,705
4,030,096 DBS Land Ltd 9,188,131
1,018,700 Development Bank of Singapore (Foreign Registered) 11,673,045
479,309 First Capital Corp Ltd 665,905
128,000 Fraser & Neave 486,374
889,000 Goldtron * 139,871
1,138,037 Hai Sun Hup Group Ltd 506,755
1,067,203 Haw Par Brothers International Ltd 1,774,131
1,901,104 Hotel Properties Ltd 1,749,517
11,000 Inchcape Berhad 14,890
481,000 Keppel Bank Ltd 1,022,371
1,095,000 Keppel Corp 3,543,163
1,405,000 Keppel Land Ltd 2,160,512
27,000 Marco Polo Developments Ltd 40,397
37,600 Metro Holdings Ltd 46,434
412,000 Natsteel Ltd 875,711
2,343,556 Neptune Orient Lines Ltd * 3,033,279
1,177,000 Overseas Chinese Banking (Foreign Registered) 8,245,918
2,327,300 Overseas Union Bank Ltd (Foreign Registered) 12,159,497
208,508 Prima Ltd 455,566
694,308 Robinson and Co Ltd 2,184,784
375,699 Shangri-La Hotel Ltd 838,703
3,315,000 Singapore Airlines Ltd (Foreign Registered) 31,097,192
757,000 Singapore Land Ltd 1,833,735
593,789 Singapore Press Holdings 9,871,218
1,285,000 Singapore Telecom 2,281,155
1,990,168 Straits Trading Co Ltd 2,363,199
558,000 Times Publishing Ltd 1,093,273
43,000 United Engineers 44,167
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Singapore - continued
5,039,960 United Industrial Corp Ltd 2,887,586
1,136,000 United Overseas Land 1,058,909
156,900 Wearne Brothers Ltd 196,556
3,083,000 Wing Tai Holdings 3,313,086
-----------------
127,906,938
-----------------
Spain - 1.5%
50,400 Aceralia SA 689,926
148,569 Acerinox SA 4,921,200
27,400 Aumar-Autopistas del Mare 561,460
45,294 Banco Popular Espanol 3,317,828
8,100 Compania Espanola de Petroleos 97,705
31,600 Corporacion Mapfre (Registered) 595,788
6,620 Cristaleria Espanola SA 334,935
7,500 Endesa 150,516
115,956 FENOSA SA 1,653,460
200 Fomento de Construcciones y Contratas SA 11,862
94,800 Grupo Dragados SA 1,164,541
29,500 Hidro Cantabrico 417,224
4,600 Iberdrola SA 66,079
1,168,353 Repsol SA 24,471,665
-----------------
38,454,189
-----------------
Sweden - 3.2%
324,634 Assi Doman 6,269,418
913,758 Avesta Sheffield AB 4,502,960
5,100 Custos AB Class B 115,165
31,600 Drott AB Class B 273,568
53,788 Esselte AB Class A 442,860
39,300 Esselte AB Class B 330,712
176,900 Foreningssparbanken AB Class A 2,655,963
168,282 Gambro AB Class A 1,742,113
104,851 Gambro AB Class B 1,085,454
37,596 Industrivarden AB Class A 641,850
2,400 Investor AB 29,205
577,223 Mo Och Domsjo AB Class B 17,612,325
202,600 Nordbanken Holdings AB 1,140,683
19,200 Perstorp AB Class B 216,201
22,600 Scancem AB Class A 1,080,881
441,500 Skandinaviska Enskilda Banken Class A 4,570,559
187,946 Skanska AB Class B 7,350,352
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sweden - continued
148,000 SKF AB Class B 3,368,931
299,300 Ssab Swedish Steel Class A 4,167,514
73,600 Ssab Swedish Steel Class B 1,006,998
262,763 Stena Line AB Class B 321,335
340,377 Svenska Cellulosa Class B 9,891,086
119,600 Svenska Handelsbanken Class A 1,658,094
3,600 Svenska Handelsbanken Class B 46,204
124,400 Svenska Kullagerfabriken AB 2,650,975
419,882 Trelleborg AB Class B 3,762,110
72,500 Volvo AB Class A 2,040,955
31,700 Volvo AB Class B 886,633
-----------------
79,861,104
-----------------
Switzerland - 0.7%
420 Ascom Holding AG (Bearer) 790,047
1,860 Baloise Holdings 1,555,422
3,000 BK Vision AG (Bearer) * 639,562
17,420 CIBA Specialty Chemicals Holdings (Registered) 1,379,711
3,882 CS Holdings (Registered) 732,791
10 Financiere Richemont AG Class A 19,009
3,730 Fischer (Georg) AG (Registered) 1,144,776
400 Helvetia Patria Holding 327,371
560 Holderbank Financiere Glarus AG (Bearer) 689,327
1,050 Jelmoli (Bearer) 1,063,791
6,220 Merkur Holding AG (Registered) 1,568,240
4,000 Oerlikon-Buhrle (Registered) 580,820
460 Pargesa Holdings SA (Bearer) 728,665
1,270 Pharma Vision * 880,140
1,140 Rieter Holdings AG (Registered) 718,566
6,040 SAirGroup (Registered) 1,269,712
460 Saurer Group Holdings (Registered) * 215,260
240 Schindler-Holding AG (Participant Certificates) 365,600
680 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 421,438
1,130 Sika Finanz AG (Bearer) 340,469
1,950 Sulzer Gebrueder AG (Registered) * 1,223,979
115 Swiss Reinsurance (Bearer) 224,292
2,298 UBS AG (Registered) 648,403
1,660 Zurich Allied 974,022
-----------------
18,501,413
-----------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - 18.5%
29,200 3i Group Plc 387,355
65,300 Abbey National 1,121,391
355,987 Allied Domecq Plc 3,288,491
428,200 Allied Zurich Plc 5,236,226
626,280 AMEC 2,703,867
258,300 Anglian Water Plc 3,073,468
55,330 Arcadia Group 205,071
834,000 Arjo Wiggins Appleton Plc 2,903,331
927,357 Associated British Food 6,359,728
48,800 BAA 510,042
175,070 Barclays Plc 5,207,820
729,721 Barratt Development 3,801,670
688,084 Bass Plc 9,255,075
774,000 Beazer Holmes Plc 2,296,201
3,213,985 BG Plc 19,340,967
79,000 Blue Circle Industries 544,315
4,400 BPB Industries Plc 26,708
2,079,744 British Airways Plc 13,618,946
457,844 British Energy Plc 3,813,466
511,082 British Energy Plc Class A * 464,314
1,201,711 British Steel Plc 3,154,465
7,200 British Telecom Plc 110,331
281,125 BTR Siebe Plc 1,435,211
55,096 Cable & Wireless 632,544
554,828 Carillion Plc * 1,231,147
3,000,307 Centrica Plc 7,996,350
174,100 Christian Salvesen Plc 373,725
1,905,093 Coats Viyella 1,615,888
259,400 Commercial Union Plc 3,864,452
29,700 Courtaulds Textiles Plc 80,708
218,500 Dawson International 126,481
839,140 Elementis Plc 1,578,675
1,902,500 Eurotunnel SA Units (Registered) * 2,921,464
143,100 First Leisure Plc 566,040
13,000 Great Portland Estates Plc 47,137
37,400 Great Universal Stores Plc 377,061
364,278 Greenalls Group Plc 2,205,314
522,200 Halifax Group Plc 5,831,519
151,900 Hammerson Plc 1,215,132
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
1,600 Hanson Plc 13,610
37,300 Hazlewood Foods 78,569
1,371,330 HSBC Holdings Plc 16,967,706
270,485 Hyder Plc 2,444,286
271,999 Inchcape Plc 1,694,773
72,200 Johnson Matthey 711,076
357,400 Kingfisher Plc 4,301,490
19,746 Laing (John) 107,634
97,600 Laird Group 479,439
430,420 Land Securities 6,052,361
1,800 Laporte Plc 19,696
16,200 Laporte Plc Class B * 260
161,908 Legal & General Group Plc 444,531
738,611 Lonrho Africa Plc 558,195
1,065,481 Lonrho Plc 9,765,469
1,355,000 Marks & Spencer 9,052,799
22,060 Meggitt 75,199
755,264 MEPC Plc 6,357,524
51,700 Meyer International 374,090
63,800 MFI Furniture Group 48,216
2,379,925 National Power 16,933,592
22,900 National Westminster Bank 470,954
1,506,400 Northern Foods Plc 3,185,214
552,500 Norwich Union Plc 3,775,668
1,115,600 Peninsular & Oriental Steam Navigation Co 18,306,025
344,032 Pilkington 597,441
1,588,037 Powergen Plc 15,869,904
494,322 Railtrack Group Plc 9,466,605
488,519 Reuters Holdings Plc 7,159,961
716,180 Rio Tinto Plc 12,897,714
247,182 RMC Group 4,052,067
721,839 Royal Bank of Scotland Group 14,995,999
137,411 Royal & Sun Alliance Insurance Group 1,144,521
1,953,200 Safeway Plc 8,102,872
2,405,500 Sainsbury (J) 16,593,393
1,211,988 Scottish Hydro-Electric Plc 11,127,740
2,223,705 Scottish Power Plc 20,470,347
189,190 Selfridges Plc 825,925
632,715 Severn Trent Plc 9,207,235
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
2,100 Shell Transport & Trading (Registered) 16,748
2,766,924 Signet Group Plc 2,358,010
392,100 Slough Estates 2,294,937
89,700 Southwest Water 1,546,900
405,500 Storehouse Plc 746,567
554,828 Tarmac Plc * 4,514,207
203,500 Tate & Lyle 1,318,688
1,349,091 Taylor Woodrow Plc 4,002,305
87,600 Telewest Communications Plc * 340,520
2,817,900 Tesco 8,348,445
731,787 Thames Water Plc 10,519,492
337,156 Thistle Hotels Plc 924,332
558,354 TI Group Plc 4,504,738
21,800 Transport Development Group Plc 91,314
125,100 Unigate 766,399
1,259,336 Unilever Plc 11,886,440
2,086,550 United Biscuits Plc 6,508,832
1,459,095 United Utilities 17,326,331
4,200 Vodafone Group Plc 84,688
825,094 Whitbread Plc Class A 11,396,438
107,400 Wilson (Connolly) Holdings 306,532
2,077,200 Wimpey (George) 5,076,851
526,700 Woolwich Plc 2,847,726
1,201,643 Yorkshire Water 7,941,267
-----------------
459,920,903
-----------------
United States - 0.0%
43,712 Homestake Mining Co 364,849
-----------------
Zimbabwe - 0.0%
77,171 Zimbabwe Platinum Mines Ltd * 27,043
-----------------
TOTAL COMMON STOCKS (Cost $2,156,646,178) 2,304,248,825
-----------------
PREFERRED STOCKS - 0.8%
Austria - 0.0%
3,288 Allgemeine Baugesellschaft AG 197,958
1,304 Bau Holdings AG (Non Voting) 44,351
-----------------
242,309
-----------------
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - 0.5%
7,250 Fresenius Medical Care AG (Non Voting) 1,209,934
60,100 Henkel KGAA 4,348,423
550 Hugo Boss 65,355
31,500 MAN AG 680,410
1,116 Porsche AG (Non Voting) 2,811,378
121,900 RWE 3,888,458
400 Villeroy & Boch (Non-Voting) 37,603
15,100 Volkswagen AG 521,545
-----------------
13,563,106
-----------------
Italy - 0.3%
268,170 Fiat SPA 4,209,163
72,700 IFI-Istituto Finanziario 1,912,055
115,000 Compagnia Assicuratrice Unipol 256,906
-----------------
6,378,124
-----------------
TOTAL PREFERRED STOCKS (Cost $19,648,895) 20,183,539
-----------------
RIGHTS & WARRANTS - 0.0%
France - 0.0%
1,096,728 Eurotunnel SA Paris Warrants 10/31/01 * 46,337
1,096,728 Eurotunnel SA Paris Warrants 10/31/03 * 127,426
24,647 Generale Des Eaux Warrants 5/02/01 * 56,753
-----------------
230,516
-----------------
Hong Kong - 0.0%
206,725 Century City International Warrants 12/31/99 * 1,225
104,212 Chinese Estates Holdings Ltd Warrants 11/24/99 * 3,825
104,212 Chinese Estates Holdings Ltd Warrants 11/24/00 * 6,039
225 Denway Investment Warrants 11/30/99 * 2
293,200 Gold Peak Industries Ltd Warrants 8/06/00 * 3,776
323,924 Kumagai Gumi Warrants 12/31/99 * 23,778
-----------------
38,645
-----------------
Malaysia - 0.0%
7,942,500 Malayan Cement Berhad Rights 12/31/49 * 135,859
44,875 YTL Corp Berhad Rights 12/31/49 * 1,771
-----------------
137,630
-----------------
Singapore - 0.0%
101,959 Asia Food & Properties Ltd Warrants 7/12/02 * 47,921
139,475 Haw Par Brothers International Ltd Warrants 7/18/01 * 81,153
-----------------
129,074
-----------------
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - 0.0%
4,622,000 Eurotunnel SA Warrants 10/31/03 * 445,917
-----------------
TOTAL RIGHTS & WARRANTS (Cost $1,263,962) 981,782
-----------------
SHORT-TERM INVESTMENTS - 10.3%
Cash Equivalents - 9.5%
$ 100,000,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 100,000,000
110,574,535 The Boston Global Investment Trust (b) 110,574,535
$ 26,300,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 26,300,000
-----------------
236,874,535
-----------------
U.S. Government - 0.8%
$ 20,000,000 U. S. Treasury Bill, 4.61% due 1/06/00 (a) 19,661,333
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $256,563,240) 256,535,868
-----------------
TOTAL INVESTMENTS - 104.0%
(Cost $2,434,122,275) 2,581,950,014
Other Assets and Liabilities (net) - (4.0%) (98,608,652)
-----------------
TOTAL NET ASSETS - 100.0% $ 2,483,341,362
=================
</TABLE>
Notes to the Schedule of Investments
ADR American Depositary Receipt
SDR Swedish Depository Receipt
(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.
See accompanying notes to the financial statements. 25
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of the
Fund's equity investments was as follows:
Industry Sector
Banking 15.1%
Utilities 9.0
Construction 5.7
Electronic Equipment 5.3
Transportation 5.0
Consumer Goods 4.9
Conglomerates 4.9
Automotive 4.8
Chemicals 4.5
Metals and Mining 4.5
Services 3.7
Real Estate 3.4
Retail Trade 3.4
Machinery 3.3
Oil and Gas 3.1
Financial Services 3.0
Food and Beverage 2.7
Paper and Allied Products 2.4
Insurance 1.9
Communications 1.8
Health Care 1.4
Telecommunications 1.2
Textiles 0.9
Aerospace 0.4
Computers 0.1
Miscellaneous 3.6
=========
100.0%
=========
26 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $2,434,122,275) (Note 1) $ 2,581,950,014
Foreign currency, at value (cost $8,742,904) (Note 1) 8,739,182
Cash 58,228
Receivable for Fund shares sold 77,771
Receivable for investments sold 11,780,440
Dividends and interest receivable 3,292,612
Foreign withholding taxes receivable 2,358,461
Receivable for expenses waived or borne by Manager (Note 2) 142,842
----------------
Total assets 2,608,399,550
----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 110,574,535
Payable for investments purchased 2,444,840
Accrued Malaysian repatriation taxes (Note 1) 1,944,438
Net payable for open forward foreign currency contracts (Notes 1 and 5) 5,635,951
Payable for variation margin on open futures contracts (Notes 1 and 5) 2,167,669
Payable for Fund shares repurchased 324,598
Payable to affiliate for (Note 2):
Management fee 1,130,224
Shareholder service fee 294,592
Accrued expenses 541,341
----------------
Total liabilities 125,058,188
----------------
Net assets $ 2,483,341,362
================
Net assets consist of:
Paid-in capital $ 2,337,953,470
Accumulated undistributed net investment income 46,841,842
Accumulated net realized loss (47,263,489)
Net unrealized appreciation 145,809,539
----------------
$ 2,483,341,362
================
Net assets attributable to:
Class II Shares $ 29,559,959
================
Class III Shares $ 2,036,009,668
================
Class IV Shares $ 417,771,735
================
Shares outstanding:
Class II 1,279,353
================
Class III 87,872,308
================
Class IV 18,038,012
================
Net asset value per share:
Class II $ 23.11
================
Class III $ 23.17
================
Class IV $ 23.16
================
</TABLE>
See accompanying notes to the financial statements. 27
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $4,684,839) $ 46,292,255
Interest (including securities lending income of $383,770) 4,711,086
----------------
Total income 51,003,341
----------------
Expenses:
Management fee (Note 2) 6,883,046
Custodian fees 966,066
Legal fees 41,315
Audit fees 37,728
Transfer agent fees 27,325
Trustees fees (Note 2) 14,356
Registration fees 819
Miscellaneous 8,195
Fees waived or borne by Manager (Note 2) (1,095,804)
----------------
6,883,046
Shareholder service fee (Note 2)
Class II 23,694
Class III 1,529,237
Class IV 219,944
----------------
Net expenses 8,655,921
----------------
Net investment income 42,347,420
----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 14,296,899
Closed futures contracts (2,456,045)
Foreign currency, forward contracts and foreign
currency related transactions (35,625,843)
----------------
Net realized loss (23,784,989)
----------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 346,097,669
Open futures contracts 5,457,344
Foreign currency, forward contracts and foreign
currency related transactions 7,400,330
----------------
Net unrealized gain 358,955,343
----------------
Net realized and unrealized gain 335,170,354
----------------
Net increase in net assets resulting from operations $ 377,517,774
================
</TABLE>
28 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
--------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 42,347,420 $ 61,654,740
Net realized gain (loss) (23,784,989) 328,403,926
Change in net unrealized appreciation (depreciation) 358,955,343 (400,000,792)
--------------------- --------------------
Net increase (decrease) in net assets resulting from
operations 377,517,774 (9,942,126)
--------------------- --------------------
Distributions to shareholders from:
Net investment income
Class II - (178,442)
Class III - (24,881,986)
Class IV - (7,130,973)
--------------------- --------------------
Total distributions from net investment income - (32,191,401)
--------------------- --------------------
In excess of net investment income
Class II - (173,986)
Class III - (24,260,672)
Class IV - (6,952,911)
--------------------- --------------------
Total distributions in excess of net investment income - (31,387,569)
--------------------- --------------------
Net realized gains
Class II (463,070) (1,663,218)
Class III (41,355,298) (244,048,618)
Class IV (7,026,513) (68,183,244)
--------------------- --------------------
Total distributions from net realized gains (48,844,881) (313,895,080)
--------------------- --------------------
Net share transactions: (Note 4)
Class II 8,630,641 8,149,764
Class III (221,446,367) (758,532,071)
Class IV (216,477,387) (20,202,197)
--------------------- --------------------
Decrease in net assets from net fund share transactions (429,293,113) (770,584,504)
--------------------- --------------------
Total decrease in net assets (100,620,220) (1,158,000,680)
Net assets:
Beginning of period 2,583,961,582 3,741,962,262
--------------------- --------------------
End of period (including accumulated undistributed
net investment income of $46,841,842 and
of $4,494,422, respectively) $ 2,483,341,362 $ 2,583,961,582
===================== ====================
</TABLE>
See accompanying notes to the financial statements. 29
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
September 26, 1996
Six Months Ended (commencement of
August 31,1999 Year Ended Year Ended operations) to
(Unaudited) February 28, 1999 February 28, 1998 February 28, 1997
----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.33 $ 23.16 $ 24.36 $ 24.60
----------------- ----------------- ----------------- --------------------
Income (loss) from investment operations:
Net investment income 0.35 (c) 0.39 (c) 0.52 (c) 0.14
Net realized and unrealized gain (loss) 2.90 (0.46) 1.94 0.96
----------------- ----------------- ----------------- --------------------
Total from investment operations 3.25 (0.07) 2.46 1.10
----------------- ----------------- ----------------- --------------------
Less distributions to shareholders:
From net investment income - (0.24) (0.74) (0.27)
In excess of net investment income - (0.24) - -
From net realized gains (0.47) (2.28) (2.92) (1.07)
----------------- ----------------- ----------------- -------------------
Total distributions (0.47) (2.76) (3.66) (1.34)
----------------- ----------------- ----------------- -------------------
Net asset value, end of period $ 23.11 $ 20.33 $ 23.16 $ 24.36
================= ================= ================= ===================
Total Return (a) 16.06% (0.76%) 11.60% 4.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 29,560 $ 18,295 $ 12,500 $ 25,302
Net expenses to average
daily net assets 0.76% * 0.76% 0.76% 0.80% * (b)
Net investment income to average
daily net assets 3.13% * 1.71% 2.14% 0.98% *
Portfolio turnover rate 27% 60% 68% 97%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.01 $ 0.06 $ 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 approximate .04% of average daily net assets.
(c) Computed using average shares outstanding throughout the period.
30 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, 1999 ---------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.38 $ 23.20 $ 24.37 $ 24.62 $ 22.32 $ 25.56
-------------- ----------- ----------- ----------- ----------- -----------
Income (loss) from investment
operations:
Net investment income 0.36 (c) 0.42 (c) 0.54 (c) 0.59 0.36 0.27
Net realized and unrealized gain
(loss) 2.90 (0.47) 1.96 1.02 3.09 (1.57)
-------------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 3.26 (0.05) 2.50 1.61 3.45 (1.30)
-------------- ----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income - (0.25) (0.75) (0.33) (0.39) (0.35)
In excess of net investment income - (0.24) - - - -
From net realized gains (0.47) (2.28) (2.92) (1.53) (0.76) (1.59)
-------------- ----------- ----------- ----------- ----------- -----------
Total distributions (0.47) (2.77) (3.67) (1.86) (1.15) (1.94)
-------------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 23.17 $ 20.38 $ 23.20 $ 24.37 $ 24.62 $ 22.32
============== =========== =========== =========== =========== ===========
Total Return (a) 16.06% (0.68%) 11.71% 6.72% 15.72% (5.31%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,036,010 $ 1,998,447 $ 3,046,510 $ 4,232,937 $ 4,538,036 $ 2,591,646
Net expenses to average
daily net assets 0.69% * 0.69% 0.69% 0.71% (b) 0.71% (b) 0.70% (b)
Net investment income to average
daily net assets 3.27% * 1.84% 2.19% 2.34% 1.93% 1.48%
Portfolio turnover rate 27% 60% 68% 97% 14% 53%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.01 $ 0.06 $ 0.07 $ 0.06 $ 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 approximate .02% of average daily net assets.
(c) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 31
<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, 1999 Year Ended (commencement of operations)
(Unaudited) February 28, 1999 to February 28, 1998
---------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 20.37 $ 23.19 $ 20.61
--------------- ---------------- --------------
Income (loss) from investment operations:
Net investment income 0.39 (b) 0.42 (b) 0.02 (b)
Net realized and unrealized gain (loss) 2.87 (0.46) 2.56
--------------- ---------------- --------------
Total from investment operations 3.26 (0.04) 2.58
--------------- ---------------- --------------
Less distributions to shareholders:
From net investment income - (0.25) -
In excess of net investment income - (0.25) -
From net realized gains (0.47) (2.28) -
--------------- ---------------- --------------
Total distributions (0.47) (2.78) -
--------------- ---------------- --------------
Net asset value, end of period $ 23.16 $ 20.37 $ 23.19
=============== ================ ==============
Total Return (a) 16.07% (0.60%) 12.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 417,772 $ 567,219 $ 682,952
Net expenses to average
daily net assets 0.63% * 0.63% 0.63% *
Net investment income to average
daily net assets 3.53% * 1.85% 0.68% *
Portfolio turnover rate 27% 60% 68%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.01 $ 0.06 $ 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.
32 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in equity securities of
non-U.S. issuers. The Fund's current benchmark is the MSCI EAFE Index.
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. 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
33
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
represent gains and losses on disposition of foreign currencies and forward
foreign exchange contracts, 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 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 and agency, in a segregated account in the name of the futures
broker, an amount of cash or U.S. government and agency 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, 1999.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 5 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1999.
34
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into 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 will be 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, 1999, there were no open swap agreements.
35
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1999, the Fund loaned securities having a market
value of $101,666,047 collateralized by cash in the amount of $110,574,535
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.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $1,944,438 for potential
repatriation tax on principal invested prior to February 15, 1999.
Effective September 1, 1999, the Malaysian government exempted funds
invested prior to February 15, 1999 from all levies, and such funds may now
be freely repatriated. Accordingly, effective September 1, 1999 no accrual
for potential Malaysian repatriation taxes 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 dividends 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.
36
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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.
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 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 period
ended August 31, 1999, the fund received $488,684 in purchase premiums.
There is no premium for cash redemptions or reinvested distributions. While
no purchase premium is normally charged with respect to in-kind purchases
of Fund shares, a 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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .54% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
37
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $14,356. 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, 1999,
aggregated $642,119,197 and $1,071,988,599, respectively.
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$2,434,122,275 $312,915,728 $165,087,989 $147,827,739
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>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
----------------------------- -------------------------------
Class II: Shares Amount Shares Amount
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 362,180 $ 8,246,226 885,462 $ 19,191,959
Shares issued to
shareholders in
reinvestment of
distributions 17,499 391,803 73,790 1,596,701
Shares repurchased
(342) (7,388) (598,960) (12,638,896)
------------- -------------- -------------- ---------------
Net increase 379,337 $ 8,630,641 360,292 $ 8,149,764
============= ============= ============== ===============
</TABLE>
38
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
--------------------------------- ------------------------------------
Class III: Shares Amount Shares Amount
--------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 5,056,193 $ 112,090,675 11,023,810 $ 257,852,698
Shares issued to
shareholders in
reinvestment of
distributions 1,836,572 41,231,031 12,569,888 274,662,387
Shares repurchased (17,083,941) (374,768,073) (56,861,371) (1,291,047,156)
-------------- --------------- -------------- -----------------
Net decrease (10,191,176) $ (221,446,367) (33,267,673) $ (758,532,071)
============== =============== ============== =================
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
--------------------------------- ------------------------------------
Class IV: Shares Amount Shares Amount
--------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 5,114,794 $ 114,499,367 6,658,423 $ 166,390,526
Shares issued to
shareholders in
reinvestment of
distributions 313,124 7,026,513 3,674,092 80,195,331
Shares repurchased (15,239,721) (338,003,267) (11,932,488) (266,788,054)
--------------- --------------- --------------- -----------------
Net decrease (9,811,803) $ (216,477,387) (1,599,973) $ (20,202,197)
=============== =============== =============== =================
</TABLE>
39
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 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
10/08/99 AUD 116,079,325 $ 74,004,980 $ (1,589,812)
10/08/99 CAD 107,141,992 71,847,384 568,168
03/03/00 CHF 35,820,360 24,165,365 102,167
03/03/00 EUR 340,056,468 364,315,473 (26,555)
03/03/00 GBP 41,417,378 66,735,089 123,483
10/08/99 HKD 124,296,800 15,990,943 (9,057)
10/08/99 JPY 20,403,239,302 187,124,051 12,765,467
03/03/00 NOK 618,357,845 78,727,907 (560,340)
03/03/00 SEK 396,905,468 48,617,686 (197,276)
10/08/99 SGD 47,591,020 28,346,548 461,937
--------------
$ 11,638,182
==============
Sales
10/08/99 AUD 219,035,337 $ 139,643,351 $ (513,289)
10/08/99 CAD 40,562,905 27,200,713 199,287
03/03/00 CHF 17,940,022 12,102,814 736
03/03/00 EUR 69,679,452 74,650,256 (187,253)
03/03/00 GBP 49,247,133 79,351,036 (121,555)
10/08/99 HKD 882,767,002 113,569,108 (259,666)
10/08/99 JPY 27,137,192,235 248,883,095 (16,688,115)
03/03/00 NOK 533,012,687 67,861,956 750,311
03/03/00 SEK 294,018,128 36,014,825 (186,032)
10/08/99 SGD 47,591,020 28,346,548 (268,557)
--------------
$ (17,274,133)
==============
</TABLE>
40
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Currency Abbreviations:
AUD Australian Dollar HKD Hong Kong Dollar
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc NOK Norwegian Kroner
EUR Euro SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------ -------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Buys
445 HANG SENG September 1999 $ 38,997,637 $ (407,903)
1,067 TOPIX September 1999 142,905,696 6,148,386
--------------
$ 5,740,483
==============
Sales
363 ALL ORDS September 1999 $ 17,086,214 $ 244,523
54 DAX September 1999 7,541,067 13,460
40 FTSE 100 September 1999 4,009,905 (30,160)
32 IBEX 35 September 1999 3,319,834 (67,096)
371 MATIF CAC 40 September 1999 18,033,792 (587,119)
9 MIB 30 September 1999 1,603,514 11,071
303 OMX September 1999 3,080,812 13,819
147 TSE 35 September 1999 19,569,461 208,276
--------------
$ (193,226)
==============
</TABLE>
At August 31, 1999, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
41
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 74.6%
China - 9.7%
2,024,000 Beijing Datang Power Generation Co Ltd Class H 540,852
710,000 China Merchants Holdings Co Ltd 598,894
4,324,000 China Overseas Land & Investment Ltd 517,868
558,000 China Resources Enterprise 916,209
1,306,000 China Telecom Ltd * 4,053,315
452,000 Cosco Pacific Ltd 395,820
1,162,000 Guangdong Electric Power Development Co Ltd Class B 619,522
2,736,000 Guangdong Investment Ltd 560,226
5,339,000 Guangshen Railway Co Class H 687,559
10,000 Huaneng Power International ADR 125,000
1,306,000 Huaneng Power International Inc Class H 420,468
2,460,000 Qingling Motor Co Ltd Class H 548,064
602,474 Shanghai Chlor-Alkali Chemical Class B * 87,961
181,000 Shanghai Industrial Holdings 432,387
3,100,000 Shanghai Petrochemical Co Class H 666,697
1,632,000 Yizheng Chemical Fibre Co Class H * 483,391
-----------------
11,654,233
-----------------
Indonesia - 14.9%
3,897,500 Astra International * 1,371,107
2,642,000 Gudang Garam 6,368,339
50,820 Gulf Resources Ltd ADR * 524,082
1,131,000 HM Sampoerna * 2,350,417
5,953,500 Indah Kiat Pulp & Paper * 2,171,961
1,202,500 International Nickel * 877,394
2,150,000 Kalbe Farma * 882,410
7,528,000 Matahari Putra Prima Tbk * 760,156
76,500 PT Indofood Sukses Makmur Tbk * 81,733
404,000 PT Indosat (Persero) Tbk 627,713
2,140,000 PT Pabrik Kertas Tjiwi Kimia * 613,420
580,000 Semen Gresik 1,133,550
500 Tambang Timah Persero (Foreign Registered) 329
54,000 Telekomunikasi Indonesia ADR Class B 415,125
-----------------
18,177,736
-----------------
Korea - 13.1%
4,730 Cheil Jedang Corp 374,634
105,840 Daewoo Corp 165,865
117,840 Hanwha Corp * 763,639
27,000 Hanwha Energy Co Ltd * 203,558
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
Korea - continued
23,200 Housing & Commercial Bank 542,414
60,760 Hyundai Cement Co 813,222
17,000 Hyundai Heavy Industries 953,325
14,800 Hyundai Securities Co 349,784
9,400 Korea Chemical 738,941
36,880 Korea Telecommunications * 2,311,834
34,900 Korean Air Lines 694,748
13,010 LG Electronics Co 551,038
6,390 Lotte Confectionery Co 882,313
9,150 Pohang Iron & Steel (b) 1,236,897
8,000 Pohang Iron & Steel ADR 294,000
8,729 Samsung Electronics GDR (1/2 Voting) 811,361
10,300 Samsung Securities 403,973
43,700 SK Corporation 1,055,019
271 SK Telecom (b) 271,115
42,230 SK Telecom ADR 477,727
224,000 Ssangyong Motor Co * 354,833
32,500 Ssangyong Oil Refining 806,650
53,500 Tai Han Electric Wire 738,712
-----------------
15,795,602
-----------------
Malaysia - 13.6%
2,699,000 Arab Malaysian Corp * 1,370,808
227,000 Berjaya Sports Toto 525,684
65,000 Carlsberg Brew Malaysia 191,579
213,000 Edaran Otomobil Berhad 784,737
395,000 Genting Berhad 1,455,263
699,000 Golden Hope Plantations Berhad 573,916
272,000 Guinness Anchor Berhad 303,495
1,575,000 Kumpulan Guthrie Berhad 841,382
645,000 Magnum Corp Berhad 566,921
1,573,000 Malaysian International Shipping (Foreign Registered) 2,400,895
26,000 Nestle Malaysia 100,579
203,000 Nylex (Malaysia) Berhad 137,292
383,600 Rothmans of Pall Mall Berhad 2,675,105
214,000 Sime Darby Berhad 281,579
8,594,000 Tan Chong International Ltd 2,379,490
3,118,000 Tan Chong Motor Holdings Berhad 1,854,389
-----------------
16,443,114
-----------------
Phillippines - 8.8%
11,509,170 Aboitiz Equity Ventures Inc 702,009
3,735,200 Ayala Corp 1,012,058
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Phillippines - continued
191,275 Equitable Banking Corp 409,789
3,936,000 Filinvest Land * 312,499
4,493,500 International Container Terminal * 481,345
263,557 Ionics Circuits Inc 93,001
41,800 La Tondena Distillers Inc 42,142
82,000 Metropolitan Bank & Trust Co 676,875
6,655,000 Petron Corp 595,469
72,840 Philippine Commercial International Bank 468,159
84,570 Philippine Long Distance Telephone 2,003,675
176,000 Philippine National Bank * 581,122
5,655,000 Robinsons Land Corp Class B 427,599
719,650 San Miguel Corp Class B 1,169,941
640,000 Security Bank Corp * 516,194
6,168,000 SM Prime Holdings 1,134,881
-----------------
10,626,758
-----------------
Singapore - 0.6%
123,500 Cycle & Carriage Ltd 696,580
-----------------
Thailand - 13.9%
40,000 ABN Amro Asia Securities Pcl (Foreign Registered)* 94,903
128,500 Advanced Info Service Public Co Ltd (Foreign Registered) 1,762,247
157,600 Ban Pu Coal Public Co Ltd (Foreign Registered) * 330,773
1,187,500 Bangkok Bank Pcl (Foreign Registered) * 3,018,674
50,200 Bangkok Insurance (Foreign Registered) 191,089
1,190,700 Bank of Ayudhya Pcl (Foreign Registered) * 535,512
64,600 BEC World Public Co Ltd (Foreign Registered) 400,855
306,500 CP Feedmill Public Co Ltd (Foreign Registered) (b) 934,963
222,432 Delta Electronics Public Co Ltd (Foreign Registered) 1,762,986
302,000 Electricity Generating Public Co Ltd (Foreign Registered) 472,429
2,236,000 Industrial Finance Corp of Thailand (Foreign Registered) 1,107,652
884,700 Jasmine International Public Co (Foreign Registered) * 409,423
93,700 KCE Electronics Pcl (Foreign Registered) (b) * 195,144
159,300 Land & House Public Co Ltd (Foreign Registered) * 240,892
158,152 Shinawatra Computer Public Co Ltd (Foreign Registered) * 721,590
206,525 Shinawatra Satellite (Foreign Registered) * 125,191
1,273,000 Siam Commercial Bank Pcl (Foreign Registered) * 1,427,167
1,000,000 Telecomasia (Foreign Registered) * 958,154
254,500 Thai Airways International (Foreign Registered) * 447,888
212,000 Thai Farmers Bank Pcl (Foreign Registered) * 304,002
1,309,000 Thai Petrochemical (Foreign Registered) * 648,442
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - continued
820,700 Thai Telephone & Telecommunications (Foreign Registered) * 190,437
233,630 United Broadcasting Pcl (Foreign Registered) * 149,236
346,800 United Communication Industries (Foreign Registered) * 311,944
-----------------
16,741,593
-----------------
TOTAL COMMON STOCKS (Cost $85,714,983) 90,135,616
-----------------
FULLY PAID SWAPS - 4.6%
Singapore - 4.6%
268,800 Development Bank of Singapore Local Share Swap (a) 3,041,615
260,000 Oversea Chinese Banking Corp Local Share Swap (a) 1,707,297
166,100 Overseas Union Bank Local Share Swap (a) 779,071
-----------------
5,527,983
-----------------
TOTAL FULLY PAID SWAPS (Cost $3,363,634) 5,527,983
-----------------
PREFERRED STOCKS - 3.8%
Korea - 3.8%
32,600 Samsung Electronics (Non Voting) 4,639,390
-----------------
TOTAL PREFERRED STOCKS (Cost $457,013) 4,639,390
-----------------
DEBT OBLIGATIONS - 3.1%
China - 0.0%
$ 100,000 Qingling Motor Co CV, 3.50% due 1/22/02 36,000
-----------------
Thailand - 0.0%
$ 2,000 Tipco Asphalt Public Co, 2.75% due 9/19/06 1,920
-----------------
U.S. Government - 3.1%
$ 3,844,622 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 3,677,623
-----------------
TOTAL DEBT OBLIGATIONS (Cost $3,798,939) 3,715,543
-----------------
RIGHTS & WARRANTS - 0.5%
Phillippines - 0.3%
1,022,900 Jolliebee FDS Warrants 3/24/03 * 451,185
-----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - 0.2%
212,000 Thai Farmers Bank Rights 12/31/49 * 193,456
-----------------
TOTAL RIGHTS & WARRANTS (Cost $754,500) 644,641
-----------------
SHORT-TERM INVESTMENTS - 9.5%
Cash Equivalents - 9.5%
$ 11,500,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 11,500,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $11,500,000) 11,500,000
-----------------
TOTAL INVESTMENTS - 96.1%
(Cost $105,589,069) 116,163,173
Other Assets and Liabilities (net) - 3.9% 4,665,421
-----------------
TOTAL NET ASSETS - 100.0% $ 120,828,594
=================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
(a) A derivative security whose price is linked to the
return on the underlying security.
(b) Valued by management (Note 1).
* Non-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector
Food and Beverage 10.5%
Telecommunications 10.2
Real Estate 8.6
Electronic Equipment 8.5
Financial Services 6.9
Banking 6.9
Automotive 6.4
Transportation 4.5
Consumer Goods 4.2
Oil and Gas 3.5
Paper and Allied Products 2.7
Services 2.4
Utilities 2.3
Chemicals 2.2
Construction 2.1
Conglomerates 1.6
Metals and Mining 1.5
Health Care 1.3
Machinery 1.1
Retail Trade 0.7
Communications 0.5
Computers 0.5
Textiles 0.5
Insurance 0.2
Miscellaneous 10.2
-------
100.0%
=======
6 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $105,589,069) (Note 1) $ 116,163,173
Foreign currency, at value (cost $266,522) (Note 1) 266,752
Cash 38,742
Receivable for Fund shares sold 5,000,000
Receivable for open swap contracts (Notes 1 and 6) 888,064
Receivable for investments sold 242,732
Dividends and interest receivable 134,814
Receivable for expenses waived or borne by Manager (Note 2) 6,604
--------------
Total assets 122,740,881
--------------
Liabilities:
Payable for investments purchased 1,078,390
Accrued capital gain and repatriation taxes payable (Note 1) 3,172
Accrued Malaysian repatriation taxes (Note 1) 698,383
Payable to affiliate for (Note 2):
Management fee 78,274
Shareholder service fee 14,495
Accrued expenses 39,573
--------------
Total liabilities 1,912,287
--------------
Net assets $ 120,828,594
==============
Net assets consist of:
Paid-in capital $ 105,016,584
Distributions in excess of net investment income (23,638)
Accumulated undistributed net realized gain 5,074,805
Net unrealized appreciation 10,760,843
--------------
$ 120,828,594
==============
Net assets attributable to Class III Shares $ 120,828,594
==============
Shares outstanding - Class III 10,027,927
==============
Net asset value per share - Class III $ 12.05
==============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $89,571) $ 480,813
Interest 171,131
--------------
Total income 651,944
--------------
Expenses:
Management fee (Note 2) 424,303
Custodian fees 109,910
Audit fees 21,900
Transfer agent fees 13,812
Legal fees 1,468
Trustees fees (Note 2) 458
Registration fees 360
Miscellaneous 1,288
Fees waived or borne by Manager (Note 2) (39,286)
--------------
534,213
Shareholder service fee - Class III (Note 2) 78,575
--------------
Net expenses 612,788
--------------
Net investment income 39,156
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 13,803,427
Closed swap contracts 1,521,591
Foreign currency, forward contracts and foreign
currency related transactions (102,054)
--------------
Net realized gain 15,222,964
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 26,478,517
Open swap contracts (674,554)
Foreign currency, forward contracts and foreign
currency related transactions (56,273)
--------------
Net unrealized gain 25,747,690
--------------
Net realized and unrealized gain 40,970,654
--------------
Net increase in net assets resulting from operations $ 41,009,810
==============
</TABLE>
8 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
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
------------------ -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 39,156 $ 767,337
Net realized gain (loss) 15,222,964 (10,861,319)
Change in net unrealized appreciation (depreciation) 25,747,690 (15,400,922)
------------------ ------------------
Net increase (decrease) in net assets resulting
from operations 41,009,810 (25,494,904)
------------------ ------------------
Distributions to shareholders from:
Net investment income - Class III (220,569) (877,511)
In excess of net investment income - Class III - (673,683)
------------------ ------------------
(220,569) (1,551,194)
------------------ ------------------
Net share transactions - Class III (Note 5) 2,635,332 64,289,234
------------------ ------------------
Total increase in net assets 43,424,573 37,243,136
Net assets:
Beginning of period 77,404,021 40,160,885
------------------ ------------------
End of period (including distributions in excess
of net investment income of $23,638 and
accumulated undistributed net investment
income of $157,775, respectively) $ 120,828,594 $ 77,404,021
================== ==================
</TABLE>
See accompanying notes to the financial statements. 9
<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, 1999 Year Ended (commencement of operations)
(Unaudited) February 28, 1999 to February 28, 1998
--------------- --------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.67 $ 10.44 $ 10.00
--------------- --------------- -----------------------
Income (loss) from investment operations:
Net investment income 0.00 (b) ** 0.08 (b) 0.01 (b)
Net realized and unrealized gain (loss) 4.40 (2.69) 0.43
--------------- --------------- -----------------------
Total from investment operations 4.40 (2.61) 0.44
--------------- --------------- -----------------------
Less distributions to shareholders from:
Net investment income (0.02) (0.08) -
In excess of net investment income - (0.08) -
--------------- --------------- -----------------------
(0.02) (0.16) -
--------------- --------------- -----------------------
Net asset value, end of period $ 12.05 $ 7.67 $ 10.44
=============== =============== =======================
Total Return (a) 57.25% (25.03%) 4.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 120,829 $ 77,404 $ 40,161
Net expenses to average daily
net assets 1.17% * 1.26% 2.52% *
Net investment income to
average daily net assets 0.07% * 1.04% 2.86% *
Portfolio turnover rate 122% 61% 1%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.00 + $0.02 $ 0.01
</TABLE>
* Annualized
** The net investment income per share was $0.004.
+ Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.
(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.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 Asia Fund seeks high total return through investment in equity
securities traded in the Asian securities markets. The Fund's current
benchmark is the GMO Asia 7 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, 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 Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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. There
were no forward foreign currency contracts outstanding as of August 31,
1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
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 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
12
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
instruments. Upon entering into a futures contract, the Fund is required to
deposit with its custodian and agency, in a segregated account in the name
of the futures broker, an amount of cash or U.S. government and agency
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. As of August 31, 1999, there were no outstanding futures contracts.
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 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 will be 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, 1999.
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
13
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund did not have any securities on
loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its 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.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded an accrual in
the amount of $3,172 for potential capital gains and repatriation taxes at
August 31, 1999. The accrual for capital gains and repatriation taxes is
included in net realized and unrealized gain in the Statement of
Operations.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $698,383 for potential
repatriation tax on principal invested prior to February 15, 1999.
Effective September 1, 1999, the Malaysian government exempted funds
invested prior to February 15, 1999 from all levies, and such funds may now
be freely repatriated. Accordingly, effective September 1, 1999 no accrual
for potential Malaysian repatriation taxes 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 dividends 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.
14
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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, 1999, the Fund
received $124,456 in purchase premiums and $13,873 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.
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. The securities markets of
emerging countries are generally smaller and less developed than the
securities markets of the U.S. and developed foreign markets. 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.
15
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .81% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding custody fees, brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
1.00% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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)
exceeded .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, 1999, was $458. 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, 1999, cost of purchases and proceeds
from sales of investments, other than short term obligations, were as
follows:
Purchases Proceeds
--------- --------
U.S. Government Securities $ 1,545,675 $ -
Investments (non-U.S. Government 119,887,330 132,203,749
securities)
16
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$105,589,069 $18,698,024 $8,123,920 $10,574,104
4. Principal shareholders
At August 31, 1999, 73.9% 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 the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
------------------------------- -------------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 870,684 $ 10,371,352 6,185,511 $ 63,691,637
Shares issued to
shareholders in
reinvestment of
distributions 8,920 121,402 113,130 916,087
Shares repurchased (946,068) (7,857,422) (49,533) (318,490)
-------------- -------------- -------------- --------------
Net increase (decrease) (66,464) $ 2,635,332 6,249,108 $ 64,289,234
============== ============== ============== ==============
</TABLE>
17
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as follows:
Swap agreements
Notional Expiration Net Unrealized
Amount Date Description Appreciation
- ------------ ---------- -------------------------------------- --------------
$ 2,198,336 3/02/00 Agreement with Indosuez W.I. Carr Ltd. $ 541,771
Dated 3/02/99 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.
1,448,969 3/03/00 Agreement with Indosuez W.I. Carr Ltd. 346,293
Dated 3/03/99 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. --------------
$ 888,064
==============
18
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 93.8%
Australia - 4.9%
9,700 Amcor Ltd 50,463
6,000 Australia and New Zealand Banking Group Ltd 38,955
7,500 Bank of Western Australia 16,391
99,200 Boral Ltd 151,693
6,200 Broken Hill Proprietary Ltd 66,563
30,100 Burswood Ltd 17,069
1,600 Coca Cola Amatil Ltd 5,767
7,500 Commonwealth Bank of Australia 117,822
4,700 Consolidated Rutile Ltd * 2,036
28,200 CSR Ltd 71,871
53,300 Email Ltd 95,088
102,200 MIM Holdings Ltd 80,094
71,100 National Australia Bank Ltd 1,073,189
17,000 News Corp Ltd 124,021
2,800 Normandy NFM Ltd 5,388
21,800 North Broken Hill Peko Ltd 48,059
5,000 OPSM Protector Ltd 8,410
16,000 Pioneer International Ltd 40,778
39,300 PMP Communications Ltd 68,359
1,654 Publishing & Broadcasting Ltd 9,716
98,500 QCT Resources Ltd 65,897
82,900 Resolute Ltd 30,107
81,100 Santos Ltd 241,829
120,000 Schroders Property 194,203
283,300 Telstra Corporation 1,471,112
1,700 Weston (George) Foods Ltd 7,257
-----------------
4,102,137
-----------------
Austria - 0.6%
300 Austria Tabakwerke AG 16,351
1,000 Boehler Uddeholm (Bearer) 48,049
200 Brau Union AG 9,601
150 Oesterreichische Brau Beteiligungs AG 6,845
4,400 Oesterreichische Laenderbank AG 233,537
7,000 Voest-Alpine Stahl AG 228,467
-----------------
542,850
-----------------
Belgium - 0.6%
2,900 Arbed SA 289,465
2,400 Compagnie Benelux Paribas SA 150,833
2,200 Compagnie Maritime Belge SA 93,415
-----------------
533,713
-----------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Brazil - 0.6%
2,940 Embratel Participacoes SA ADR 31,421
4,000,000 Metalurgica Gerdau SA 83,663
9,700 Tele Centro Oeste Celular ADR 32,738
970 Tele Centro Sul Participacoes ADR 53,047
1,000 Tele Leste Celular Participacoes ADR * 25,750
1,649 Tele Nordeste Celular Participacoes ADR 41,019
3,020 Tele Norte Leste Participacoes ADR 48,320
530 Telesp Celular Participacoes SA ADR 12,256
1,100 Telesp Participacoes SA ADR * 17,944
4,080 Unibanco GDR 71,400
41,500 Usinas Sider de Minas Gerais SA 64,776
-----------------
482,334
-----------------
China - 0.1%
16,000 China Telecom Ltd Class H * 49,658
-----------------
Denmark - 0.4%
1,200 Aarhus Oliefabrik Class A 31,538
100 Codan Forsikring 9,802
200 DFDS AS 133,540
80 Kapital Holding AS 2,841
4,300 Korn-OG Foderstofkomp 97,740
1,175 Unidanmark AS Class A (Registered) 77,119
-----------------
352,580
-----------------
Finland - 0.7%
24,900 Finnair Class A 124,928
19,100 Kemira OY 108,538
39,200 Rautaruukki OY 281,554
3,300 Stora Enso OY Class A 44,965
-----------------
559,985
-----------------
France - 9.4%
300 Axa SA 37,328
1,630 Banque Nationale de Paris 124,650
3,330 Banque Paribas Class A 354,193
320 Bongrain 122,018
2,000 Brocacef Holding 32,744
38 Cap Gemini SA 6,522
4,440 Chargeurs International SA 264,971
2,170 Christian Dior 348,394
40 Colas SA 7,795
405 Compagnie Generale d'Industrie et de Participations 20,020
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
5,970 Compagnie Parisienne de Reescompte 271,150
820 Credit Local de France SA 106,793
1,880 Credit National 126,889
100 Damart SA 8,239
2,440 Eiffage SA 178,346
910 Elf Gabon 95,446
8,000 Eramet 409,656
3,440 Eridania Beghin-Say SA 454,914
3,540 Esso S.A.F. 294,830
5,300 France Telecom SA 412,582
10 Fromageries Bel SA 8,376
4,945 Gaz Et Eaux 254,107
10 Guyenne Et Gascogne 5,434
1,480 Imetal 235,738
13,100 Michelin SA Class B 567,450
40 Nord-Est 1,077
14,700 Pechiney SA Class A 855,531
850 Pernod Ricard 65,181
1,400 Renault SA 75,416
3,500 Saint-Gobain 676,528
4,400 Sommer Allibert 119,952
3,590 Sylea (Bearer) 219,553
57,290 Usinor Sacilor 886,509
5,920 Vallourec 237,677
-----------------
7,886,009
-----------------
Germany - 6.1%
62,300 Bankgesellschaft Berlin AG 1,108,146
17,950 BASF AG 813,371
2,700 Bayer AG 117,355
1,150 Bilfinger & Berger 27,695
14,100 DaimlerChrysler AG 1,063,369
14,000 Deutsche Telekom AG 619,596
200 Escada AG 25,984
9,400 FAG Kugelfischer 98,791
800 Heidelberg Port-Zement 80,698
8,800 IWKA AG 162,663
100 Leirheit AG 3,116
1,600 Schmalbach-Lubeca 219,193
10,800 SKW Trostberg AG 246,402
150 Suedzucker AG 60,967
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Germany - continued
20,200 Thyssen Krupp AG * 471,531
6 Walter Bau AG 602
-----------------
5,119,479
-----------------
Hong Kong -3.9%
115,000 Amoy Properties Ltd 113,295
71,000 Chinese Estates Holdings Ltd 11,612
104,000 Goldlion Holdings Ltd 18,483
54,000 Hang Lung Development Co Ltd 61,892
4,000 Hang Seng Bank 45,202
10,000 Henderson Land Development Co Ltd 52,800
20,000 Hong Kong Land Holdings 29,600
215 Hong Kong Telecommunications 487
9,000 Hutchison Whampoa 87,796
228,000 Jardine International Motor Holdings Ltd 140,203
235,800 Jardine Matheson Holdings Ltd 1,127,124
417,000 Jardine Strategic Holdings Ltd 959,100
226,000 Kumagai Gumi Ltd 110,597
50,000 Mandarin Oriental ADR 33,750
55,000 New Asia Realty & Trust Class A 87,828
274,000 Oriental Press Group 35,286
566,000 Regal Hotels International Ltd 60,499
150,000 San Miguel Brewery Ltd 25,112
84,000 Sime Darby 32,453
212 Sino Land 106
18,000 Swire Pacific Ltd Class A 92,722
107,000 Tai Cheung Holdings Ltd 26,181
111,000 Wheelock and Co Ltd 143,661
-----------------
3,295,789
-----------------
Hungary - 0.2%
7,300 Danubius Hotel & Spa * 151,906
-----------------
India - 0.1%
10,000 Indian Rayon & Industries GDR 45,250
30,000 Indo Gulf Fertilizers GDR 49,500
-----------------
94,750
-----------------
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Indonesia - 0.1%
50,000 Astra International * 17,590
350,000 Matahari Putra Prima Tbk * 35,342
88,000 PT Daya Guna Samudera * 35,544
28,000 PT Indofood Sukses Makmur Tbk * 29,915
-----------------
118,391
-----------------
Ireland - 0.0%
29,100 Crean (James) 13,832
29,100 Oakhill Group Plc * 15,368
-----------------
29,200
-----------------
Italy - 3.9%
3,000 Banco Ambrosiano Veneto SPA (Non Convertible) 6,084
4,000 Burgo (Cartiere) SPA 29,195
13,000 Caffaro 13,319
14,700 Danieli & Co Di Risp (Non Convertible) 45,960
221,000 ENI SPA 1,328,224
7,540 Fiat SPA 120,895
3,800 Fila Holding SPA ADR 45,838
46,600 IFIL-Finanz di Part SPA 199,838
5,750 Luxottica Group ADR 95,594
10,000 Pirelli & Co 19,435
2,000 Pirelli & Co di Risp 2,979
280 Reno de Medici SPA 929
1,000 Rinascente 4,383
5,090 San Paolo IMI SPA 68,333
4,000 Sirti SPA 20,660
5,000 Sorin Biomedica SPA 15,421
218,000 Telecom Italia Mobile SPA 1,268,746
2,000 Unicem Di Risp 8,894
-----------------
3,294,727
-----------------
Japan - 20.7%
3,000 77 Bank Ltd 29,304
43,000 Aida Engineering 195,695
20,300 Aoki International 92,757
18,000 Atsugi Nylon Industrial 20,849
9,000 Bandai Co 143,645
103,000 Bank Of Tokyo-Mitsubishi 1,535,911
226,000 Cosmo Oil Co Ltd 412,240
149,000 Daido Steel Co Ltd 258,197
4,000 Dainippon Pharmaceutical Co Ltd 24,588
51,000 Daio Paper Corp 354,900
3,000 Daito Trust Construction Co Ltd 38,989
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
7,000 Dowa Mining Co 17,876
3,000 Ezaki Glico Co Ltd 16,444
1,000 Fanuc Co 60,194
18,000 Fuji Bank 185,508
26,000 Fukuyama Transporting Co Ltd 149,391
87,000 Furukawa Co Ltd 134,890
4,000 Heiwa Corp 121,118
21,000 Hitachi Ltd 212,787
59,000 Hitachi Metals Ltd 403,575
19,000 Hokuriku Bank 38,296
14,000 Honda Motor Co Ltd 561,813
16,000 Itoham Foods Inc 62,748
9,000 Izumiya Co Ltd 83,314
42,000 JACCS Co 184,249
13,000 Japan Radio Co 149,747
2,000 Joshin Denki Co Ltd 7,424
20,000 Kamigumi Co Ltd 120,389
28,000 Kandenko Co 165,735
44,000 Kansai Paint Co 120,790
6,000 Kawasaki Heavy Industries Ltd 13,681
1,000 Kissei Pharmaceutical Co Ltd 19,609
1,000 Kokusai Denshin Denwa 77,979
78,000 Konica Corp 313,722
18,000 Kubota Corp 56,802
98,000 Kurabo Industries Ltd 120,662
37,000 Kyudenko Corp 186,611
1,000 Kyushu Electric Power Co Inc 15,961
31,000 Maeda Road Construction 199,325
124,000 Marubeni Corp 292,909
16,000 Matsushita Electric Industrial Co Ltd 315,199
7,000 Meiji Milk Products 26,303
65,000 Meiji Seika Kaisha Ltd 486,114
34,000 Misawa Homes 131,789
32,000 Mitsubishi Belting 86,972
11,000 Mitsubishi Corp 91,395
22,000 Mitsubishi Heavy Industries 95,709
140,000 Mitsubishi Material 394,546
68,000 Mitsubishi Paper Mills Ltd 122,176
28,000 Mitsui OSK Lines Ltd 53,628
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
14,000 Mitsui Trust & Banking Co Ltd 28,857
52,000 Mizuno Corporation 172,156
1,000 MOS Food Services 15,678
22,000 Nachi Fujikoshi Co 37,320
65,000 Nagase & Co 311,232
6,000 Nichirei 16,417
2,000 Nintendo Co Ltd 346,573
76,000 Nippon Beet Sugar 138,629
6,000 Nippon Express Co Ltd 45,802
5,000 Nippon Flour Mills Co Ltd 14,000
49,000 Nippon Hodo Co 313,275
26,000 Nippon Oil Co Ltd 115,008
95,000 Nippon Paint Co 242,601
14,000 Nippon Shinpan Co 48,520
124,000 Nippon Suisan Kaisha Ltd 243,148
39,000 Nippon Synthetic Chemical 86,078
3,000 Nisshin Oil Mills Ltd 11,875
287,000 Nisshin Steel Co Ltd 408,336
437,000 NKK Corp 406,530
96,000 NOF Corp 233,773
35,000 Okumura Corp 132,473
95,000 Onoda Cement Co Ltd 248,666
125,000 Orient Corp 362,534
1,000 Orix Corp 96,128
1,000 Rohm Co Ltd 198,823
9,000 Ryosan Co 230,653
5,000 Sankyo Co Ltd 139,085
22,000 Sanyo Electric Company 95,308
59,000 Seino Transportation Co Ltd 375,594
39,000 Sekisui Chemical 216,973
5,000 Sekisui House Ltd 53,673
1,000 Seven-Eleven Japan Co 72,689
1,000 Seven-Eleven Japan Co (New Shares) 73,419
3,000 Shikoku Electric Power 48,155
6,000 Shionogi and Co Ltd 51,439
7,000 Showa Shell Sekiyu 47,116
8,000 Snow Brand Milk Products Co Ltd 36,554
4,000 Stanley Electric Co Ltd 16,927
5,000 Sumitomo Corp 35,569
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
10,000 Sumitomo Osaka Cement Co Ltd 18,879
2,000 Suzuki Motor Corp 33,745
2,000 Takara Standard Co 12,714
3,000 Takeda Chemical Industries Ltd 150,486
69,000 Tanabe Seiyaku Co Ltd 463,168
62,000 Tekken Construction 102,914
50,000 TOA Corp 87,099
88,000 Toagosei Co Ltd 178,978
97,000 Tobishima Corp * 77,851
13,000 Tokyo Gas Co 32,012
117,000 Tokyo Ink Manufacturing Co Ltd 259,300
25,000 Toshiba Tungaloy Co Ltd 76,839
4,000 Toyo Seikan Kaisha 93,028
3,000 Toyo Suisan Kaisha 32,833
30,000 Toyobo Co Ltd 47,882
17,000 Toyota Motor Corp 500,798
14,000 Uniden Corp 150,796
5,000 Yakult Honsha Co Ltd 72,507
6,000 Yamaha Motor Co 53,901
17,000 Yodogawa Steel Works 75,507
33,000 Yokogawa Bridge Corp 114,971
9,000 Yokohama Rubber Co 23,394
-----------------
17,431,643
-----------------
Korea - 1.1%
470 Cheil Jedang Corp 37,226
900 Chosun Brewery Co Ltd 28,132
3,300 Dongwon Securities 80,508
8,150 Housing & Commercial Bank 190,546
4,938 Hyundai Industrial Development 76,967
4,200 Kookmin Bank 58,704
1,100 Korea Electric Power Corp 41,000
7,500 Korea Electric Terminal Co 85,451
190 Lotte Confectionery Co 26,235
2,100 Pacific Chemical Corp 52,300
660 Pohang Iron & Steel 89,219
183 Samsung Electronics 34,724
550 Shinsegae Department Store 43,283
45 SK Telecom 45,019
3,780 SK Telecom ADR 42,761
-----------------
932,075
-----------------
</TABLE>
8 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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - 2.9%
20,000 Berjaya Group Berhad 5,842
2,000 Cement Industries of Malaysia Berhad 1,737
15,000 Edaran Otomobil Berhad 55,263
19,000 Genting Berhad 70,000
6,000 Golden Hope Plantations Berhad 4,926
125,000 IJM Corp Berhad Class A 100,658
22,000 Malayan Banking Berhad 72,368
1,000 Oriental Holdings Berhad 2,197
6,990,000 Tan Chong International Ltd 1,935,378
93,000 Tan Chong Motor Holdings Berhad 55,311
70,000 YTL Corp 142,763
-----------------
2,446,443
-----------------
Mexico - 0.1%
13,000 Grupo Industrial Bimbo Class A 27,333
660 Grupo Televisa SA GDR * 24,008
2,650 TV Azteca SA ADR 13,416
-----------------
64,757
-----------------
Netherlands - 3.7%
5,400 Boskalis Westminster CVA 93,827
880 Buhrmann NV Maastricht 15,523
2,800 DSM NV (Bearer) 329,318
1,200 Gamma Holdings NV 55,136
7,400 Hollandsche Beton Groep NV 87,542
8,000 Hoogovens & Staalf CVA 462,638
3,700 KLM-Koninklijke Luchtvaart Mij 101,611
4,900 Kon Bolswessanen 60,037
2,700 Koninklijke KPN NV 120,920
2,600 Koninklijke Pakhoed 66,871
1,200 Koninklijke Ten Cate 41,194
6,600 Nedlloyd 188,224
22,100 Royal Dutch Petroleum 1,358,570
3,100 Stork NV 66,961
600 Van Ommeren (Koninklijke) (Participating Certificate) 20,597
400 Wereldhave NV 19,667
-----------------
3,088,636
-----------------
New Zealand - 0.5%
83,000 Air New Zealand Class B 150,189
200,000 Brierley Investment Ltd * 47,564
105,400 Fletcher Challenge Buildings 146,038
10,000 Telecom Corp of New Zealand 44,824
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
New Zealand - continued
165,000 Trans Tasman Properties Ltd 26,445
19,000 Tranz Rail Holdings Ltd 30,353
-----------------
445,413
-----------------
Norway - 0.5%
93,100 Christiania Bank OG Kreditkasse 395,060
6,500 Den Norske Bank Class A 25,925
-----------------
420,985
-----------------
Portugal - 1.0%
570 Cimpor-Cimentos de Portugal SGPS SA (Registered) 9,735
342 Cimpor-Cimentos de Portugal SGPS SA (New Shares) 5,841
43,200 Electricidade de Portugal 730,080
1,400 Inapa-Invest Particip Gesta 12,821
5,000 Mota & Co SA 56,509
2,800 Portucel Industrial Empresa 18,928
500 Salvador Caetano 10,298
-----------------
844,212
-----------------
Russia - 0.1%
2,000 Lukoil Holding Co ADR 59,000
-----------------
Singapore - 3.7%
399,900 Asia Food & Properties Ltd * 233,942
105,000 Chuan Hup Holdings Ltd 88,523
1,500 Creative Technology Ltd 14,873
17,000 Cycle & Carriage Ltd 95,886
652 DBS Bank Ltd 7,471
4,000 Development Bank of Singapore (Foreign Registered) 45,835
43,500 Fraser & Neave 165,291
1,018,000 Goldtron * 160,167
74,000 Hai Sun Hup Group Ltd 32,951
100,000 Haw Par Brothers International Ltd 166,241
278,500 Hotel Properties Ltd 256,293
66,900 Inchcape Berhad 90,561
15,000 Overseas Chinese Banking (Foreign Registered) 105,088
14,300 Overseas Union Bank Ltd (Foreign Registered) 74,714
31,700 Singapore Airlines Ltd (Foreign Registered) 297,370
456,100 Singapore Telecom 809,677
241,400 Straits Trading Co Ltd 286,647
9,100 Times Publishing Ltd 17,829
</TABLE>
10 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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Singapore - continued
18,000 United Overseas Bank (Foreign Registered) 133,587
208,000 Van Der Horst Ltd * 57,424
-----------------
3,140,370
-----------------
Spain - 2.9%
44,700 Aceralia SA 611,898
9,100 Acerinox SA 301,428
3,000 Banco Bilbao Vizcaya SA 39,990
3,100 Cristaleria Espanola SA 156,843
100 Empresa Nacional de Celulosas SA 2,007
20,414 Endesa 409,683
2,000 Europistas Concesionaria Espanola SA * 15,020
200 Fabricacion de Automoviles Renault de Espana SA 7,542
6,600 FENOSA SA 94,112
16,000 Hidro Cantabrico 226,291
17,400 Repsol SA 364,451
8,700 Tableros Defibras Class B 98,786
-----------------
2,328,051
-----------------
Sweden - 1.3%
2,800 Mo Och Domsjo AB Class B 85,434
6,400 Skanska AB Class B 250,297
18,900 Ssab Swedish Steel Class A 263,167
9,700 Ssab Swedish Steel Class B 132,716
1,600 Svenska Cellulosa Class B 46,495
32,800 Trelleborg AB Class B 293,885
-----------------
1,071,994
-----------------
Switzerland - 2.9%
200 Bobst AG (Registered) 119,464
110 Bobst SA (Bearer) 131,410
100 Financiere Richemont AG Class A 190,086
60 Hilti AG (Participating Certificate) 40,987
200 Merkur Holding AG (Registered) 50,426
160 Nestle AG (Registered) 315,755
200 Novartis AG (Registered) 287,770
420 Pargesa Holdings SA (Bearer) 665,303
500 Rieter Holdings AG (Registered) 315,161
400 Sika Finanz AG (Bearer) 120,520
50 Societe Generale de Surveillance Holding SA (Registered) 13,365
160 Swatch Group AG (Bearer) 117,642
20 Swiss Reinsurance (Bearer) 39,007
-----------------
2,406,896
-----------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - 0.1%
24,000 Bangkok Bank Pcl (Foreign Registered) * 61,009
50,000 Quality House Co Ltd * 20,806
-----------------
81,815
-----------------
United Kingdom - 20.7%
19,100 Anglian Water Plc 227,268
78,200 Arjo Wiggins Appleton Plc 272,231
5,649 AstraZeneca Plc 220,926
30,000 Bass Plc 403,515
29,800 Beazer Holmes Plc 88,407
18,000 Berkley Group 227,927
48,900 BICC Group 88,850
75,900 Billiton Plc 309,075
34,324 British Airways Plc 224,766
21,100 British Petroleum Co Plc 391,865
263,100 British Steel Plc 690,632
26,300 British Telecom Plc 403,015
61,295 BTR Siebe Plc 312,926
17,200 Christian Salvesen Plc 36,922
69,200 Coats Viyella 58,695
48,200 Courtaulds Textiles Plc 130,980
68,800 Delta Plc 180,875
234,165 Elementis Plc 440,535
32,400 Glynwed International 122,690
284,400 Greenalls Group Plc 1,721,738
700 Hambros Plc Class A * (a) 2,026
23,400 Hepworth Plc 85,787
17,400 HSBC Holdings Plc 215,293
4,500 Hyder Plc 40,665
41,900 Inchcape Plc 261,071
16,500 Johnson Matthey 162,503
41,000 Laird Group 201,404
40,000 Lonrho Plc 366,613
290,800 MFI Furniture Group 219,768
7,200 Morgan Crucible 36,063
11,000 National Power 78,267
4,300 National Westminster Bank 88,432
47,100 Northern Foods Plc 99,591
227,200 Pilkington 394,552
27,100 Powergen Plc 270,821
18,000 Rank Group Plc 74,746
</TABLE>
12 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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
40,400 Rexam Plc 190,661
3,300 RMC Group 54,097
66,800 Royal & Sun Alliance Insurance Group 556,382
12,300 Rugby Group 21,854
12,700 Safeway Plc 52,686
28,300 Scottish Power Plc 260,516
6,100 Severn Trent Plc 88,767
8,300 Signet Group Plc 7,073
119,100 Smithkline Beecham Plc 1,552,163
74,891 Smiths Industries Plc 1,121,721
3,200 Somerfield Plc 11,937
20,200 Storehouse Plc 37,190
5,892 Sun Life & Province Holding 45,452
7,400 Tate & Lyle 47,952
27,100 Taylor Woodrow Plc 80,397
7,700 Tesco 22,812
7,316 Thames Water Plc 105,168
28,200 Thistle Hotels Plc 77,312
414,100 TI Group Plc 3,340,913
1,900 Unigate 11,640
10,714 Unilever Plc 101,126
3,200 United Biscuits Plc 9,982
13,800 United Utilities 163,871
21,600 Vickers Plc 61,475
4,000 Vodafone Group Plc 80,655
37,800 Wilson (Connolly) Holdings 107,885
14,000 Wimpey (George) 34,217
27,800 Yorkshire Water 183,721
-----------------
17,581,065
-----------------
TOTAL COMMON STOCKS (Cost $74,585,919) 78,956,863
-----------------
PREFERRED STOCKS - 2.1%
Brazil - 0.2%
3,000,000 Cemig 46,202
174,000 Itaubanco SA (Registered) 80,572
-----------------
126,774
-----------------
Germany - 1.3%
6,300 Draegerwerk AG 66,011
12,000 Dyckerhoff AG (Non Voting) 405,600
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
200 Escada AG 27,674
3,200 Krones AG 105,118
11,300 MAN AG 244,084
1,700 Villeroy & Boch (Non-Voting) 159,811
559 Walter Bau AG 59,044
-----------------
1,067,342
-----------------
Italy - 0.5%
1,000 Banca Nazionale dell'Agricoltura 1,310
12,610 Fiat SPA 197,925
6,150 IFI-Istituto Finanziario Industries 161,749
-----------------
360,984
-----------------
Korea - 0.2%
1,300 Samsung Electronics (Non Voting) 185,006
-----------------
TOTAL PREFERRED STOCKS (Cost $1,657,384) 1,740,106
-----------------
CONVERTIBLE SECURITIES - 0.1%
Poland - 0.1%
DEM 140,000 Elektrim SA, 2.00% due 5/30/04 90,729
-----------------
TOTAL CONVERTIBLE SECURITIES (Cost $96,905) 90,729
-----------------
RIGHTS & WARRANTS - 0.0%
Hong Kong - 0.0%
5,100 Chinese Estates Holdings Ltd Warrants 11/24/00 * 296
5,100 Chinese Estates Holdings Ltd Warrants 11/24/99 * 187
-----------------
483
-----------------
Malaysia - 0.0%
10,000 Berjaya Group Berhad Rights 12/31/49 * 1,868
17,500 YTL Corp Warrants 12/31/49 * 10,592
-----------------
12,460
-----------------
TOTAL RIGHTS & WARRANTS (Cost $2,586) 12,943
-----------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 1.3%
Cash Equivalents - 1.3%
$ 1,100,000 First National Bank of Chicago Time
Deposit, 5.50% due 9/01/99 1,100,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,100,000) 1,100,000
-----------------
TOTAL INVESTMENTS - 97.3%
(Cost $77,442,794) 81,900,641
Other Assets and Liabilities (net) - 2.7% 2,301,266
-----------------
TOTAL NET ASSETS - 100.0% $ 84,201,907
=================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
(a) Bankrupt issuer.
* Non-income producing security.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
At August 31, 1999, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector
Metals and Mining 10.9%
Conglomerates 10.4
Banking 8.6
Telecommunications 7.3
Machinery 6.8
Construction 6.3
Oil and Gas 6.1
Automotive 5.9
Consumer Goods 5.9
Chemicals 4.7
Services 4.5
Health Care 3.5
Utilities 3.1
Transportation 2.5
Financial Services 2.2
Electronic Equipment 1.6
Paper and Allied Products 1.6
Textiles 1.1
Retail Trade 1.0
Real Estate 0.9
Insurance 0.9
Food and Beverage 0.5
Communications 0.3
Miscellaneous 3.4
-------
100.0%
=======
16 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $77,442,794) (Note 1) $ 81,900,641
Foreign currency, at value (cost $2,144,962) (Note 1) 2,193,502
Cash 68,906
Dividends and interest receivable 144,474
Foreign withholding taxes receivable 46,563
Receivable for expenses waived or borne by Manager (Note 2) 12,315
----------------------
Total assets 84,366,401
----------------------
Liabilities:
Net payable for open forward foreign currency contracts 86,994
Accrued capital gain and repatriation taxes payable (Note 1) 2,574
Accrued Malaysian repatriation taxes (Note 1) 1,074
Payable to affiliate for (Note 2):
Management fee 38,461
Shareholder service fee 10,684
Accrued expenses 24,707
----------------------
Total liabilities 164,494
----------------------
Net assets $ 84,201,907
======================
Net assets consist of:
Paid-in capital $ 79,571,133
Accumulated undistributed net investment income 619,101
Accumulated net realized loss (405,219)
Net unrealized appreciation 4,416,892
----------------------
$ 84,201,907
======================
Net assets attributable to:
Class III Shares $ 84,201,907
======================
Shares outstanding:
Class III 7,385,745
======================
Net asset value per share:
Class III $ 11.40
======================
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $71,696) $ 696,095
Interest 44,966
------------------
Total income 741,061
------------------
Expenses:
Management fee (Note 2) 117,306
Custodian fees 48,300
Audit fees 19,965
Transfer agent fees 13,707
Registration fees 1,365
Legal fees 380
Trustees fees (Note 2) 184
Miscellaneous 555
Fees waived or borne by Manager (Note 2) (84,456)
------------------
117,306
Shareholder service fee - Class III (Note 2) 32,585
------------------
Net expenses 149,891
------------------
Net investment income 591,170
------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (375,504)
Foreign currency, forward contracts and foreign
currency related transactions (6,500)
------------------
Net realized loss (382,004)
------------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 4,426,762
Foreign currency, forward contracts and foreign
currency related transactions 38,797
------------------
Net unrealized gain 4,465,559
------------------
Net realized and unrealized gain 4,083,555
------------------
Net increase in net assets resulting from operations $ 4,674,725
==================
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period from July 29, 1998
August 31, 1999 (commencement of operations)
(Unaudited) through February 28, 1999
------------------ -------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 591,170 $ 59,031
Net realized loss (382,004) (44,913)
Change in net unrealized appreciation (depreciation) 4,465,559 (48,667)
-------------------- --------------------
Net increase (decrease) in net assets resulting
from operations 4,674,725 (34,549)
-------------------- --------------------
Distributions to shareholders from:
Net investment income - Class III - (58,701)
In excess of net investment income - Class III - (8,556)
-------------------- --------------------
- (67,257)
-------------------- --------------------
Net share transactions - Class III (Note 5) 60,998,109 18,630,879
-------------------- --------------------
Total increase in net assets 65,672,834 18,529,073
Net assets:
Beginning of period 18,529,073 -
-------------------- --------------------
End of period (including accumulated
undistributed net investment income of
$619,101 and $27,931, respectively) $ 84,201,907 18,529,073
==================== ====================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Tax-Managed International Equities 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, 1998
August 31, 1999 (commencement of operations)
(Unaudited) through February 28, 1999
----------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.71 $ 10.00
---------------- --------------
Income (loss) from investment operations:
Net investment income 0.15 (b) 0.04
Net realized and unrealized gain (loss) 1.54 (0.28)
---------------- --------------
Total from investment operations 1.69 (0.24)
---------------- --------------
Less distributions to shareholders:
From net investment income - (0.04)
In excess of net investment income - (0.01)
---------------- --------------
Total distributions - (0.05)
---------------- --------------
Net asset value, end of period $ 11.40 $ 9.71
================ ==============
Total Return (a) 17.40% (2.44%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 84,202 $ 18,529
Net expenses to average
daily net assets 0.69% * 0.69% *
Net investment income to average
daily net assets 2.73% * 0.87% *
Portfolio turnover rate 8% 20%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.02 $ 0.12
</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.
20 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, 1999 (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 high after-tax total return primarily through investment in
non-U.S. equity securities. The Fund's current benchmark is the GMO EAFE
(After Tax).
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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, 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.
21
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999.
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 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 and agency 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. At August 31, 1999,
there were no open 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
22
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 will be 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, 1999, there were no open swap agreements.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are
to be treated, to the extent allowable under the Code, as if received and
paid by the shareholders of the Fund.
23
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded an accrual in
the amount of $2,574 for potential capital gains and repatriation taxes at
August 31, 1999. The accrual for capital gains and repatriation taxes is
included in net realized and unrealized gain (loss) in the Statement of
Operations.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $1,074 for potential repatriation
tax on principal invested prior to February 15, 1999. Effective September
1, 1999, the Malaysian government exempted funds invested prior to February
15, 1999 from all levies, and such funds may now be freely repatriated.
Accordingly, effective September 1, 1999 no accrual for potential Malaysian
repatriation taxes 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 dividends 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 taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
24
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended August 31, 1999, the Fund
received $274,177 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions. While no purchase premium is
normally 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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .54% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $184. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
25
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999,
aggregated $62,414,356 and $3,332,593, respectively.
At August 31, 1999, 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 Appreciation
----------------- ------------------ ------------------ ----------------
<S> <C> <C> <C>
$77,442,794 $7,400,730 $2,942,883 $4,457,847
</TABLE>
4. Principal shareholders
At August 31, 1999, 63.2% 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 the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Period from July 29, 1998
Six Months Ended (commencement of operations)
August 31, 1999 to February 28, 1999
------------------------------------- -----------------------------------
Class III: Shares Amount Shares Amount
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 5,477,816 $ 60,998,109 2,083,735 $ 20,337,787
Shares issued to
shareholders in
reinvestment of
distributions - - 835 8,274
Shares
repurchased - - (176,641) (1,715,182)
----------------- ----------------- ---------------- ----------------
Net increase 5,477,816 $ 60,998,109 1,907,929 $ 18,630,879
================= ================= ================ ================
</TABLE>
26
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Short forward currency contract
<TABLE>
<CAPTION>
Settlement Units Net Unrealized
Date Deliver/Receive of Currency Value Depreciation
--------------- ----------------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
10/21/99 HKD 2,986,756 $ 384,111 $ (8,111)
==================
</TABLE>
Forward cross currency contract
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Units of Currency Receive/In Exchange For Depreciation
- ------------------ ------------------------- ----------------------- ------------
<S> <C> <C> <C>
4/13/00 JPY 56,398,518 DEM 826,837 $ (78,883)
==================
</TABLE>
Currency Abbreviations:
DEM German Mark
HKD Hong Kong Dollar
JPY Japanese Yen
27
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS - 86.6%
United States - 86.6%
335,014 GMO Emerging Markets Fund 3,125,682
317,946 GMO Evolving Countries Fund 3,122,233
741,013 GMO International Core Fund 17,169,272
91,383 GMO International Small Companies Fund 1,143,196
238,606 GMO REIT Fund 2,128,361
120,524 GMO Small Cap Growth Fund 1,428,214
225,863 GMO Small Cap Value Fund 2,845,868
800,717 GMO U.S. Core Fund 14,933,369
-----------------
TOTAL MUTUAL FUNDS (Cost $45,622,676) 45,896,195
-----------------
COMMON STOCKS - 0.0%
Italy - 0.0%
12,500 Grassetto SPA (b) -
-----------------
United Kingdom - 0.0%
17,870 Viglen Technology Plc (Entitlement Letters)* -
-----------------
TOTAL COMMON STOCKS (Cost $7,040) -
-----------------
DEBT OBLIGATIONS - 4.6%
U.S. Government Agency - 4.6%
$ 2,500,000 Federal Farm Credit Bank Floating Rate Note, CPI + 3.00%, 5.72%
due 2/14/02 2,413,750
-----------------
TOTAL DEBT OBLIGATIONS (Cost $2,427,740) 2,413,750
-----------------
SHORT-TERM INVESTMENTS - 8.6%
Cash Equivalents - 6.0%
$ 3,200,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 3,200,000
-----------------
U.S. Government - 2.6%
$ 1,400,000 U. S. Treasury Bill, 4.54% due 1/06/2000 (a) 1,376,293
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $4,578,165) 4,576,293
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS - 99.8%
(Cost $52,635,621) 52,886,238
Other Assets and Liabilities (net) - 0.2% 135,480
-----------------
TOTAL NET ASSETS - 100.0% $ 53,021,718
=================
Notes to the Schedule of Investments.
(a) This security is held as collateral for open futures
contracts (Note 6).
(b) Bankrupt issuer.
* Non-income producing security.
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $52,635,621) (Note 1) $ 52,886,238
Foreign currency, at value (cost $45,315) (Note 1) 45,787
Cash 96,205
Interest receivable 10,604
Receivable for variation margin on open futures contracts (Notes 1 and 6) 534,960
Receivable for expenses waived or borne by Manager (Note 2) 23,941
--------------
Total assets 53,597,735
--------------
Liabilities:
Net payable for open forward foreign currency contracts (Notes 1 and 6) 505,457
Payable to affiliate for (Note 2):
Management fee 22,481
Shareholder service fee 935
Accrued expenses 47,144
--------------
Total liabilities 576,017
--------------
Net assets $ 53,021,718
==============
Net assets consist of:
Paid-in capital $ 86,692,607
Accumulated undistributed net investment income 176,167
Accumulated net realized loss (33,587,029)
Net unrealized depreciation (260,027)
--------------
$ 53,021,718
==============
Net assets attributable to Class III Shares $ 53,021,718
==============
Shares outstanding - Class III 6,525,778
==============
Net asset value per share - Class III $ 8.12
==============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends from investment company shares $ 240,856
Interest 175,579
-------------
Total income 416,435
-------------
Expenses:
Management fee (Note 2) 130,835
Custodian fees 34,799
Audit fees 14,724
Transfer agent fees 14,077
Legal fees 829
Registration fees 637
Trustees fees (Note 2) 277
Miscellaneous 645
Fees waived or borne by Manager (Note 2) (142,981)
-------------
53,842
Shareholder service fee - Class III (Note 2) 4,232
-------------
Net expenses 58,074
-------------
Net investment income 358,361
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (1,681,651)
Realized gain distributions from investment company shares 1,377,743
Closed futures contracts (3,272,444)
Closed swap contracts (226,070)
Foreign currency, forward contracts and foreign currency related
transactions 330,650
-------------
Net realized loss (3,471,772)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 7,081,371
Open futures contracts 723,874
Open swap contracts (4,764)
Foreign currency, forward contracts and foreign currency related
transactions (681,827)
-------------
Net unrealized gain 7,118,654
-------------
Net realized and unrealized gain 3,646,882
-------------
Net increase in net assets resulting from operations $ 4,005,243
=============
</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
- --------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 358,361 $ 2,739,761
Net realized loss (3,471,772) (24,490,653)
Change in net unrealized appreciation
(depreciation) 7,118,654 10,006,930
---------------- -----------------
Net increase (decrease) in net assets
resulting from operations 4,005,243 (11,743,962)
---------------- -----------------
Distributions to shareholders from:
Net investment income - Class III (504,794) (2,739,761)
In excess of net investment income -
Class III -- (2,683,188)
---------------- -----------------
(504,794) (5,422,949)
---------------- -----------------
Net share transactions - Class III (Note 5) (1,149,433) (102,868,056)
---------------- -----------------
Total increase (decrease) in net assets 2,351,016 (120,034,967)
Net assets:
Beginning of period 50,670,702 170,705,669
---------------- -----------------
End of period (including accumulated
undistributed net investment income of
$176,167 and $322,600, respectively) $ 53,021,718 $ 50,670,702
================ =================
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Hedged Equity 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, 1999 ----------------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995*
---------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.59 $ 8.72 $ 10.69 $ 10.64 $ 10.12 $ 10.00
---------------- ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (c) 0.06 0.17 (c) 0.35 0.24 0.21 0.11
Net realized and unrealized gain
(loss) 0.55 (0.88) (0.52) 0.01 0.55 0.08
---------------- ------------ ------------ ------------ ------------ ------------
Total from investing operations 0.61 (0.71) (0.17) 0.25 0.76 0.19
---------------- ------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.08) (0.21) (0.35) (0.20) (0.24) (0.07)
In excess of net investment income - (0.21) - - - -
From net realized gains - - (1.05) - - -
In excess of net realized gains - - (0.40) - - -
---------------- ------------ ------------ ------------ ------------ ------------
Total distributions (0.08) (0.42) (1.80) (0.20) (0.24) (0.07)
---------------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 8.12 $ 7.59 $ 8.72 $ 10.69 $ 10.64 $ 10.12
================ ============ ============ ============ ============ ============
Total Return (a) 8.14% (8.13)% (1.63)% 2.34% 7.54% 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $53,022 $50,671 $170,706 $296,702 $382,934 $214,638
Net expenses to average
daily net assets (d) 0.22% ** 0.17% 0.58% 0.91% (b) 0.78% 0.92% **
Net investment income to average
daily net assets (e) 1.37% ** 1.99% 2.93% 1.99% 2.44% 2.85% **
Portfolio turnover rate 5% 21% 277% 463% 214% 184%
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 $ 0.005 $ 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 approximate .02% of average daily net assets.
(c) Computed using average shares outstanding throughout the period.
(d) On August 20, 1997, the Fund began to invest a substantial portion of its
assets in other funds of GMO Trust and revised its voluntary waiver. Net
expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(e) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
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, 1999 (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 high total return consistent with minimal exposure to
general equity market risk. On August 20, 1997, the Fund began to invest a
substantial portion of its assets in other Funds of the Trust ("underlying
Funds"). The Fund's current benchmark is Salomon Smith Barney 3 Month
T-Bill 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 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. 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 - continued
August 31, 1999 (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 gains and losses on disposition of foreign currencies and forward
foreign exchange contracts, currency gains and losses realized between the
trade and settlement dates on securities transactions, forward foreign
exchange contracts 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 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 and
agency, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government and agency 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, 1999.
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, 1999 (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, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
When the Fund writes a call or put option, an amount equal to the premium
received is recorded as a liability and subsequently marked to market to
reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At August 31, 1999 there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into 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 will be no
liquid
9
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
market for these agreements, that the counterparty to the agreements may
default on its obligation to perform or that there may be unfavorable
changes in the price of the security or index underlying these
transactions. There were no open swap agreements as of August 31, 1999.
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. At February 28, 1999, the Fund had a capital loss
carryforward available to offset future capital gains, if any, of
$10,447,067, expiring in 2007.
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 dividends 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 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).
10
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .51% 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, 1999, the Fund
received $722 in purchase premiums and $181 in redemption fees. There is no
premium for reinvested distributions. While no purchase premium is normally
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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .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. 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.
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (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 fees and fund expenses (as defined
above) incurred indirectly by the Fund through investment in underlying
Funds exceed the management fee. Because GMO will not reimburse expenses
incurred indirectly to the extent they exceed .50%, 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
11
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ended August 31, 1999, operating expenses (excluding shareholder service
fees and fund expenses) incurred indirectly by the Fund were .47% of the
Fund's average daily net assets.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.65% of average daily net assets. GMO had agreed to waive a portion of its
fee (but not below zero) and bear other expenses 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) exceeded .50% 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, 1999, was $277. 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, 1999, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------- ---------------
<S> <C> <C>
U.S. Government securities $ - $ -
Investments (non-U.S. Government securities) 2,400,361 6,091,673
At August 31, 1999, 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
- ----------------------- ------------------- ------------------ ----------------
$52,635,621 $1,635,576 $1,384,959 $250,617
</TABLE>
4. Principal shareholders
At August 31, 1999, 54.4% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
12
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999 February 28, 1999
-------------------------------- -------------------------------------
Class III: Shares Amount Shares Amount
--------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 17,273 $ 141,473 977,477 $ 8,484,590
Shares issued to
shareholders in
reinvestment of
distributions 49,025 398,574 613,717 4,694,941
Shares repurchased (219,271) (1,689,480) (14,483,783) (116,047,587)
--------------- -------------- ---------------- -----------------
Net decrease (152,973) $ (1,149,433) (12,892,589) $ (102,868,056)
=============== ============== ================ =================
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Futures contracts
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------ -------------- ------------------ ----------------- -------------------
Sales
53 MATIF CAC 40 September 1999 $ 2,576,256 (39,820)
18 DAX September 1999 2,513,689 35,316
57 FTSE 100 September 1999 5,714,115 240,374
8 HANG SENG September 1999 701,081 (34,338)
8 IBEX September 1999 829,959 (16,788)
6 MIB30 September 1999 1,069,009 31,606
63 OMX September 1999 640,565 (2,721)
15 ALL ORDS September 1999 706,042 11,390
74 S&P 500 September 1999 24,416,300 208,130
52 TOPIX September 1999 6,964,476 (438,469)
===================
$ (5,320)
===================
</TABLE>
At August 31, 1999, the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
13
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
----------------- ----------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Buys
10/08/99 AUD 543,852 $ 346,726 $ (4,871)
10/08/99 HKD 3,493,490 449,442 407
10/08/99 JPY 176,220,200 1,616,167 108,085
-----------------
$ 103,621
=================
Sales
10/08/99 AUD 1,493,735 $ 952,313 $ 3,665
03/03/00 CHF 2,097,918 1,415,311 (8,254)
03/03/00 DKK 1,413,740 203,294 (520)
03/03/00 EUR 7,255,965 7,773,593 (22,608)
03/03/00 GBP 2,868,048 4,621,236 (4,132)
10/08/99 HKD 7,526,829 968,336 (776)
10/08/99 JPY 769,679,910 7,058,959 (571,853)
03/03/00 NOK 790,000 100,581 766
03/03/00 SEK 4,130,378 505,938 (2,233)
10/08/99 SGD 341,040 203,133 (3,133)
-----------------
$ (609,078)
=================
</TABLE>
Currency Abbreviations:
AUD Australian Dollar HKD Hong Kong Dollar
CHF Swiss Franc JPY Japanese Yen
DKK Danish Krona NOK Norwegian Kroner
EUR Euro SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
14
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 78.8%
Argentina - 0.0%
42,993 Nobelza Piccardo 118,243
-----------------
Brazil - 3.5%
4,400,000 Belgo Mineira (Registered) 119,043
9,350,000 Coelba ON 288,478
1,676,280,000 Companhia de Acos Especiais Itabira-Acesita 409,912
212,248,500 Companhia Siderurgica Nacional SA 5,133,940
417,700,000 Electrobras 6,498,039
89,600 Embratel Participacoes SA ADR 957,600
2,000,000 Ericsson Telecom 18,314
144,894 Itausa-Investimentos Itau SA 66,341
22,890,000 Light Servicos Electricidade SA 1,309,923
277,300 Tele Centro Oeste Celular ADR 935,888
35,000 Tele Centro Sul Participacoes ADR 1,914,063
33,600 Tele Leste Celular Participacoes ADR * 865,200
55,300 Tele Nordeste Celular Participacoes ADR 1,375,588
106,000 Tele Norte Leste Participacoes ADR 1,696,000
53,800 Telebras Holders ADR 3,991,288
268,194,000 Telebras SA 6,977
268,194,000 Telecomunicacoes Brasileiras SA * 11,022,187
64,658 Unibanco GDR 1,131,515
-----------------
37,740,296
-----------------
Chile - 2.5%
41,300 Banco de Edward ADR 624,663
55,800 Banco Santander ADR 934,650
83,900 Banco Santiago ADR 1,761,900
92,500 Chilectra SA ADR 1,803,750
83,600 Chilquinta ADR 575,168
125,200 Chilquinta ADR 144A 861,376
12,000 Compania Cervecerias 314,250
60,100 Compania de Telefones de Chile ADR 1,352,250
69,200 Cristalerias de Chile SA ADR 947,175
23,800 Distribucion y Servicio ADR 392,700
231,548 Empresa Natl de Electricidad ADR 2,865,407
71,581 Enersis SA ADR 1,606,099
219,663 Gener SA ADR 4,022,579
36,600 Laboratorio Chile SA ADR 677,100
26,000 Madeco SA ADR 276,250
197,100 Masisa SA ADR 1,934,044
381,190 Quinenco SA ADR 3,788,076
37,800 Soc Quimica Y Minera de Chile ADR 1,136,363
578,200 Telex Chile ADR * 614,338
6,600 Vina Concha Y Toro SA ADR 256,575
-----------------
26,744,713
-----------------
China - 3.3%
4,760,000 Beijing Datang Power Generation Co Ltd Class H 1,271,965
9,878,000 China Eastern Airlines * 1,233,931
411,832 China International Containers 286,924
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
China - continued
1,760,000 China Merchants Holdings Co Ltd 1,484,582
10,914,000 China Overseas Land & Investment Ltd 1,307,125
1,463,000 China Resources Enterprise 2,402,175
1,025,234 China Southern Glass Co Ltd Class B * 159,756
15,400 China Telecom (Hong Kong) Ltd ADR * 957,683
3,669,000 China Telecom Ltd Class H * 11,387,146
1,474,000 Cosco Pacific Ltd 1,290,793
242,000 Guangdong Electric Power Development Co Ltd Class B 129,023
6,406,000 Guangdong Investment Ltd 1,311,699
8,039,000 Guangshen Railway Co 1,035,267
115,700 Guangshen Railway Co ADR 715,894
116,300 Huaneng Power International ADR 1,453,750
9,098,000 Jilin Chemical Industrial Co 1,124,779
12,656,000 Maanshan Iron & Steel * 1,075,698
5,930,000 Qingling Motor Co Ltd Class H 1,321,146
1,472,000 Shanghai Chlor-Alkali Chemical * 214,912
487,000 Shanghai Industrial Holdings 1,163,384
4,999,944 Shanghai Lujiazui Finance & Trade Class B * 1,559,983
453,725 Shenzhen Seg Group Co Ltd Class B * 168,865
3,602,000 Yizheng Chemical Fibre Co * 1,066,895
4,970,000 Zhejiang Expressway Co 883,254
1,017,900 Zhejiang Southeast Electric Power 339,979
-----------------
35,346,608
-----------------
Colombia - 0.0%
24,300 Banco Ganadero SA ADR 426,769
-----------------
Czech Republic - 0.2%
323,988 SP Vseobecny 799,832
75,300 SPT Telecom AS * 1,279,105
-----------------
2,078,937
-----------------
Egypt - 0.9%
10,000 Al Ahram Beverage Co GDR 144A * 298,500
3,000 Al Ahram Beverage Co * 183,659
77,700 Al Ahram Beverages Co GDR (Reg S) * 2,319,345
148,454 Eastern Tobacco Co 3,425,778
7,500 Egypt Gas Co 266,593
28,800 Egyptian International Pharmaceuticals Industries Co 1,316,041
39,270 Miraco 678,506
36,000 Oriental Weavers Co 695,805
46,000 Suez Cement Co GDR 640,550
22,681 Suez Cement Co GDR 144A 315,833
-----------------
10,140,610
-----------------
Greece - 0.3%
4,930 Alpha Credit Bank 370,149
18,052 Alpha Leasing (Registered) 946,416
11,400 Aluminum of Greece (Registered) 667,177
11,508 Bank of Piraeus 327,550
4,386 Commercial Bank of Greece 425,116
8,940 Econ Viomihanies (b) * 6,597
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Greece - continued
3,480 EFG Eurobank 132,330
1,700 Ergo Bank 154,045
2,400 National Bank of Greece 177,087
-----------------
3,206,467
-----------------
Hungary - 0.0%
28,151 Fotex (Registered) 10,661
-----------------
India - 3.5%
55,000 Amara Raja Batteries Ltd 265,653
190 Aptech Ltd 3,265
105 Aptech Ltd 1,812
2,405 Aptech Ltd 41,939
170 Arvind Mills Ltd 126
360 Arvind Mills Ltd 267
145,000 Asea Brown Boveri Ltd India * 1,512,797
112,800 Ashok Leyland Ltd 348,514
112,200 Ashok Leyland Ltd * 346,660
100 Bank of India 49
1,100 BFL Software Ltd * 21,563
500 BFL Software Ltd * 9,802
80,000 Bharat Heavy Electricals Ltd 584,345
7,450 BSES Ltd 37,818
1,761 BSES Ltd 8,939
1,050 Cipla Ltd 66,598
250 Cipla Ltd 15,857
400 CMC Ltd 4,757
19,600 CMC Ltd 233,076
70,000 Container Corp of India 563,640
130,000 Container Corp of India * 1,046,759
4 Core Healthcare Ltd * 2
10,610 Escorts Ltd 43,936
190,850 Escorts Ltd 790,315
112,100 Eveready Industries Ltd 193,678
65,900 Eveready Industries Ltd 113,857
588 Glaxo India Ltd 9,416
3 Glaxo India Ltd 48
51,275 Godfrey Phillips India 849,324
233,082 Grasim Co * 2,306,020
625 Great Eastern Shipping Co 381
840 Great Eastern Shipping Co 512
250 HCL Hewlett Packard Ltd 2,743
2,740 HCL Infosytems Ltd * 30,068
2,375,000 Himachal Futuristic Communications 11,433,111
20 India Cements 47
102,700 Indian Aluminium Co Ltd * 265,211
194,942 Indian Rayon & Industries 304,965
1,230,000 Indo Gulf Corporation Ltd 1,980,790
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
India - continued
100 Industrial Development Bank of India 87
400 Industrial Development Bank of India 350
300 ITC Ltd 6,971
100 ITC Ltd * 2,324
317,550 KEC International Ltd 440,884
240,187 Larsen & Toubro 2,138,434
291,800 Mcdowell & Co Ltd 696,480
447,183 National Aluminum 640,413
200 NIIT Ltd 9,777
275 NIIT Ltd (New shares) * 13,397
100 NIIT Ltd (New shares) * 4,880
400 Pentafour Software & Export 5,080
400 Pentafour Software & Export Ltd (New shares) * 5,043
363 Pfizer Inc 8,059
37 Pfizer Ltd 821
7,982 Reliance Industries 35,514
3,551 Reliance Industries 15,799
800 Reliance Petroleum Ltd * 727
5,600 Reliance Petroleum Ltd * 5,089
297,700 RPG Cables Ltd 264,021
500 Satyam Computer Service 9,984
3,370 Satyam Computer Service (New shares) 67,156
600 Satyam Computer Service (New shares) 11,957
100 Software Solutions Integrated Ltd * 1,096
100 Software Solutions Integrated 1,104
150 State Bank of India 825
50 State Bank of India 275
2 Sterlite Industries Ltd 17
418 Sterlite Industries Ltd * 3,623
5,836 Sun Pharmaceuticals Industries Ltd 100,159
16,364 Sun Pharmaceuticals Industries Ltd 280,843
380,277 Tata Iron & Steel 1,454,444
150 Tata Iron & Steel 574
240 Tata Power Company Ltd 501
68,110 Tata Power Company Ltd * 142,198
1,850 Trent Ltd 10,629
44,098 TVS Suzuki Ltd 720,299
83,000 United Breweries Ltd 133,663
10 Videocon International Ltd 22
1,105 Videocon International Ltd * 2,415
461,000 Vikas WSP Ltd 5,260,390
10,100 Visualsoft (India) Ltd * 458,906
72,500 VST Industries Ltd 193,478
200 Wockhardt Ltd 2,283
49,800 Wockhardt Ltd 595,755
100 Zee Telefilms Ltd 7,270
1,900 Zee Telefilms Ltd 142,060
-----------------
37,334,736
-----------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Indonesia - 4.9%
7,108,100 Astra International * 2,500,569
7,822,000 Bakrie & Bros. * 254,788
5,761,500 Barito Pacific Timber * 356,575
3,155,000 Ciputra Development * 184,984
9,750,000 Dharmala Intiland (Foreign Registered) 254,072
1,875,000 Dynaplast * 250,407
12,752,000 Gajah Tunggal Tbk * 1,121,511
6,019,500 Gudang Garam 14,509,544
78,100 Gulf Resources Ltd ADR * 805,406
2,588,100 HM Sampoerna * 5,378,527
925,000 Indah Kiat Pulp & Paper * 337,459
1,625,000 Indorama Synthetics * 275,244
3,072,000 International Nickel * 2,241,459
24,482,000 Matahari Putra Prima Tbk * 2,472,124
16,100,000 Multipolar Corp * 576,873
10,020,500 PT Asuransi Lippo Life Tbk 228,480
2,582,800 PT Daya Guna Samudera * 1,043,216
3,323,000 PT Indofood Sukses Makmur Tbk * 3,550,306
696,000 PT Indosat (Persero) Tbk 1,081,407
140,000 PT Indosat (Persero) Tbk ADR Class B 2,161,250
3,072,500 PT Pabrik Kertas Tjiwi Kimia * 880,717
5,813,000 Ramayana Lestari 3,408,274
1,075,000 Semen Gresik 2,100,977
4,607,280 Telekomunikasi Indonesia 1,770,876
138,240 Telekomunikasi Indonesia ADR Class B 1,062,720
3,485,000 Tempo Scan Pacific 1,838,990
117 Unggul Indah Corp * 28
6,723,500 United Tractors * 2,606,178
-----------------
53,252,961
-----------------
Israel - 0.0%
1 Machteshim Agan Industries * 2
-----------------
Korea - 18.7%
3,220 BYC Co Ltd 285,040
63,403 Cheil Jedang Corp 5,021,754
81,839 Chosun Brewery Co Ltd 2,558,119
197,880 Daelim Industrial Co. Ltd 3,042,374
1,482,000 Daewoo Corp 2,322,490
234,000 Daewoo Electronics * 430,140
211,000 Dong-Ah Construction 1,921,432
100,198 Dongbu Steel Co 695,996
40,680 Halla Climate Control Corp 2,198,546
126,420 Hankuk Glass 2,993,172
465,989 Hanwha Corp * 3,019,751
190,000 Housing & Commercial Bank 4,442,186
21,175 Housing & Commercial Bank Korea GDR 144A 481,731
26,410 Hyundai Cement Co 353,476
121,819 Hyundai Electronics Industries * 3,869,727
446,434 Hyundai Engineering & Construction * 3,970,823
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - continued
84,011 Hyundai Heavy Industries 4,711,163
204,891 Hyundai Industrial Development 3,193,557
25,717 Hyundai Motor Service Co 797,325
20,650 Keum Kang Ltd 1,145,765
699,180 Kohap Co Ltd * 2,961,372
467,100 Kookmin Bank 6,528,717
255,345 Kookmin Bank GDR (Registered) 3,415,239
34,660 Korea Chemical 2,724,649
185,000 Korea Data Systems Co * 2,546,590
117,500 Korea Electric Power Corp 4,379,500
41,000 Korea Electric Power Corp ADR 738,000
202,900 Korea Telecommunications ADR * 6,594,250
470,300 Korean Air Lines 9,362,177
188,620 LG Cable & Machinery Ltd 4,314,053
75,000 LG Information & Communication 6,702,668
130,000 LG Semicon 2,813,638
18,300 Lotte Confectionery Co 2,526,811
263,576 Pohang Iron & Steel (d) 35,630,206
32,000 Pohang Iron & Steel ADR 1,176,000
38 S1 Corporation 6,567
3 Sam Yang 40
51,599 Samsung Display Devices 2,985,355
74,293 Samsung Electro Mechanics 3,901,877
32,473 Samsung Electronics 6,161,755
50,000 Samsung Fire & Marine Insurance 2,469,293
156,579 Samsung Securities 6,141,133
263,000 Shinhan Bank 2,829,394
197,782 Shinsegae Department Store 15,564,547
4,090 SK Telecom (d) 4,091,732
269,010 SK Telecom ADR 3,043,176
951,643 Ssangyong Cement 4,240,273
126,770 Ssangyong Oil Refining 3,146,430
450,090 Tai Han Electric Wire 6,214,712
-----------------
200,664,721
-----------------
Lebanon - 0.4%
217,064 Banque Libanaise 2,626,474
139,000 Solidere GDR (Reg S) * 1,171,075
-----------------
3,797,549
-----------------
Malaysia - 6.9%
170,000 AMMB Holdings Berhad 304,211
309,000 Asas Dunia Berhad 171,576
1,782,000 Berjaya Sports Toto 4,126,737
333,000 Carlsberg Brew Malaysia 981,474
974,000 Cement Industries of Malaysia Berhad 845,842
1,623,900 Cold Storage 811,950
1,129,000 Commerce Asset Holdings 2,599,671
329,000 Edaran Otomobil Berhad 1,212,105
376,000 Esso Berhad 298,821
697,000 Faber Group Berhad * 190,758
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
1,177,700 Genting Berhad 4,338,895
2,165,700 Golden Hope Plantations Berhad 1,778,154
944,000 Guinness Anchor Berhad 1,053,305
1,920,000 Hicom Holdings Berhad 1,424,842
781,000 Highlands and Lowlands Berhad 474,766
2,069,000 Hong Leong Properties Berhad 647,924
1,152,500 IGB Corp Berhad 524,691
1,064,000 IJM Corp Berhad Class A 856,800
4,723,800 IOI Corporation Berhad 2,871,573
229,000 Kemayan Corporation Berhad 29,830
414,000 Kumpulan Guthrie Berhad 221,163
168,000 Land & General Berhad * 95,937
4,278,100 Magnum Corp Berhad 3,760,225
1,137,400 Malakoff Berhad 3,023,089
576,000 Malayan Banking Berhad 1,894,737
2,035,000 Malaysian International Shipping (Foreign Registered) 3,106,053
265,000 Malaysian Resources Corp 237,105
727,000 Malaysian Tobacco Co Berhad 753,784
658,000 Multi Purpose Holdings * 398,263
328,000 Nestle Malaysia 1,268,842
1,183,000 Nylex (Malaysia) Berhad 800,082
1,676,900 Oriental Holdings Berhad 3,684,767
2,157,000 Pilecon Engineering Berhad 851,447
217,000 Rashid Hussain Berhad * 161,037
1,947,600 Resorts World Berhad 4,945,879
781,600 Rothmans of Pall Mall Berhad 5,450,632
770,000 Sarawak Enterprises Corp 555,211
109,620 Silverstone * 1,298
2,393,000 Sime Darby Berhad 3,148,684
1,020,000 TA Enterprise Berhad 426,789
14,130,000 Tan Chong International Ltd 3,912,288
3,802,700 Tan Chong Motor Holdings Berhad 2,261,606
1,416,700 Tanjong 3,280,779
287,000 Technology Resources Industries 197,124
277,000 Tiong Nam Transport Holdings Berhad 215,039
124,000 Tractors Holdings Berhad 69,832
357,000 UMW Holdings Berhad 770,368
906,000 United Engineers * 1,704,711
3,491,700 Westmont Industries Berhad (b) (d) * 9,189
503,000 Wijaya Baru Global Berhad * 202,524
824,000 YTL Corp 1,680,526
-----------------
74,632,935
-----------------
Mexico - 4.0%
430,100 Alfa SA Class A 1,627,951
2,666,415 Altos Hornos De Mexico * 716,427
24,000 Carso Global Telecom Class A 132,807
220,000 Cemex SA Class B 975,797
818,000 Cifra SA de CV * 1,353,594
181,915 Controladora Coml Mexicana Classes B and C 170,685
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Mexico - continued
1,601,680 Cydsa SA Class A 2,288,358
312,000 Dina (Consorcio Grupo Dina) * 69,193
203,400 Empresas ICA Sociedad Controladora ADR 750,038
19,000 Empresas La Moderna SA de CV Class A * 108,988
644,600 Grupo Carso SA de CV Class A 2,498,263
1,500,000 Grupo Casa Autrey 527,775
893,705 Grupo Financiero Banamex Acciva Class O * 1,715,182
103,529 Grupo Financiero Banamex Class L * 155,641
7,089,795 Grupo Financiero Bancomer SA * 1,723,503
8,697,700 Grupo Financiero Probursa SA de CV Class B * 927,359
139,432 Grupo Financiero Santander Class B * 63,926
8,232,755 Grupo Financiero Serfin SA de CV Class B (b) * 8,778
3,918,820 Grupo Gigante SA Class B * 1,412,263
554,818 Grupo Mexico Class B 2,398,749
80,200 Grupo Mexico Desarollo Class B ADR * 12,531
500,500 Grupo Radio Centro SA ADR 2,439,938
6,255,000 Grupo Situr SA de CV Class B * 120,045
5,800 Grupo Televisa SA GDR * 210,975
1,997,500 Grupo Tribasa SA ADR * 1,373,281
136,400 Herdez Class BCP 41,302
163,100 Telefonos de Mexico ADR Class L 12,130,563
665,700 TV Azteca SA ADR 3,370,106
1,020,800 Vitro SA ADR 4,147,000
-----------------
43,471,018
-----------------
Netherlands - 0.0%
10,000 Ispat International NV Class A (Registered) 103,750
-----------------
Pakistan - 0.7%
1,002,000 Fauji Fertilizer 990,893
157,166 Hub Power Co Ltd GDR 1,304,478
500 Karachi Electric Supply * 92
106,880 Lever Brothers Pakistan Ltd 1,771,890
498,840 Pakistan State Oil 1,202,024
6,174,600 Pakistan Telecom Corp Ltd Class A 2,499,597
6,600 Pakistan Telecom Corp Ltd GDR * 257,400
297 Sui Southern Gas Pipelines Ltd * 56
-----------------
8,026,430
-----------------
Peru - 0.0%
127,604 Cervecerias 43,403
730 Milpo Minera Class T * 311
-----------------
43,714
-----------------
Phillippines - 3.6%
21,683,000 Aboitiz Equity Ventures Inc 1,322,567
1,459,000 Alsons Cement 117,676
12,373,920 Ayala Corp 3,352,732
10,400,000 Ayala Land Inc 2,595,085
9,825,000 Belle Corporation * 928,639
29,290,400 Cosmos Bottling Corp 1,845,646
22,832,000 Digital Telecommunications * 817,176
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Phillippines - continued
3,544,297 DMCI Holdings Inc * 134,000
13,139,500 EEI Corporation * 351,049
23,602,000 Empire East Land Holding Inc * 398,572
665,850 Equitable Banking Corp 1,426,522
533,390 Far East Bank & Trust 826,805
14,052,000 Filinvest Land * 1,115,660
1,814,000 International Container Terminal * 194,316
1,909,543 Ionics Circuits Inc 673,815
8,925,000 JG Summit Holdings Inc Class B 753,592
2,638,500 La Tondena Distillers Inc 2,660,113
491,920 Manila Electric Class B 1,463,051
245,670 Metro Bank & Trust Co 2,027,900
9,719,000 Metro Pacific Corp * 352,750
8,723,000 Petron Corp 780,508
255,680 Philippine Commercial International Bank 1,643,312
247,070 Philippine Long Distance Telephone 5,853,706
150,000 Philippine National Bank * 495,274
823,000 Robinsons Land Corp Class B 62,231
2,145,440 San Miguel Corp Class B 3,487,861
371,200 Security Bank Corp * 299,393
9,474,000 SM Prime Holdings 1,743,168
4,248,000 Universal Robina Corp 760,197
-----------------
38,483,316
-----------------
Poland - 0.2%
92,650 Agora SA GDR 144A * 1,019,150
234,502 Okocimskie Zaklady Piwowarskie SA * 1,160,143
-----------------
2,179,293
-----------------
Russia - 3.2%
37,000 Trade House GUM ADR 59,200
2,649,789 Chelabinsky Tube Work (d) * 26,498
17,100 Dalmoreproduct * 342
272,800 Electrocila (d) * 463,760
29,221 Elisb (d) * 10,227
472,700 Irkutskelectrosviaz (d) * 56,724
3,368,100 Irkutskenergo ADR 14,585,894
4,931,400 Irkutskenergo (Registered) (d) 443,826
89,030 Kirovsky Plant (d) * 124,642
274,500 Komineft (d) 288,225
237,725 Lukoil Holding Co ADR 7,012,888
2,290,387 Norilsk Nickel (Registered) (d) * 6,151,521
135,000 Russia Petroleum (d) * 44,550
10,000 Seversky Tube Works ADR * 91,894
785,700 St Petersburg Telephone (d) 204,282
500,000 Sun Interbrew Ltd GDR * 2,000,000
811,380 Uralmash Zavody (d) 973,656
1,360,200 Uralmash Zavody ADR (Registered) * 1,632,240
450,000 Uralmash Zavody ADR 144A * 540,000
-----------------
34,710,369
-----------------
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa - 10.6%
657,100 AECI Ltd 1,761,054
783,637 Amalgamated Bank of South Africa 4,032,857
321,618 Anglo American Corp Plc 17,704,325
77,845 Anglo Gold Ltd 3,903,769
1,229,000 Anglovaal Industries Inc 828,494
240,600 Anglovaal Ltd 1,855,334
399,800 Comparex Holding Ltd 2,478,208
6,929,404 Consolidated African Mines * 1,207,690
665,880 De Beers Centenary Link Units 18,174,298
311,750 De Beers Consolidated Mines Ltd ADR 8,475,703
2,477,200 Del Monte Royal Foods Ltd 1,893,946
90,000 Ellerine Holdings Ltd 355,146
9,386,795 ISCOR 3,503,457
246,008 Liberty International Plc 1,840,408
527,640 Liberty Life Association of Africa Ltd 6,185,586
2,135,615 Mawenzi Resources Ltd 175,568
1,725,940 Murray & Roberts Holdings Ltd 1,274,165
2,560,500 Premier Group Ltd * 1,751,345
342,720 Randfontein Estates 507,149
164,000 Randgold Resources Ltd GDR * 606,800
309,500 Randgold & Exploration Co * 366,393
1,112,570 Rembrandt Group Ltd 8,341,531
5,472,400 Safmarine & Rennies Holdings 3,437,121
588,200 Sage Group Ltd 1,740,809
240,968 Sappi Ltd 2,222,674
1,746,910 Sasol Ltd 12,695,400
570,280 Standard Bank Investment Corp 1,781,539
16,200,260 Sun International Ltd 3,675,824
25,900 Western Areas Gold Mining Co Ltd * 72,394
-----------------
112,848,987
-----------------
Sri Lanka - 0.0%
4,590,170 Blue Diamonds Jewelry Ltd * 38,398
333,600 Lanka Walltile Ltd 30,232
404,200 Lion Brewery Ceylon Ltd 146,521
-----------------
215,151
-----------------
Taiwan - 2.8%
4,021,290 Ambassador Hotel * 1,906,932
60,000 Asustek Computer Inc 644,422
10,823,400 Chia Hsin Food & Synthetic * 3,551,999
1,816,000 China Manmade Fibers * 712,884
855,550 China Steel 666,331
3,347,769 China Trust Commercial Bank * 3,343,301
2,325,000 Chung Shing Textile * 576,823
4,367,000 Chuntex Electronic Co Ltd * 740,576
222,130 First Bank * 348,097
2,357,680 Formosa Taffeta Co 1,466,030
1,315,650 Great Wall Enterprise Co 487,546
2,334,000 Hualon Co Ltd * 670,679
473,000 International Bills Finance Corp * 202,019
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Taiwan - continued
1,283,700 International Commercial Bank Of China 1,479,525
1,149,000 Megamedia Corp * 624,251
14,430,000 Pacific Construction * 3,851,927
2,202,000 Right Way Industrial Co Ltd 705,359
2,280,900 Taipei Business Bank * 2,700,477
2,928,342 Taitung Business Bank * 514,995
2,835,000 Taiwan Fluorescent Lamp Co * 765,675
2,294,000 Taiwan Pulp and Paper Co * 940,149
528,228 Taiwan Semiconductor * 2,239,484
248,000 United Microelectronics * 630,855
637,000 Wan Yu Paper (b) (d) * 200
3,181,000 Yieh Loong Co * 849,132
-----------------
30,619,668
-----------------
Thailand - 7.3%
100,700 ABN Amro Asia Securities Pcl * 238,918
593,900 Advanced Info Service Public Co Ltd (Foreign
Registered) 8,144,737
1,098,500 Ban Pu Coal Public Co Ltd (Foreign Registered) * 2,305,547
6,719,900 Bangchak Petroleum Public Co Ltd (Foreign
Registered) * 1,971,031
4,722,800 Bangkok Bank Pcl (Foreign Registered) * 12,005,553
90,800 Bangkok Insurance (Foreign Registered) 345,634
4,257,600 Bangkok Rubber Public Co Ltd (Foreign Registered) * 910,242
4,320,000 Bank of Ayudhya Pcl (Foreign Registered) * 1,942,902
354,900 BEC World Public Co Ltd (Foreign Registered) 2,202,221
1,215,970 CP Feedmill Public Co Ltd (Foreign Registered) (d) 3,709,255
964,160 Delta Electronics Public Co Ltd (Foreign Registered) 7,641,889
1,306,460 Electricity Generating Public Co Ltd (Foreign
Registered) 2,043,739
7,668,959 Industrial Finance Corp of Thailand (Foreign
Registered) 3,798,989
154,510 Italian-Thai Development Public Co. Ltd (d) * 239,530
333,900 Jasmine International Public Co (Foreign
Registered) * 154,523
631,000 Krung Thai Bank Public Co Ltd * 246,774
1,837,200 Land & House Public Co Ltd (Foreign Registered) * 2,778,193
151,100 Lanna Lignite Pcl (Foreign Registered) 144,777
203,519 PTT Exploration and Production Public Co Ltd
(Foreign Registered) * 1,602,470
1,859,000 Ruang Khao Fund (Foreign Registered) * 310,197
677,500 Saha Pathana International Holdings Pcl
(Foreign Registered) 763,965
2,230,500 Saha Union Public Co Ltd (Foreign Registered) 799,619
483,092 Shinawatra Computer Public Co Ltd (Foreign
Registered) * 2,204,174
70,687 Siam Cement Pcl (Foreign Registered) * 1,828,223
4,024,300 Siam Commercial Bank Pcl (Foreign Registered) * 4,511,665
399,000 Siam Pulp & Paper (Foreign Registered) * 853,031
201,512 Singer Pcl (Foreign Registered) 367,771
3,108,050 Star Block Co Ltd (Foreign Registered) * 8,103
4,671,213 Telecomasia (Foreign Registered) * 4,475,742
1,007,000 Thai Airways International (Foreign Registered) * 1,772,194
2,002,300 Thai Farmers Bank Pcl (Foreign Registered) * 2,871,242
1,540,850 Thai German Ceramics Industry (Foreign Registered) * 441,907
5,397,880 Thai Petrochemical (Foreign Registered) * 2,673,960
105,200 Thai Plastic & Chemical (Foreign Registered) 208,453
3,138,800 Thai Telephone & Telecommunications (Foreign
Registered) * 728,336
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - continued
966,778 United Broadcasting Pcl (Foreign Registered) * 617,548
1,159,700 United Communication Industries (Foreign Registered) * 1,043,140
-----------------
78,906,194
-----------------
Turkey - 0.3%
395,561,705 Bekoteknik 2,885,044
-----------------
Venezuela - 1.0%
2,164,473 Banco Provincial 1,729,986
160,606 Ceramica Carabobo Class B ADR * 104,394
187,800 Compania Anonima Nacional Telefonos de Venezuela
(CANTV) ADR 3,744,263
10,243,115 Electricidad De Caracas 2,941,026
63,500 Electricidad De Caracas ADR 904,875
778 International Briquettes Holding 1,507
40,181 Mantex SA Class A Sponsored ADR * 271,222
160,000 Manufacturas de Papel CA ADR 160,000
125,000 Mercantil Servicios Financieros ADR * 343,750
23 Siderurgica Venezolana (Sivensa) Class B 1
164,766 Siderurgica Venezolana (Sivensa) Registered ADR Class A 288,341
723,926 Venepal SA Class B GDR 144A 7,239
1,107,354 Venezolana de Cementes 312,587
292,673 Venezolana de Cementes Tipo II 82,617
-----------------
10,891,808
-----------------
TOTAL COMMON STOCKS (Cost $870,015,464) 848,880,950
-----------------
PREFERRED STOCKS - 11.0%
Brazil - 5.6%
7,831,000 Acos Villares SA * 77,414
22,920,000 Alpargatas de Sao Paolo 834,755
951,285,231 Banco Bradesco SA 3,761,586
67,516,200 Banco Estado Sao Paulo 2,090,473
148,940,000 Banco Nacional (b) * 775
33,080,000 Belgo Mineira (Registered) 1,066,925
412,825,003 Bombril SA 1,116,904
5,108,000 Brahma PN 2,702,828
47,500,000 Caemi Mineracao e Metalurgica SA 1,507,544
60,942,827 Cemig 938,558
167,200,000 Cia Energetica de Sao Paolo SA (Registered) 690,722
34,000,000 Cia Energetica Perna Class A 88,450
1,123,059,000 Companhia de Acos Especiais Itabira-Acesita 333,061
167,200,000 Companhia de Geracao de Energia Eletrica Paranapanema 604,599
167,200,000 Companhia de Geracao de Energia Eletrica Tiete * 537,615
167,200,000 Companhia de Transmissao de Energia Eletrica Paulista 221,831
13,889,000 Copene-Petroquimica do Nordeste SA Class A 2,153,445
5,700 Cosipa PN Class B 43,002
195,099,710 Electrobras Class B (Registered) 3,080,789
162,100,000 Elektro 421,696
594,000,000 Fertilizantes Fosfatados 1,869,771
659,062,710 Gerasul 462,921
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Brazil - continued
17,500,000 Gerdau SA 264,048
3,187,000 Industrias Klabin de Papel e Celulose SA 1,508,933
6,482,353 Investimentos Itau SA 2,967,593
1,336,261 Iochpe Maxion * 21,560
559,080,000 Iparanga Brasil de Petroleo 3,196,821
12,680,000 Itaubanco SA (Registered) 5,871,592
353,450,328 Lojas Americanas (Registered) 902,935
42,420,000 Mesbla (Registered) * 3,752
335,746,000 Olvebra * 59,393
199,400,000 Petrobras Distribuidora SA 1,344,549
61,346,000 Petroleo Brasileiro SA (Petrobras) 8,202,873
980,000 Sadia Frigobras SA (Registered) 596,566
415,600,000 Siderurgica de Tubarao 3,675,963
220,000 Suzano (Registered) 224,350
49,522,000 Telebras SA Preferred (Registered) 1,546
49,522,000 Telecomunicacoes Brasileiras SA * 3,692,249
10,500,000 Telesp SA 920,416
6,520,152 Unipar 1,662,266
350,540 Usinas Siderurgicas de Minas Gerais SA (Usiminas) 1,012,225
499,000 Varig (Registered) 233,663
13,100,000 Votorantim Celulose e Papel SA 408,949
-----------------
61,377,906
-----------------
Korea - 5.2%
125,240 Dongbu Steel Co 561,219
391,263 Samsung Electronics (Non Voting) 55,681,647
-----------------
56,242,866
-----------------
Russia - 0.1%
100,800 Krasny Red Oct 144A (d) 40,320
129,200 Lukoil Holding Sponsored ADR (d) 759,050
30 Rostelecom (d) 12
-----------------
799,382
-----------------
Thailand - 0.1%
550,000 Siam Commercial Bank Ltd * 623,778
-----------------
TOTAL PREFERRED STOCKS (Cost $111,061,988) 119,043,932
-----------------
DEBT OBLIGATIONS - 2.6%
India - 0.0%
INR 8 National Aluminum Co of India, 14.50% due 12/31/25 184
-----------------
U.S. Government - 2.6%
$ 24,546,834 U.S. Treasury Inflation Indexed Note, 3.375% due
1/15/07 (c) 23,480,593
$ 4,357,663 U.S. Treasury Inflation Indexed Note, 3.875% due
1/15/09 (c) 4,297,745
-----------------
27,778,338
-----------------
TOTAL DEBT OBLIGATIONS (Cost $28,164,147) 27,778,522
-----------------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT FUNDS - 2.3%
Brazil - 0.1%
76,400 Brazil Fund Inc 955,000
-----------------
Chile - 0.2%
22,000 Chile Fund Inc 240,625
241,900 Five Arrows Chile Investment Trust Ltd 529,205
474,600 Five Arrows Chile Investment Trust Ltd Convertible Units * 1,070,223
-----------------
1,840,053
-----------------
India - 0.0%
100 Uti Masterplus 1991 Unit * 56
10,400 UTI Masterplus 1991 * 5,826
-----------------
5,882
-----------------
Kazakhstan - 0.1%
450,000 Kazakhstan Investment Fund (d) (e) * 1,237,500
-----------------
Poland - 1.2%
603,111 CHP Investors (d) (e) * 513,670
4,102,132 OBP Investors (d) (e) 5,163,353
5,500,000 Polimex Investment Fund (d) (e) 5,500,000
1,964,434 Templeton Emerging European Fund (d) (e) * 1,736,953
-----------------
12,913,976
-----------------
Romania - 0.1%
4,500 Romanian Investment Fund (d) (e) * 1,575,000
-----------------
Russia - 0.4%
10,000,000 New Century Holdings LP (d) (e) * 4,648,000
-----------------
Thailand - 0.1%
1,500,000 Ruam Pattana Fund (Registered) (d) * 234,650
70 Thailand International Fund IDR 674,100
-----------------
908,750
-----------------
Ukraine - 0.0%
16,667 Societe Generale Thalmann Ukraine Fund (d) (e) * 433,342
-----------------
United States - 0.1%
71,400 Morgan Stanley Emerging Markets Fund 798,788
-----------------
TOTAL INVESTMENT FUNDS (Cost $39,900,023) 25,316,291
-----------------
EQUITY LINKED SECURITIES - 1.6%
Chile - 1.5%
$ 12,779,671 Citibank-Nassau Chilean Equity Time Deposit, 3.50%
due 4/03/00 (e) (f) * 13,133,668
$ 3,389,966 Citibank-Nassau Chilean Equity Time Deposit, 3.50%
due 4/27/00 (e) (f) * 3,445,222
-----------------
16,578,890
-----------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
Russia - 0.1%
32,787 Renaissance Sberbank Note (d) (e) (g) * 935,754
-----------------
TOTAL EQUITY LINKED SECURITIES (Cost $28,348,528) 17,514,644
-----------------
CONVERTIBLE SECURITIES - 0.8%
Indonesia - 0.4%
$ 26,000,000 APP Finance (VI) Convertible, 0.00% due 11/18/12 4,420,000
$ 500,000 APP Finance (VII) Convertible, 3.50% due 4/30/03 311,900
-----------------
4,731,900
-----------------
Korea - 0.0%
$ 500,000 Daewoo Corp Convertible, Zero Coupon, due 12/31/07 275,000
-----------------
Poland - 0.0%
DEM 25,000 Elektrim SA, 2.00% due 5/30/04 16,202
-----------------
South Africa - 0.1%
$ 1,100,000 Randgold Finance Convertible, 7.00% due 10/03/01 625,680
-----------------
Thailand - 0.3%
$ 5,030,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 2,565,300
$ 358,000 Bangkok Land Cayman Island Convertible, 4.50% due 10/13/03 32,220
$ 1,814,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 181,400
CHF 2,800,000 NTS Steel Group Convertible, 1.00% due 12/17/03 73,923
$ 630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 6,300
-----------------
2,859,143
-----------------
TOTAL CONVERTIBLE SECURITIES (Cost $14,409,411) 8,507,925
-----------------
RIGHTS & WARRANTS - 0.3%
Brazil - 0.0%
84,234,574 Mesbla Preferred Rights 12/31/25 * 4
-----------------
Greece - 0.0%
4,386 Commercial Bank of Greece Rights 10/01/99 * 100,282
-----------------
Indonesia - 0.0%
226,076 Indah Kiat Pulp & Paper Warrants 4/13/01 * 55,967
-----------------
Malaysia - 0.0%
98,666 Amsteel Corp Warrants 5/19/00 * 11,424
43,600 UMW Holding Berhad Warrants 1/26/05 * 35,109
206,000 YTL Corp Warrants 6/26/09 * 124,684
-----------------
171,217
-----------------
Mexico - 0.0%
38,886 Grupo Mexico Class B Warrants 8/9/01 * 148,222
-----------------
Phillippines - 0.1%
2,523,700 Jolliebee FDS Warrants 3/24/03 * 1,113,163
-----------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
South Africa - 0.0%
2,461 Randfontein Estates Warrants 7/01/02 * 546
-----------------
Thailand - 0.2%
550,000 Siam Commercial Bank Ltd Warrants 5/10/02 * 247,360
2,002,300 Thai Farmers Bank Rights 12/31/49 * 1,827,154
-----------------
2,074,514
-----------------
TOTAL RIGHTS & WARRANTS (Cost $3,038,855) 3,663,915
-----------------
FULLY PAID SWAPS - 0.1%
India - 0.1%
$ 1,035,000 Garden Silk Mills Swap (h) 299,794
$ 369,750 India Cements Swap (h) 856,803
$ 215,000 Sanghi Polyester Swap (h) 23,445
-----------------
1,180,042
-----------------
TOTAL FULLY PAID SWAPS (Cost $471,402) 1,180,042
-----------------
SHORT-TERM INVESTMENTS - 3.7%
Cash Equivalents - 3.3%
$ 15,100,000 First National Bank of Chicago Time Deposit 5.50%
due 9/01/99 15,100,000
20,225,300 The Boston Global Investment Trust (a) 20,225,300
-----------------
35,325,300
-----------------
U.S. Government - 0.4%
$ 3,825,000 U.S. Treasury Bill, 4.66% due 10/14/99 (c) 3,804,304
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $39,129,582) 39,129,604
-----------------
TOTAL INVESTMENTS - 101.2%
(Cost $1,134,539,400) 1,091,015,825
Other Assets and Liabilities (net) - (1.2%) (13,451,089)
-----------------
TOTAL NET ASSETS - 100.0% $ 1,077,564,736
=================
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
CHF Swiss Franc
DEM German Mark
INR Indian Rupiah
(a) Represents investment of security lending collateral
(Note 1).
(b) Bankrupt issuer.
(c) Security, or a portion thereof, has been segregated to
cover margin requirements on open swap contracts
(Note 6).
(d) Valued by management (Note 1).
(e) Security is restricted as to public resale. The
aggregate market value of restricted securities is
$38,322,462 or 3.6% of net assets.
(f) A derivative security whose price is linked to the
return on a basket of Chilean asset investments.
(g) A derivative security whose price is linked to the
return on a basket of Russian securities.
(h) A derivative security whose price is linked to the
return on the underlying security.
144A Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be
resold in transactions exempt from registration,
normally to qualified institutional buyers.
* Non-income producing security.
See accompanying notes to the financial statements. 17
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of the
Fund's equity investments was as follows:
Industry Sector
Telecommunications 10.2%
Electronic Equipment 10.0
Banking 8.1
Metals and Mining 8.0
Conglomerates 6.2
Utilities 5.4
Consumer Goods 5.4
Financial Services 4.9
Food and Beverage 4.5
Construction 4.5
Oil and Gas 4.4
Real Estate 3.3
Transportation 2.2
Automotive 2.1
Paper and Allied Products 2.0
Services 1.9
Chemicals 1.9
Machinery 1.3
Communications 1.3
Textiles 1.2
Insurance 0.9
Retail Trade 0.7
Health Care 0.4
Computers 0.1
Miscellaneous 9.1
========
100.0%
========
18 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $1,134,539,400) (Note 1) $ 1,091,015,825
Foreign currency, at value (cost $14,826,884) (Note 1) 14,879,307
Receivable for investments sold 8,225,963
Receivable for open swap contracts (Notes 1 and 6) 3,923,892
Foreign withholding taxes receivable 1,263,684
Dividends and interest receivable 3,746,269
Receivable for expenses waived or borne by Manager (Note 2) 17,555
----------------
Total assets 1,123,072,495
----------------
Liabilities:
Due to Custodian 247,628
Payable for investments purchased 19,816,350
Payable upon return of securities loaned (Note 1) 20,225,300
Payable for Fund shares redeemed 25,000
Accrued capital gain and repatriation taxes payable (Note 1) 1,623,846
Accrued Malaysian repatriation taxes (Note 1) 2,416,739
Payable to affiliate for (Note 2):
Management fee 726,411
Shareholder service fee 122,003
Accrued expenses 304,482
----------------
Total liabilities 45,507,759
----------------
Net assets $ 1,077,564,736
================
Net assets consist of:
Paid-in capital $ 1,474,881,135
Accumulated undistributed net investment income 3,901,186
Accumulated net realized loss (357,654,436)
Net unrealized depreciation (43,563,149)
----------------
$ 1,077,564,736
================
Net assets attributable to:
Class III Shares $ 748,460,242
================
Class IV Shares $ 329,104,494
================
Shares outstanding:
Class III 80,189,201
================
Class IV 35,283,859
================
Net asset value per share:
Class III $ 9.33
================
Class IV $ 9.33
================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,492,550) $ 11,100,764
Interest (including security lending income of $77,940) 2,287,075
--------------
Total income 13,387,839
--------------
Expenses:
Management fee (Note 2) 4,126,443
Custodian fees 947,136
Audit fees 37,930
Legal fees 24,251
Transfer agent fees 22,905
Trustees fees (Note 2) 4,962
Registration fee 364
Miscellaneous 43,590
Fees waived or borne by Manager (Note 2) (94,092)
--------------
5,113,489
Shareholder service fee (Note 2)
Class III 513,038
Class IV 176,057
--------------
Net expenses 5,802,584
--------------
Net investment income 7,585,255
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (23,563,995)
Closed swap contracts 28,790,720
Foreign currency, forward contracts and foreign
currency related transactions (2,991,712)
--------------
Net realized gain 2,235,013
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 349,778,847
Open swap contracts 3,393,581
Foreign currency, forward contracts and foreign
currency related transactions (514,293)
--------------
Net unrealized gain 352,658,135
--------------
Net realized and unrealized gain 354,893,148
--------------
Net increase in net assets resulting from operations $ 362,478,403
==============
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
-------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,585,255 $ 31,085,801
Net realized gain (loss) 2,235,013 (323,752,478)
Change in net unrealized appreciation
(depreciation) 352,658,135 (201,053,937)
-------------------- --------------------
Net increase (decrease) in net assets
resulting from operations 362,478,403 (493,720,614)
-------------------- --------------------
Distributions to shareholders from:
Net investment income
Class III - (16,087,702)
Class IV - (9,786,346)
-------------------- --------------------
Total distributions from net
investment income - (25,874,048)
-------------------- --------------------
Net realized gains
Class III - (10,825,261)
Class IV - (8,023,682)
-------------------- --------------------
Total distributions from net
realized gains - (18,848,943)
-------------------- --------------------
In excess of net realized gains
Class III - (49,311)
Class IV - (36,550)
-------------------- --------------------
Total distributions in excess of
net realized gains - (85,861)
-------------------- --------------------
- (44,808,852)
-------------------- --------------------
Net share transactions: (Note 5)
Class III (15,936,970) (77,844,893)
Class IV (54,904,890) (183,333,072)
-------------------- --------------------
Decrease in net assets resulting from
net share transactions (70,841,860) (261,177,965)
-------------------- --------------------
Total increase (decrease) in net assets 291,636,543 (799,707,431)
Net assets:
Beginning of period 785,928,193 1,585,635,624
-------------------- --------------------
End of period (including accumulated
undistributed net investment
income of $3,901,186 and
distributions in excess of net
investment income of $3,684,069,
respectively) $ 1,077,564,736 $ 785,928,193
==================== =====================
</TABLE>
See accompanying notes to the financial statements. 21
<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, 1999 ----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.31 $ 9.56 $ 12.49 $ 10.54 $ 9.52 $ 12.13
----------------- ---------- ---------- ---------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.06 0.25 0.16 + 0.13 0.10 0.05
Net realized and unrealized
gain (loss) 2.96 (3.19) (1.76) 1.96 1.06 (2.37)
----------------- ---------- ---------- ---------- --------- ---------
Total from investment operations 3.02 (2.94) (1.60) 2.09 1.16 (2.32)
----------------- ---------- ---------- ---------- --------- ---------
Less distributions to shareholders
from:
Net investment income - (0.19) (0.25) (0.14) (0.01) (0.07)
Net realized gains - (0.12) (0.71) - (0.13) (0.22)
In excess of net realized gains - (0.00)(d) (0.37) - - -
----------------- ---------- ---------- ---------- --------- ---------
Total distributions - (0.31) (1.33) (0.14) (0.14) (0.29)
----------------- ---------- ---------- ---------- --------- ---------
Net asset value, end of period $ 9.33 $ 6.31 $ 9.56 $ 12.49 $ 10.54 $ 9.52
================= ========== ========== ========== ========= =========
Total Return (a) 47.86% (30.96%) (12.94%) 19.98% 12.24% (19.51%)
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 748,460 $ 524,741 $ 913,615 $1,725,651 $ 907,180 $ 384,259
Net expenses to average
daily net assets 1.15% * 1.16% 1.24% (c) 1.24% (c) 1.35% 1.58%
Net investment income to
average daily net assets 1.47% * 2.75% 1.30% 1.40% 1.31% 0.85%
Portfolio turnover rate 42% 76% 88% 41% 35% 50%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ - (b) $ 0.02 $ 0.03 $ 0.02 $ - (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 voluntarily waived or borne by the Manager were less than
$.01 per share.
(c) 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.
(d) The distribution in excess of net realized gains was $0.0005.
22 See accompanying notes to the financial statements
<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, 1999 Year Ended (commencement of operations)
(Unaudited) February 28, 1999 to February 28, 1998
------------------ ------------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 6.31 $ 9.56 $ 8.62
------------------ ------------------- --------------------
Income (loss) from investment operations:
Net investment income 0.07 + 0.28 0.01 +
Net realized and unrealized gain (loss) 2.95 (3.21) 0.93
------------------ ------------------- --------------------
Total from investment operations 3.02 (2.93) 0.94
------------------ ------------------- --------------------
Less distributions to shareholders from:
Net investment income - (0.20) -
Net realized gains - (0.12)
In excess of net realized gains - (0.00)(d) -
------------------ ------------------- --------------------
Total distributions - (0.32) -
------------------ ------------------- --------------------
Net asset value, end of period $ 9.33 $ 6.31 $ 9.56
================== =================== ====================
Total Return (a) 48.10% (31.01%) 10.90%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 329,104 $ 261,187 $ 672,020
Net expenses to average
daily net assets 1.11% * 1.12% 1.22% * (c)
Net investment income to average
daily net assets 1.53% * 2.87% 0.65% *
Portfolio turnover rate 42% 76% 88%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ - (b) $ 0.02 $ - (b)
</TABLE>
* Annualized
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximate .04% of average daily net assets.
(d) The distribution in excess of net realized gains was $0.0005.
See accompanying notes to the financial statements 23
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 Emerging Markets Fund seeks high total return through investment in
equity securities traded in the securities markets of developing countries
in Asia, Latin America, the Middle East, Africa, and Europe ("Emerging
Markets"). The Fund's current benchmark is the IFC Investable Index.
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. 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.
24
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, currency gains and losses realized between the trade
and settlement dates on securities transaction and the difference between
the amount of investment income and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. There were no forward foreign
currency contracts outstanding as of August 31, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instruments. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
25
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
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 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 and agency 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. As of August
31, 1999, there were no outstanding futures contracts.
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 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
26
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 will be 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, 1999.
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, 1999, the Fund loaned securities having a market
value of $19,472,370 collateralized by cash in the amount of $20,225,300
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. At February 28, 1999, the Fund had a capital loss
carryforward available to offset future capital gains, if any, of
$252,511,867, expiring in 2007.
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.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded an accrual in
the amount of $1,623,846 for potential capital gains and repatriation taxes
at August 31, 1999. The accrual for capital gains and repatriation taxes is
included in net realized and unrealized gain in the Statement of
Operations.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $2,416,739 for potential
27
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
repatriation tax on principal invested prior to February 15, 1999.
Effective September 1, 1999, the Malaysian government exempted funds
invested prior to February 15, 1999 from all levies, and such funds may now
be freely repatriated. Accordingly, effective September 1, 1999 no accrual
for potential Malaysian repatriation taxes 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 dividends 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 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 5. For the
six months ended August 31, 1999, the Fund received $760,154 in purchase
premiums and $379,265 in redemption fees. There is no premium for
reinvested distributions. While no purchase
28
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
premium is normally 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.
Investment risk
Investments in securities of emerging countries present certain risks that
are not inherent in many other investments. Many emerging countries present
elements of political and/or economic instability. The securities markets
of emerging countries are generally smaller and less developed than the
securities markets of the U.S. and developed foreign markets. 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 .81% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding custody fees, brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
1.00% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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)
exceeded .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, 1999, was $4,962. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
29
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------- -------------
<S> <C> <C>
U.S. Government securities $ 12,757,237 $ 13,659,787
Investments (non-U.S. Government securities) 387,086,743 413,611,242
</TABLE>
At August 31, 1999, 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
---------------- ------------------ ------------------ ----------------
$1,134,539,400 $233,424,047 $(276,947,622) $(43,523,575)
4. Principal shareholder
At August 31, 1999, 14.8% 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 and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------------------- --------------------------------
Class III: Shares Amount Shares Amount
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 7,037,835 $ 62,971,129 16,151,855 $ 124,491,194
Shares issued to
shareholders in
reinvestment of
distributions - - 3,383,887 22,834,853
Shares repurchased (9,956,477) (78,908,099) (31,966,910) (225,170,940)
-------------- ---------------- --------------- ---------------
Net decrease (2,918,642) $ (15,936,970) (12,431,168) $ (77,844,893)
============== ================ =============== ===============
</TABLE>
30
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
------------------------------- --------------------------------
Class IV: Shares Amount Shares Amount
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares sold 1,997,126 $ 15,238,070 1,052,163 $ 11,220,974
Shares issued to
shareholders in
reinvestment of
distributions - - 1,540,180 10,691,678
Shares repurchased
(8,114,276) (70,142,960) (31,493,803) (205,245,724)
-------------- --------------- --------------- ---------------
Net decrease (6,117,150) $ (54,904,890) (28,901,460) $ (183,333,072)
============== =============== =============== ===============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Swap agreements
<TABLE>
<CAPTION>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
------------ ---------- ----------------------------------------------------------- ---------------
<C> <C> <S> <C>
$ 307,199 11/02/99 Agreement with Credit Suisse First Boston dated 11/02/98 $ 86,556
to receive (pay) the change in market value of a basket of
selected securities (including dividends) and to pay the
notional amount multiplied by 6 month LIBOR adjusted by a
specified spread.
5,000,000 2/25/00 Agreement with Credit Suisse Financial Products dated 1,813,108
2/23/99 to receive (pay) the notional amount multiplied by
the return on the MSCI Taiwan Index and to pay the
notional amount multiplied by 12 month LIBOR adjusted by a
specified spread.
</TABLE>
31
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
--------- ---------- ----------------------------------------------------------- ---------------
<C> <C> <S> <C>
$2,526,029 3/13/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated $ 159,764
3/12/99 to receive (pay) the notional amount multiplied by
the return on the MSCI Taiwan Index and to pay the
notional amount multiplied by 6 month LIBOR adjusted by a
specified spread.
3,735,370 3/16/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated 146,943
3/16/99 to receive (pay) the notional amount multiplied by
the return on the MSCI Taiwan Index and to pay the
notional amount multiplied by 3 month LIBOR adjusted by a
specified spread.
3,810,744 3/17/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated 7,533
3/17/99 to receive (pay) the notional amount multiplied by
the return on the MSCI Taiwan Index and to pay the
notional amount multiplied by 3 month LIBOR adjusted by a
specified spread.
6,050,866 4/28/00 Agreement with Goldman Sachs International dated 4/12/99 874,695
to receive (pay) the notional amount multiplied by the
return on the MSCI Taiwan Index and to pay the notional
amount multiplied by 12 month LIBOR adjusted by a
specified spread.
6,312,063 4/28/00 Agreement with Goldman Sachs International dated 4/29/99 821,467
to receive (pay) the notional amount multiplied by the
return on the MSCI Taiwan Index and to pay the notional
amount multiplied by 6 month LIBOR adjusted by a specified
spread.
</TABLE>
32
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
--------- ---------- ----------------------------------------------------------- ---------------
<C> <C> <S> <C>
$4,000,000 8/30/00 Agreement with Lehman Brothers Finance S.A. dated 8/17/99 $ 13,826
to receive (pay) the notional amount multiplied by the
return on the MSCI Taiwan Index and to pay the notional
amount multiplied by 3 month LIBOR adjusted by a specified
spread.
-----------------
$ 3,923,892
=================
</TABLE>
33
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 91.3%
Australia - 4.3%
35,800 Amcor Ltd 186,243
7,600 AMP Ltd 75,584
33,795 Australia and New Zealand Banking Group Ltd 219,416
21,500 Bank of Western Australia 46,987
71,700 Boral Ltd 109,641
6,334 Broken Hill Proprietary Ltd 68,002
12,600 Caltex Australia Ltd 25,208
32,698 Coles Myer Ltd 182,106
94,100 Colonial Ltd 353,080
11,756 Commonwealth Bank of Australia 184,682
119,563 CSR Ltd 304,718
14,300 David Jones Ltd 11,207
78,100 Delta Gold 109,873
26,500 Email Ltd 47,277
41,929 Fosters Brewing Group Ltd 122,622
36,900 General Property Trust Units 62,539
5,000 GIO Australia Holdings Ltd 8,063
27,700 Goodman Fielder Ltd 25,415
23,700 Harvey Norman Holdings 248,191
4,400 Jupiters Ltd 10,233
7,100 Leighton Holdings 28,310
27,900 MIM Holdings Ltd 21,865
30,229 National Australia Bank Ltd 456,279
81,700 National Food Ltd 138,987
75,500 National Mutual Holdings 114,971
10,100 Newcrest Mining Ltd * 23,810
154,603 News Corp Ltd 1,127,886
168,315 Normandy Mining Ltd 120,111
16,749 North Broken Hill Peko Ltd 36,924
61,500 Pacific Dunlop Ltd 91,300
94,552 Pioneer International Ltd 240,975
21,674 PMP Communications Ltd 37,700
139,635 Qantas Airways Ltd 449,291
91,535 QCT Resources Ltd 61,238
42,200 Resolute Ltd 15,326
552 Rothmans Holdings Ltd 5,750
27,797 Schroders Property 44,986
9,100 Stockland Trust Group 20,867
49,900 Western Mining Corp Holdings Ltd 219,600
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
101,765 Westfield Trust Units 206,838
79,050 Westpac Banking Corp 478,484
-----------------
6,342,585
-----------------
Austria - 3.0%
622 Austria Mikro Systeme International 23,422
1,118 Boehler Uddeholm (Bearer) 53,719
5,515 Brau Union AG 264,756
723 EA-Generali AG 123,714
611 Energie-Versorgung Niederoesterreich AG 85,899
7,598 Erste Bank Der Oesterreichischen Sparkassen AG 421,333
1,096 Flughafen Wien AG 43,354
155 Leykam-Muerztaler Papier und Zellstoff AG 3,302
7,346 Oesterreichische Brau Beteiligungs AG 335,198
46 Oesterreichische Elektrizitaetswirtschafts AG 6,899
17,842 Oesterreichische Laenderbank AG 946,992
2,963 OMV AG 297,162
6,378 Radex-Heraklith AG 180,949
4,334 Universale Bau AG 146,489
46,594 Voest-Alpine Stahl AG 1,520,741
-----------------
4,453,929
-----------------
Belgium - 1.4%
1,400 Almanij NV 82,810
550 Arbed SA 54,899
2,698 Compagnie Benelux Paribas SA 169,561
2,351 Credit Commercial Dexia 343,433
1,559 Electrabel SA 520,849
400 Electrafina NPV 49,771
7,029 Fortis (B) 241,292
250 Glaverbel NPV 25,614
1,700 Groupe Bruxelles Lambert NPV 324,829
3,342 Solvay Et Cie 235,274
1,350 Union Miniere NPV 54,057
-----------------
2,102,389
-----------------
Canada - 2.3%
6,900 Air Canada Inc * 41,848
4,100 Bank of Montreal 144,250
12,700 Bank of Nova Scotia 275,754
2,300 Biochem Pharma Inc * 59,496
9,268 Boliden Ltd ADR * 21,770
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
13,100 Bombardier Inc Class B 204,111
14,200 Canadian Marconi Co 157,492
1,389 Cominco Ltd 23,969
4,700 Donohue Inc Class A 76,066
2,500 Enbridge Inc 53,445
100 Fairfax Financial Holdings Ltd * 16,687
1,869 Falconbridge Ltd 29,184
4,200 Hudsons Bay Co 54,885
350 Ipsco Inc 7,271
4,600 Magna International Class A 228,428
19,100 Methanex Corp * 56,320
6,400 Molson Co Ltd Class A 109,583
2,100 Nexfor Inc 12,877
4,700 NS Power Holdings Inc 51,655
3,200 PanCanadian Petroleum Ltd 52,540
5,400 Petro Canada 81,242
4,000 Potash Corp of Saskatchewan 223,294
3,800 Quebecor Inc Class B 95,497
4,846 Rogers Cantel Mobile Communications Class B * 105,546
6,334 Seagram Ltd 336,396
2,700 Shell Canada Ltd Class A 57,358
6,900 Stelco Inc Class A 52,945
5,800 Transalta Corp 76,960
36,930 Transcanada Pipelines Ltd 520,960
5,800 Westcoast Energy Inc 113,303
-----------------
3,341,132
-----------------
Finland - 0.1%
2,600 Enso OY Class R 34,603
300 Instrumentarium OY Class A 11,249
800 Kesko OY 9,819
8,000 Merita Ltd Class A 42,250
800 Metra AB Class A 14,424
250 Stockmann AB Class A 4,489
2,000 UPM-Kymmene OY 69,184
-----------------
186,018
-----------------
France - 11.9%
231 Accor SA 55,582
1,705 Air Liquide Class L 261,492
1,120 Alcatel Alsthom Cie Generale d'Electricite SA 171,535
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
13,099 Assurances Generales De France (Bearer) 676,156
800 Axa SA 99,541
11,582 Banque Nationale de Paris 885,705
9,500 Banque Paribas Class A 1,010,462
215 Bongrain 81,981
482 Cap Gemini SA 82,731
750 Christian Dior 120,413
890 Clarins 87,520
5,077 Compagnie Generale d'Industrie et de Participations 250,969
2,660 Credit Commercial de France 333,502
2,130 Credit Local de France SA 277,402
18,206 Credit Lyonnais * 518,059
2,866 Elf Aquitaine SA 502,517
3,447 Eridania Beghin-Say SA 455,840
90 Fromageries Bel SA 75,385
2,858 Groupe Danone 706,994
10,308 Lafarge Coppee SA 1,107,292
290 Louis Vuitton Moet Hennessy 88,249
3,278 Lyonnaise Des Eaux 546,711
1,900 Metaleurop SA * 12,503
3,700 Michelin SA Class B 160,272
2,110 Pechiney SA Class A 122,801
4,793 Pernod Ricard 367,545
7,162 Peugeot SA 1,316,286
1,700 Remy Cointreau SA * 32,591
15,850 Renault SA 853,820
15,033 Rhone Poulenc SA Class A 729,146
9,234 Saint-Gobain 1,784,874
11,870 Skis Rossignol 176,405
812 Societe Eurafrance 498,309
9,859 Societe Generale Paris 1,929,634
7,220 SPIE Batignolles 484,259
2,400 Thomson CSF 87,711
28,304 Usinor Sacilor 437,978
690 Vallourec 27,702
-----------------
17,417,874
-----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - 5.5%
250 Axel Springer Verlag AG 298,391
1,950 Bankgesellschaft Berlin AG 34,685
18,000 BASF AG 815,636
16,501 Bayer AG 717,211
2,100 Bayerische Hypotheken und Wechsel-Bank AG 37,708
900 Bayerische Vereinsbank 53,330
2,000 BHF Bank AG 94,429
2,050 Bilfinger & Berger 49,369
13,000 Buderus AG 219,700
10,150 Commerzbank AG 363,440
7,959 Continental AG 183,266
6,644 Deutsche Bank AG 454,047
10,166 Deutsche Telekom AG 449,915
2,801 Dresdner Bank 128,993
8,400 FAG Kugelfischer 88,281
700 Fresenius Medical Care AG 50,943
18,850 Hamburgische Electricitaets-Werke AG 418,117
2,713 Heidelberg Port-Zement 273,665
3,350 Leirheit AG 104,384
3,500 Lufthansa AG 67,653
300 Schmalbach-Lubeca 41,099
19,779 Siemens AG 1,662,969
172 Suedzucker AG 69,909
34,388 Thyssen Krupp AG * 802,723
8,548 Veba AG 544,438
-----------------
8,024,301
-----------------
Hong Kong - 4.1%
140,500 Amoy Properties Ltd 138,417
57,000 Cheung Kong Holdings 497,318
108,500 CLP Holdings Ltd 512,798
133 Dickson Concept International Ltd 123
425,000 Elec & Eltek International Holdings Ltd 74,435
53,281 Great Eagle Holdings Ltd 78,222
6,700 Guoco Group 19,888
105,300 Hang Lung Development Co Ltd 120,689
19,000 Henderson Land Development Co Ltd 100,320
768 HKR International Ltd 593
100,700 Hong Kong Aircraft Engineering Co Ltd 178,961
149,500 Hong Kong Electric Holdings Ltd 491,906
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
43,000 Hong Kong Ferry Co Ltd 48,731
400 Hong Kong Telecommunications 907
600 Hysan Development Co Ltd 780
114,441 Jardine Matheson Holdings Ltd 547,028
181,500 Jardine Strategic Holdings Ltd 417,450
27,127 Kumagai Gumi Ltd 13,275
1,400 Lai Sun Garment International Ltd 83
796 Leading Spirit Conrowa Electric * 13
297,400 Mandarin Oriental ADR 200,745
87,600 New Asia Realty & Trust Class A 139,887
19,815 New World Development Co Ltd 47,718
1,000 Oriental Press Group 129
100 Realty Development Corp Ltd Class A 189
2,939,000 Regal Hotels International Ltd 314,143
900 Shaw Brothers Ltd 800
332,972 South China Morning Post Ltd 210,113
84,000 Sun Hung Kai Properties Ltd 713,959
74,500 Swire Pacific Ltd Class A 383,766
167,000 Wharf Holdings Ltd 453,784
208,200 Wheelock and Co Ltd 269,462
80 Wing Lung Bank 331
52,000 Yue Yuen Industrial Holdings 150,004
-----------------
6,126,967
-----------------
Ireland - 0.0%
4,800 Independent News & Media Plc 23,423
-----------------
Italy - 4.3%
18,436 Alitalia Linee Aeree 49,267
86,700 Banca Commerciale Italiana SPA 589,755
410,000 Banca di Roma 556,918
8,000 Banca Intesa SPA 33,800
11,600 Banca Popolare di Bergamo Credit 237,699
46,200 Banca Popolare di Milano 334,759
113,300 Banco Ambrosiano Veneto SPA (Non Convertible) 229,772
87,297 Banco di Napoli di Risp 108,805
12,000 Burgo (Cartiere) SPA 87,584
18,200 Compart SPA * 24,818
8,000 Credito Fondiario * 17,238
24,769 Fiat SPA 797,949
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
13,017 Fiat SPA (Non Convertible) 208,713
167,500 Finmeccanica SPA * 140,830
368,580 HPI SPA 221,130
23,350 IFIL-Finanziaria di Partecipazioni SPA 148,967
29,250 IFIL-Finanziaria di Partecipazioni SPA (Non Convertible) 125,435
50,000 Industriali Riunite SPA 74,360
2,200 Industrie Natuzzi SPA ADR 40,700
44,485 Istituto Nazionale Delle Assicurazioni 107,131
25,850 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 129,694
6,200 Italcementi SPA 84,479
1,600 Italmobiliare SPA 39,360
5,000 Magneti Marelli SPA 13,098
8,402 Mediobanca SPA 87,149
198,934 Montedison SPA 299,427
107,304 Montedison SPA (Non Convertible) 126,941
45,000 Parmalat Finanziaria SPA 58,463
54,700 Pirelli & Co 106,309
20,981 RAS SPA 197,235
16,800 RAS SPA (Non Convertible) 140,186
4,000 Rinascente 17,534
11,000 SAI di Risp 55,421
8,268 San Paolo IMI SPA 110,997
21,650 Sirti SPA 111,824
35,000 SNIA SPA 39,372
11,643 Telecom Italia Mobile SPA (Non Convertible) 40,337
45,870 Telecom Italia SPA (Non Convertible) 262,600
7,700 Toro Assicurazioni 97,435
338,592 Unione Immobiliaer SPA 162,368
-----------------
6,315,859
-----------------
Japan - 22.1%
4,000 Acom Ltd 405,308
3,000 Anritsu Corp 27,771
55,000 Aoki Corp * 31,100
4,200 Arabian Oil Co Ltd 68,950
31,000 Asahi Bank 189,430
61,000 Atsugi Nylon Industrial 70,655
2,000 Autobacs Seven 105,796
3,000 Bandai Co 47,882
12,000 Brother Industries Ltd 35,022
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
4,000 Canon Inc 116,740
21,000 Canon Sales Co Inc 333,449
7,800 Chubu Electric Power Co Inc 145,479
16,000 Chugai Pharmaceutical Co Ltd 176,570
5,500 Chugoku Electric Power Co Inc 90,492
115,000 Cosmo Oil Co Ltd 209,768
1,000 Credit Saison Co 22,527
26,000 Daicel Chemical Industries Ltd 106,708
17,000 Daido Steel Co Ltd 29,459
8,000 Dai-Ichi Kangyo Bank 83,980
14,000 Daiichi Seiyaku Co Ltd 215,915
24,000 Daishowa Paper Manufacturing * 98,062
2,000 Daito Trust Construction Co Ltd 25,993
157,000 Daiwa Bank 499,731
69,000 Daiwa House Industry Co Ltd 692,234
8,000 Daiwa Kosho Lease Co Ltd 36,773
71,000 Daiwa Securities Co Ltd 641,716
13,000 Ezaki Glico Co Ltd 71,257
6,700 Fanuc Co 403,302
80,000 Fuji Bank 824,479
5,000 Fuji Heavy Industries Ltd 39,765
800 Fuji Photo Film Co Ltd 29,185
48,000 Fujita Corp 37,211
12,000 Fukuyama Transporting Co Ltd 68,950
20,000 Gakken Co Ltd 30,280
28,000 General Sekiyu (KK) 82,484
1,000 Heiwa Corp 30,280
52,000 Hino Motors 208,199
186,000 Hitachi Ltd 1,884,682
3,700 Hokkaido Electric Power 57,502
14,000 Hokuriku Bank 28,218
3,000 Honda Motor Co Ltd 120,389
3,000 House Foods Corp 45,283
3,000 INAX Corp 22,108
30,000 Industrial Bank of Japan 305,075
8,000 Intec Inc 109,371
18,000 Ishikawajima-Harima Heavy Industries 35,296
39,000 Itochu Corp 119,157
12,000 Itoham Foods Inc 47,061
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
8,000 Japan Airport Terminal Co Ltd 95,581
117,000 Japan Energy Co Ltd 149,391
21,000 Japan Radio Co 241,899
5,000 Japan Securities Finance Co 30,280
6,000 Japan Synthetic Rubber Co Ltd 50,125
93 Japan Tobacco Inc 1,289,252
52,000 Kajima Corp 224,324
5,000 Kandenko Co 29,596
10,400 Kansai Electric Power 199,188
37,000 Kawasaki Heavy Industries Ltd 84,363
16,000 Kawasaki Kisen 32,541
76,000 Keio Teito Electric Railway Co Ltd 301,519
500 Keyence Corp 113,320
4,000 Kirin Brewery Co Ltd 48,520
4,000 Kissei Pharmaceutical Co Ltd 78,435
146,000 Kobe Steel Ltd 127,831
1,000 Kokusai Denshin Denwa 77,979
110,000 Kubota Corp 347,120
55,000 Kumagai Gumi Co Ltd * 57,686
44,000 Kurabo Industries Ltd 54,175
2,000 Kyocera Corp 131,333
50,000 Kyowa Hakko Kogyo Co Ltd 378,494
26,100 Kyushu Electric Power Co Inc 416,572
24,000 Maeda Corp 94,122
3,000 Maeda Road Construction 19,290
117,000 Marubeni Corp 276,374
17,000 Marudai Food Co Ltd 36,436
6,000 Meiji Milk Products 22,545
124,000 Mitsubishi Electric Corp 626,531
210,000 Mitsubishi Heavy Industries 913,585
66,000 Mitsubishi Material 186,000
49,000 Mitsubishi Motors 265,904
8,000 Mitsubishi Trust & Banking 83,907
54,000 Mitsui Petrochemical Industries Ltd 393,999
198,000 Mitsui Trust & Banking Co Ltd 408,117
4,000 Mochida Pharmaceutical Co Ltd 28,455
6,000 MOS Food Services 94,067
14,000 New Japan Securities Co Ltd * 44,434
12,000 New Oji Paper Co Ltd 83,178
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
33,000 Nichii Co Ltd 198,641
93,000 Nichirei 254,458
64,000 Nikko Securities 553,349
4,800 Nintendo Co Ltd 831,775
15,000 Nippon Carbon Co Ltd 23,120
6,000 Nippon Chemi-Con Corp 29,222
11,000 Nippon Express Co Ltd 83,971
13,000 Nippon Hodo Co 83,114
22,000 Nippon Light Metal 30,298
10,000 Nippon Meat Packers Inc 136,805
128,550 Nippon Oil Co Ltd 568,624
35,000 Nippon Shinpan Co 121,301
19,000 Nishimatsu Construction 110,037
156,000 Nissan Motor Co 907,729
16,000 Nisshin Oil Mills Ltd 63,332
41,000 Nisshin Steel Co Ltd 58,334
68,000 Nisshinbo Industries Inc 354,125
185,000 Nissho Iwai Corp 200,784
322,000 NKK Corp 299,549
19,000 Obayashi Corp 102,412
31,000 Odakyu Electric Railway 99,521
76,000 Oki Electric Industry 353,504
17,000 Okumura Corp 64,344
3,000 Ono Pharmaceutical Co Ltd 97,952
32,000 Onoda Cement Co Ltd 83,761
15,000 Onward Kashiyama Co Ltd 229,012
26,000 Orient Corp 75,407
12,000 Penta Ocean Construction 21,013
6,000 Promise Co 497,971
6,000 Q.P. Corp 42,136
71,000 Renown Inc * 97,132
5,000 Royal Co Ltd 65,119
6,000 Ryosan Co 153,769
38,000 Sagami Railway Co Ltd 102,932
214,000 Sakura Bank Ltd 1,132,017
1,000 Sankyo Co Ltd 27,817
33,000 Sanyo Electric Company 142,961
34,000 Sato Kogyo Co Ltd 24,497
500 Secom Co Ltd 68,175
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
40,000 Seino Transportation Co Ltd 254,640
46,000 Sekisui Chemical 255,917
59,000 Sekisui House Ltd 633,344
25,200 Shikoku Electric Power 404,505
40,000 Shimizu Corp 178,394
3,000 Shionogi and Co Ltd 25,719
32,000 Showa Shell Sekiyu 215,386
4,000 Skylark Co Ltd 105,066
22,000 Snow Brand Milk Products Co Ltd 100,524
30,000 Stanley Electric Co Ltd 126,955
1,000 Sumitomo Electric 13,589
4,000 Sumitomo Forestry Co Ltd 31,666
138,000 Sumitomo Metal Industries 185,015
75,000 Sumitomo Trust & Banking 499,339
12,000 Suzuki Motor Corp 202,472
62,000 Taisei Corp 138,538
8,000 Taisho Pharmaceutical Co Ltd 336,358
6,000 Takara Standard Co 38,141
10,000 Takuma Corp 107,255
8,000 Tanabe Seiyaku Co Ltd 53,701
700 TDK Corp 84,910
34,000 Teijin Ltd 144,193
58,000 Teikoku Oil Co Ltd 213,708
9,000 TOA Corp 15,678
53,000 Toei Co Ltd 197,218
8,900 Tohoku Electric Power Co Inc 141,238
27,000 Tokai Bank 171,389
4,000 Tokyo Steel Manufacturing Co 18,678
76,000 Tomen Corp 77,632
7,000 Tostem Corp 143,645
5,000 Toto Limited 36,937
16,000 Toyo Seikan Kaisha 372,110
5,000 Toyo Suisan Kaisha 54,722
13,000 Toyo Trust & Banking Co Ltd 55,370
144,000 Toyobo Co Ltd 229,833
5,000 Yakult Honsha Co Ltd 72,507
211,000 Yasuda Trust & Banking * 361,786
-----------------
31,931,610
-----------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - 0.3%
128,000 DMIB Berhad 40,758
55,000 Highlands and Lowlands Berhad 33,434
199,000 Kumpulan Guthrie Berhad 106,308
154,000 Malaysian International Shipping 281,658
-----------------
462,158
-----------------
Netherlands - 0.5%
8,800 ABN Amro Holdings NV 214,250
1,700 Hoogovens & Staalf CVA 98,310
1,400 KLM-Koninklijke Luchtvaart Mij 38,448
5,500 Kon Bolswessanen 67,389
2,550 Koninklijke Pakhoed 65,585
3,000 Nedlloyd 85,556
3,850 Stork NV 83,161
1,400 VIB NV 39,483
-----------------
692,182
-----------------
New Zealand - 0.2%
14,600 Air New Zealand Class B 26,419
257,000 Brierley Investment Ltd * 61,120
58,100 Carter Holt Harvey Ltd 68,786
3,500 Fisher and Paykel Industries Ltd 10,314
2,900 Fletcher Challenge Energy 7,422
36,700 Lion Nathan Ltd 81,588
-----------------
255,649
-----------------
Norway - 0.9%
4,300 Aker RGI ASA Class A 66,027
4,700 Bergesen d.y. ASA Class A 70,373
1,700 Bergesen d.y. ASA Class B 24,804
54,900 Christiania Bank OG Kreditkasse 232,962
91,563 Den Norske Bank Class A 365,202
1,700 Dyno Industrier AS 35,961
1,200 Elkem AS Class A 21,408
7,000 Fred Olsen Energy * 67,346
9,350 Kvaerner Industrier AS 207,314
200 Leif Hoegh and Co AS 2,319
2,050 Norsk Hydro AS 85,422
2,650 Norske Skogindustrier AS Class A 110,761
2,800 Petroleum Geo-Services * 56,018
-----------------
1,345,917
-----------------
Portugal - 0.2%
14,880 Electricidade de Portugal 251,472
-----------------
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Singapore - 5.3%
41,000 Cerebos Pacific Ltd 95,422
252,000 Comfort Group 127,174
24,000 Creative Technology Ltd 237,962
3,000 Cycle & Carriage Ltd 16,921
9,599 DBS Bank Ltd 109,993
212,000 DBS Land Ltd 483,334
58,890 Development Bank of Singapore (Foreign Registered) 674,807
12,000 First Capital Corp Ltd 16,672
10,000 Fraser & Neave 37,998
59,564 Haw Par Brothers International Ltd 99,020
69,000 Hotel Properties Ltd 63,498
24,308 Inchcape Berhad 32,905
31,000 Keppel Bank Ltd 65,891
69,000 Keppel Corp 223,268
75,000 Keppel Land Ltd 115,330
58,000 Marco Polo Developments Ltd 86,778
39,000 Natsteel Ltd 82,895
34,000 Overseas Chinese Banking (Foreign Registered) 238,200
196,600 Overseas Union Bank Ltd (Foreign Registered) 1,027,180
49,100 Robinson and Co Ltd 154,503
30,000 Shangri-La Hotel Ltd 66,971
205,000 Singapore Airlines Ltd (Foreign Registered) 1,923,054
69,000 Singapore Land Ltd 167,144
37,426 Singapore Press Holdings 622,174
92,000 Singapore Telecom 163,320
147,000 Straits Trading Co Ltd 174,553
27,000 Times Publishing Ltd 52,900
79,000 United Industrial Corp Ltd 45,262
188,000 United Overseas Land 175,242
275,000 Wing Tai Holdings 295,523
-----------------
7,675,894
-----------------
Spain - 2.0%
9,921 Acerinox SA 328,623
2,206 Banco Popular Espanol 161,592
17,400 Compania Espanola de Petroleos 209,885
2,400 Corporacion Mapfre (Registered) 45,250
18,000 Endesa 361,238
1,900 FENOSA SA 27,093
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Spain - continued
6,450 Grupo Dragados SA 79,233
9,996 Iberdrola SA 143,593
74,227 Repsol SA 1,554,717
-----------------
2,911,224
-----------------
Sweden - 3.2%
23,577 Assi Doman 455,325
44,742 Avesta Sheffield AB 220,487
3,600 Drott AB Class B 31,166
10,450 Foreningssparbanken AB Class A 156,896
4,574 Gambro AB Class A 47,352
5,107 Gambro AB Class B 52,869
5,000 Investor AB 60,843
34,577 Mo Och Domsjo AB Class B 1,055,019
11,300 Nordbanken Holdings AB 63,622
5,100 Scancem AB Class A 243,916
29,300 Skandinaviska Enskilda Banken Class A 303,324
2,055 Skanska AB Class B 80,369
5,200 SKF AB Class B 118,368
11,200 Ssab Swedish Steel Class A 155,951
3,300 Ssab Swedish Steel Class B 45,151
26,295 Svenska Cellulosa Class B 764,112
15,200 Svenska Handelsbanken Class A 210,728
5,000 Svenska Kullagerfabriken AB 106,550
25,618 Trelleborg AB Class B 229,535
2,900 Volvo AB Class A 81,638
6,500 Volvo AB Class B 181,802
-----------------
4,665,023
-----------------
Switzerland - 1.0%
50 Ascom Holding AG (Bearer) 94,053
250 Baloise Holdings 209,062
340 BK Vision AG (Bearer) * 72,484
1,370 CIBA Specialty Chemicals Holdings (Registered) 108,508
60 Clariant Namen AG 28,830
318 CS Holdings (Registered) 60,028
30 Financiere Richemont AG Class A 57,026
360 Fischer (George) AG (Registered) 110,488
50 Helvetia Patria Holding 40,921
50 Holderbank Financiere Glarus AG (Bearer) 61,547
40 Jelmoli (Bearer) 40,525
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Switzerland - continued
310 Merkur Holding AG (Registered) 78,160
300 Oerlikon-Buhrle (Registered) 43,561
50 Pargesa Holdings SA (Bearer) 79,203
110 Pharma Vision * 76,233
130 Sairgroup Zuerich (Registered) 27,328
80 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 49,581
130 Sika Finanz AG (Bearer) 39,169
210 Sulzer Gebrueder AG (Registered) * 131,813
15 Swiss Reinsurance (Bearer) 29,255
132 UBS AG (Registered) 37,245
100 Zurich Allied 58,676
-----------------
1,533,696
-----------------
United Kingdom - 18.7%
8,900 3i Group Plc 118,064
8,000 Abbey National 137,383
32,933 Allied Domecq Plc 304,224
41,900 Allied Zurich Plc 512,372
15,400 AMEC 66,487
17,400 Anglian Water Plc 207,040
12,440 Arcadia Group 46,107
51,000 Arjo Wiggins Appleton Plc 177,542
49,646 Associated British Food 340,468
10,000 BAA 104,517
6,800 Bank of Scotland 84,794
10,980 Barclays Plc 326,623
24,999 Barratt Development 130,239
34,416 Bass Plc 462,912
177,407 BG Plc 1,067,591
9,600 BPB Industries Plc 58,272
93,540 British Airways Plc 612,535
17,036 British Energy Plc 141,896
19,018 British Energy Plc Class A * 17,278
261,489 British Steel Plc 686,403
9,211 British Telecom Plc 141,147
51,418 BTR Siebe Plc 262,501
17,104 Cable & Wireless 196,367
29,126 Carillion Plc * 64,630
48,012 Centrica Plc 127,960
123,700 Coats Viyella 104,922
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
17,300 Commercial Union Plc 257,729
6,800 Cookson Group 25,258
65,500 Courtaulds Textiles Plc 177,992
51,800 Diageo Plc 524,738
41,908 Elementis Plc 78,842
28,500 Great Portland Estates Plc 103,339
2,100 Great Universal Stores Plc 21,172
26,133 Greenalls Group Plc 158,207
60,600 Halifax Group Plc 676,733
19,600 Hammerson Plc 156,791
3,400 Hanson Plc 28,921
82,212 Hazlewood Foods 173,173
13,100 Hyder Plc 118,380
23,617 Inchcape Plc 147,153
5,600 Johnson Matthey 55,153
27,900 Kingfisher Plc 335,791
38,700 Laird Group 190,106
47,580 Land Securities 669,047
15,992 Legal & General Group Plc 43,907
72,331 Lonrho Plc 662,936
102,800 Marks & Spencer 686,810
40,422 MEPC Plc 340,257
140,500 MFI Furniture Group 106,181
129,758 National Power 923,251
17,500 Northern Foods Plc 37,003
45,800 Norwich Union Plc 312,987
22,100 Peninsular & Oriental Steam Navigation Co 362,642
70,331 Powergen Plc 702,846
14,303 Railtrack Group Plc 273,912
14,254 Reuters Holdings Plc 208,913
15,250 Rio Tinto Plc 274,638
18,208 RMC Group 298,485
25,096 Royal Bank of Scotland Group 521,362
51,315 Royal & Sun Alliance Insurance Group 427,412
131,308 Safeway Plc 544,733
148,900 Sainsbury (J) 1,027,128
64,066 Scottish Hydro-Electric Plc 588,215
124,235 Scottish Power Plc 1,143,638
2,800 Scottish & Newcastle Plc 27,621
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
44,030 Severn Trent Plc 640,722
35,000 Slough Estates 204,853
19,909 Smithkline Beecham Plc 259,463
5,800 Southwest Water 100,023
2,521 Standard Chartered 37,010
31,430 Storehouse Plc 57,866
29,126 Tarmac Plc * 236,976
53,300 Taylor Woodrow Plc 158,123
15,400 Telewest Communications Plc * 59,863
213,100 Tesco 631,340
39,904 Thames Water Plc 573,623
17,186 Thistle Hotels Plc 47,116
47,947 Transport Development Group Plc 200,836
68,045 Unilever Plc 642,254
92,617 United Biscuits Plc 288,912
99,855 United Utilities 1,185,749
9,102 Vodafone Group Plc 183,530
39,791 Whitbread Plc Class A 549,605
231,269 Wilson (Connolly) Holdings 660,067
38,000 Woolwich Plc 205,456
77,277 Yorkshire Water 510,699
-----------------
27,347,762
-----------------
TOTAL COMMON STOCKS (Cost $125,332,341) 133,407,064
-----------------
PREFERRED STOCKS - 0.7%
Austria - 0.1%
2,873 Bau Holdings AG (Non Voting) 97,714
-----------------
Germany - 0.2%
550 Hugo Boss 65,355
1,900 MAN AG 41,041
900 Villeroy & Boch (Non-Voting) 84,606
3,100 Volkswagen AG 107,072
-----------------
298,074
-----------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - 0.4%
22,480 Fiat SPA 352,843
7,500 IFI-Istituto Finanziario Industries 197,255
18,000 Unipol SA (CIA Assicuratri) 40,211
-----------------
590,309
-----------------
TOTAL PREFERRED STOCKS (Cost $1,200,039) 986,097
-----------------
RIGHTS & WARRANTS - 0.0%
Australia - 0.0%
1,770 Franked Income Fund Warrants 12/31/02 * 361
-----------------
France - 0.0%
155,500 Eurotunnel SA Paris Warrants 10/31/01 * 6,570
155,500 Eurotunnel SA Paris Warrants 10/31/03 * 18,067
3,420 Generale Des Eaux Warrants 5/02/01 * 7,875
-----------------
32,512
-----------------
Hong Kong - 0.0%
38,275 Century City International Warrants 12/31/99 * 227
9,400 Gold Peak Industries Ltd Warrants 8/06/00 * 121
24,025 Kumagai Gumi Warrants 12/31/99 * 1,764
450 Wharf Holdings Ltd Warrants 12/31/99 * 278
-----------------
2,390
-----------------
Singapore - 0.0%
113,800 Asia Food & Properties Ltd Warrants 7/12/02 * 53,486
9,500 Haw Par Brothers International Ltd Warrants 7/18/01 * 5,528
-----------------
59,014
-----------------
TOTAL RIGHTS & WARRANTS (Cost $41,303) 94,277
-----------------
SHORT-TERM INVESTMENTS - 11.2%
Cash Equivalents - 9.5%
3,769,473 The Boston Global Investment Trust (b) 3,769,473
$ 10,000,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 10,000,000
-----------------
13,769,473
-----------------
U.S. Government - 1.7%
$ 2,600,000 U. S. Treasury Bill, 4.61% due 1/06/00 (a) 2,555,973
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $16,329,638) 16,325,446
-----------------
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS - 103.2%
(Cost $142,903,321) 150,812,884
Other Assets and Liabilities (net) - (3.2%) (4,662,986)
-----------------
TOTAL NET ASSETS - 100.0% $ 146,149,898
=================
</TABLE>
Notes to the Schedule of Investments
ADR American Depositary Receipt
(a) This security is held as collateral for open futures
contracts (Note 6).
(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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector
Banking 15.5%
Utilities 8.5
Construction 6.2
Conglomerates 5.4
Electronic Equipment 4.6
Consumer Goods 4.3
Metals and Mining 4.3
Transportation 4.2
Automotive 4.0
Services 4.0
Real Estate 3.8
Financial Services 3.6
Oil and Gas 3.4
Food and Beverage 3.3
Retail Trade 3.2
Chemicals 3.1
Machinery 3.1
Insurance 2.5
Paper and Allied Products 2.4
Communications 1.8
Health Care 1.3
Telecommunications 1.2
Textiles 1.1
Aerospace 0.4
Computers 0.1
Miscellaneous 4.7
=======
100.0%
=======
20 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $142,903,321) (Note 1) $ 150,812,884
Foreign currency, at value (cost $391,135) (Note 1) 389,303
Cash 53,905
Receivable for investments sold 129,188
Dividends and interest receivable 241,354
Foreign withholding taxes receivable 207,184
Receivable for expenses waived or borne by Manager (Note 2) 56,377
---------------
Total assets 151,890,195
---------------
Liabilities:
Accrued Malaysian repatriation taxes (Note 1) 35,954
Payable upon return of securities loaned (Note 1) 3,769,473
Net payable for open forward foreign currency contracts (Notes 1 and 6) 1,508,720
Payable for variation margin on open futures contracts (Notes 1 and 6) 192,726
Payable to affiliate for (Note 2):
Management fee 65,987
Shareholder service fee 14,678
Accrued expenses 152,759
---------------
Total liabilities 5,740,297
---------------
Net assets $ 146,149,898
===============
Net assets consist of:
Paid-in capital $ 137,468,283
Accumulated undistributed net investment income 2,350,909
Accumulated net realized loss (221,013)
Net unrealized appreciation 6,551,719
---------------
$ 146,149,898
===============
Net assets attributable to:
Class III Shares $ 83,607,194
===============
Class IV Shares $ 62,542,704
===============
Shares outstanding:
Class III 7,943,919
===============
Class IV 5,947,137
===============
Net asset value per share:
Class III $ 10.52
===============
Class IV $ 10.52
===============
</TABLE>
See accompanying notes to the finacial statements. 21
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $388,935) $ 3,710,936
Interest (including securities lending income of $22,509) 361,876
-------------
Total income 4,072,812
-------------
Expenses:
Management fee (Note 2) 520,714
Custodian fees 275,313
Audit fees 27,790
Transfer agent fees 21,435
Legal fees 3,312
Trustees fees (Note 2) 1,104
Registration fees 637
Miscellaneous 1,517
Fees waived or borne by Manager (Note 2) (331,108)
-------------
520,714
Shareholder service fee - (Note 2)
Class III 66,421
Class IV 46,933
-------------
Net expenses 634,068
-------------
Net investment income 3,438,744
-------------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 3,973,813
Closed futures contracts 1,537,680
Foreign currency, forward contracts and foreign currency
related transactions 4,684,690
-------------
Net realized gain 10,196,183
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 23,486,396
Open futures contracts (517,018)
Foreign currency, forward contracts and foreign currency
related transactions (2,866,674)
-------------
Net unrealized gain 20,102,704
-------------
Net realized and unrealized gain 30,298,887
-------------
Net increase in net assets resulting from operations $ 33,737,631
=============
</TABLE>
22 See accompanying notes to the finacial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
Increase (decrease) in net assets: (Unaudited) February 28, 1999
------------------- --------------------
<S> <C> <C>
Operations:
Net investment income $ 3,438,744 $ 7,386,370
Net realized gain 10,196,183 31,666,041
Change in net unrealized appreciation (depreciation) 20,102,704 (30,470,928)
------------------- --------------------
Net increase in net assets resulting from operations 33,737,631 8,581,483
------------------- --------------------
Distributions to shareholders from:
Net investment income
Class III (23,250) (1,029,703)
Class IV (82,267) (1,302,562)
------------------- --------------------
Total distributions from net investment income (105,517) (2,332,265)
------------------- --------------------
In excess of net investment income
Class III - (2,513,584)
Class IV - (3,179,653)
------------------- --------------------
Total distributions in excess of net investment income - (5,693,237)
------------------- --------------------
Net realized gains
Class III (2,379,277) (28,178,223)
Class IV (3,607,975) (33,629,347)
------------------- --------------------
Total distributions from net realized gains (5,987,252) (61,807,570)
------------------- --------------------
(6,092,769) (69,833,072)
------------------- --------------------
Net share transactions - (Note 5)
Class III (25,425,846) (78,616,879)
Class IV (62,475,178) (224,207,117)
------------------- --------------------
Decrease in net assets resulting from
net share transactions (87,901,024) (302,823,996)
------------------- --------------------
Total decrease in net assets (60,256,162) (364,075,585)
Net assets:
Beginning of period 206,406,060 570,481,645
------------------- --------------------
End of period (including accumulated undistributed net
investment income of $2,350,909 and distributions in excess
of net investment income of $982,318, respectively) $ 146,149,898 $ 206,406,060
=================== ====================
</TABLE>
See accompanying notes to the finacial statements. 23
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29
August 31, 1999 -----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996*
-------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.28 $ 11.92 $ 12.68 $ 11.54 $ 10.00
-------------- ----------- ----------- ------------- -----------
Income from investment operations:
Net investment income 0.17 + 0.23 + 0.27 + 0.22 0.23
Net realized and unrealized gain (loss) 1.38 (0.36)(c) 1.72 1.63 1.44
-------------- ----------- ----------- ------------- -----------
Total from investment operations 1.55 (0.13) 1.99 1.85 1.67
-------------- ----------- ----------- ------------- -----------
Less distributions to shareholders from:
Net investment income - (d) (0.08) (0.27) (0.28) (0.06)
In excess of net investment income - (0.21) - - -
Net realized gains (0.31) (2.22) (2.48) (0.43) (0.07)
-------------- ----------- ----------- ------------- -----------
Total distributions (0.31) (2.51) (2.75) (0.71) (0.13)
-------------- ----------- ----------- ------------- -----------
Net asset value, end of period $ 10.52 $ 9.28 $ 11.92 $ 12.68 $ 11.54
============== =========== =========== ============= ===========
Total Return (a) 16.80% (1.84%) 17.98% 16.55% 16.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 83,607 $ 97,450 $ 207,653 $ 581,099 $ 407,227
Net expenses to average
daily net assets 0.69% ** 0.69% 0.69% 0.72% (b) 0.69% **
Net investment income to average
daily net assets 3.36% ** 2.07% 2.15% 2.25% 1.89% **
Portfolio turnover rate 39% 68% 96% 84% 7%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.02 $ 0.05 $ 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 approximate .03% of average daily net assets.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for the
period ended February 28, 1999 due to the timing of purchases and
redemptions of Fund shares in relation to fluctuating market values of the
investments of the Fund.
(d) The per share distribution from net investment income is $0.003.
24 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended February 28
--------------------------------
(Unaudited) 1999 1998*
--------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.27 $ 11.92 $ 10.87
--------------- ------------- -------------
Income from investment operations:
Net investment income 0.19 + 0.24 + 0.01 +
Net realized and unrealized gain (loss) 1.38 (0.36)(b) 1.04
--------------- ------------- -------------
Total from investment operations 1.57 (0.12) 1.05
--------------- ------------- -------------
Less distributions to shareholders from:
Net investment income (0.01) (0.09) -
In excess of net investment income - (0.22) -
Net realized gains (0.31) (2.22) -
--------------- ------------- -------------
Total distributions (0.32) (2.53) -
--------------- ------------- -------------
Net asset value, end of period $ 10.52 $ 9.27 $ 11.92
=============== ============= =============
Total Return (a) 16.86% (1.79%) 9.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 62,543 $ 108,956 $ 362,829
Net expenses to average
daily net assets 0.63% ** 0.63% 0.63% **
Net investment income to average
daily net assets 3.74% ** 2.17% 0.72% **
Portfolio turnover rate 39% 68% 96%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.02 $ 0.05 $ 0.01
</TABLE>
* Period from January 9, 1998 (commencement of operations) to February 28,
1998.
** 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) 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, 1999 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. 25
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in equity securities of
non-U.S. issuers and through management of the Fund's foreign currency
positions. The Fund's current benchmark is the MSCI EAFE Index (Hedged).
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. 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, 1999 (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 gains
and losses on disposition of foreign currencies and forward foreign
exchange contracts, 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 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 and agency 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, 1999.
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
27
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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,
1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into 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 will be 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, 1999, there were no open swap agreements.
28
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1999, the Fund loaned securities having a market
value of $3,549,781 collateralized by cash in the amount of $3,769,473
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.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $35,954 for potential repatriation
tax on principal invested prior to February 15, 1999. Effective September
1, 1999, the Malaysian government exempted funds invested prior to February
15, 1999 from all levies, and such funds may now be freely repatriated.
Accordingly, effective September 1, 1999 no accrual for potential Malaysian
repatriation taxes 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 dividends 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.
29
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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.
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 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, 1999, the Fund received $1 in purchase premiums.
There is no premium for cash redemptions or reinvested distributions. While
no purchase premium is normally charged with respect to in-kind purchases
of Fund shares, a purchase premium of up to .10% may be charged on certain
in-kind purchases.
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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .54% 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.
30
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until February 29, 2000
to reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $1,104. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1999,
aggregated $65,828,096 and $143,790,211, respectively.
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$142,903,321 $16,420,166 $8,510,603 $7,909,563
4. Principal shareholders
At August 31, 1999, 52% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the outstanding shares
of the Fund. Investment activities of these shareholders could have a
material effect.
31
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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>
Six Months Ended Year Ended
Class III: August 31, 1999 February 28, 1999
---------------------------------- ------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 982,782 $ 9,741,058 563,792 $ 5,359,120
Shares issued to
shareholders in
reinvestment of
distributions 227,021 2,397,345 3,031,071 31,219,975
Shares repurchased (3,771,423) (37,564,249) (10,514,340) (115,195,974)
---------------- ---------------- ----------------- -----------------
Net decrease (2,561,620) $ (25,425,846) (6,919,477) $ (78,616,879)
================ ================ ================= =================
<CAPTION>
Six Months Ended Year Ended
Class IV: August 31, 1999 February 28, 1999
---------------------------------- ------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shares sold _ $ _ _ $ 6,173
Shares issued to
shareholders in
reinvestment of
distributions 345,951 3,649,790 3,403,005 35,243,016
Shares repurchased (6,151,178) (66,124,968) (22,085,761) (259,456,306)
---------------- ---------------- ----------------- -----------------
Net decrease (5,805,227) $ (62,475,178) (18,682,756) $ (224,207,117)
================ ================ ================= =================
</TABLE>
32
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 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
10/8/99 AUD 13,976,952 $ 8,910,838 $ (194,654)
10/8/99 CAD 21,438,607 14,376,323 25,614
3/3/00 CHF 16,862,576 11,375,941 (148,895)
3/3/00 DKK 39,573,415 5,690,612 9,424
3/3/00 EUR 61,616,969 66,012,611 140,431
3/3/00 GBP 24,420,475 39,348,280 158,242
10/8/99 HKD 160,591,346 20,660,283 51,162
10/8/99 JPY 4,150,668,644 38,066,991 2,845,386
3/3/00 NOK 169,722,980 21,608,742 (196,125)
10/8/99 NZD 17,451,314 9,029,083 (295,922)
3/3/00 SEK 291,626,583 35,721,880 182,594
10/8/99 SGD 6,393,025 3,807,865 26,447
=================
$ 2,603,704
=================
Sales
10/8/99 AUD 24,821,142 $ 15,824,421 $ (84,061)
10/8/99 CAD 17,174,526 11,516,911 (87,484)
3/3/00 CHF 27,758,969 18,726,936 (76,530)
3/3/00 DKK 46,875,824 6,740,690 (16,396)
3/3/00 EUR 96,840,786 103,749,230 422,359
3/3/00 GBP 46,008,300 74,132,361 (110,622)
10/8/99 HKD 216,665,326 27,874,273 (74,668)
10/8/99 JPY 7,517,021,805 68,940,797 (4,588,086)
3/3/00 NOK 141,851,551 18,060,215 139,883
10/8/99 NZD 17,721,119 9,168,677 352,159
3/3/00 SEK 292,798,554 35,865,437 145,300
10/8/99 SGD 14,581,078 8,684,900 (134,278)
=================
$ (4,112,424)
=================
</TABLE>
33
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Currency Abbreviations:
AUD Australian Dollar HKD Hong Kong Dollar
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc NOK Norwegian Kroner
DKK Danish Krona NZD New Zealand Dollar
EUR Euro SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Buys
14 DAX September 1999 $ 1,955,091 $ (26,128)
62 TOPIX September 1999 8,303,799 299,508
=================
$ 273,380
=================
Sales
22 ALL ORDS September 1999 $ 1,035,528 $ 13,657
33 CAC40 September 1999 1,604,084 (112,020)
5 TSE 35 September 1999 665,628 8,792
2 OMX STOCK September 1999 20,335 (110)
-----------------
$ (89,681)
=================
</TABLE>
At August 31, 1999, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
34
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 88.0%
Australia - 3.5%
363,591 Australia and New Zealand Banking Group Ltd 2,360,636
1,365,296 Boral Ltd 2,087,756
501,000 Burswood Ltd 284,099
229,100 Caltex Australia Ltd 458,349
383,140 Capral Aluminum Ltd 566,353
651,991 Email Ltd 1,163,165
490,510 Foodland Associated 3,015,900
2,232,358 Goodman Fielder Ltd 2,048,180
3,365,000 Menzies Gold NL * 160,801
1,201,718 MIM Holdings Ltd 941,780
296,888 Newcrest Mining Ltd * 699,900
2,920,091 Oil Search Ltd 4,148,995
800,000 Orogen Minerals Ltd 942,982
54,000 Orogen Minerals Ltd GDR 144A 634,500
4,818,371 Pasminco Ltd 5,142,292
370,081 Publishing & Broadcasting Ltd 2,174,049
1,130,898 Qantas Airways Ltd 3,638,786
548,362 Rothmans Holdings Ltd 5,712,508
1,101,276 Western Mining Corp Holdings Ltd 4,846,490
549,994 Westpac Banking Corp 3,329,072
-----------------
44,356,593
-----------------
Austria - 0.3%
4,827 Oesterreichische Brau Beteiligungs AG 220,256
42,920 Oesterreichische Laenderbank AG 2,278,046
7,170 Radex-Heraklith AG 203,419
1,991 Universale Bau AG 67,296
4,264 VA Technologie AG (Bearer) 376,071
26,160 Wienerberger Baustoffindustrie AG 621,432
-----------------
3,766,520
-----------------
Belgium - 2.2%
18,144 Almanij NV 1,073,218
6,164 CBR Cimenteries NPV 560,573
25,192 Cie Francois De Enterprises 4,177,621
8,264 Credit Commercial Dexia 1,207,200
19,398 Electrabel SA 6,480,714
96,135 Fortis (B) 3,300,134
100,135 Fortis (B) Strip 1,058
17,437 GIB Holdings Ltd 814,621
5,649 Groupe Bruxelles Lambert NPV 1,079,386
15,883 Kredietbank NPV 889,150
25,972 Solvay Et Cie 1,828,404
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Belgium - continued
20,719 Tractebel 3,783,820
62,409 UCB SA 2,643,372
-----------------
27,839,271
-----------------
Brazil - 0.4%
112,000 CIA Paranaense de Energia ADR 770,000
25,000 Companhia Brasileira de Distrib ADR 515,625
219,200 Tele Norte Leste Participacoes ADR 3,507,200
-----------------
4,792,825
-----------------
Canada - 1.1%
98,720 Abitibi Consolidated Inc 1,177,601
137,100 Air Canada Inc * 831,494
26,100 Alcan Aluminum Ltd 858,806
81,893 Alliance Forest Products Inc (d) * 1,007,061
295,000 Boliden Ltd * 674,139
100,000 Cambior Inc 271,411
55,157 Cambridge Shopping Centres Ltd * 279,075
82,500 Canadian Hotel Income Properties 505,881
63,000 Canadian Occidental Petroleum Ltd 1,161,037
73,264 Concord Pacific Group * 36,823
43,000 Falconbridge Ltd 671,425
101,500 Iamgold (International African Mining Gold) * 227,868
90,000 Inco Ltd * 1,848,613
220,100 KAP Resources Ltd * 8,113
200,000 Meridian Gold Inc * 1,052,138
67,137 Oxford Properties Group * 715,372
633,600 Semi-Tech Class A * 29,723
38,800 St Laurent Paperboard * 501,836
124,300 Tembec Inc Class A * 1,128,713
25,640 Trizec Hahn Corp (Sub-Voting) 501,734
192,000 TVX Gold Inc * 151,830
-----------------
13,640,693
-----------------
Finland - 0.5%
21,900 Huhtamaki OY Class I 758,726
46,500 Metra AB Class B 834,966
67,500 Metsa Serla OY 638,820
58,000 Metso OY * 735,150
94,850 Oyj Hartwall Abp 1,282,372
49,000 UPM-Kymmene OY 1,695,017
-----------------
5,945,051
-----------------
France - 6.7%
4,312 Accor SA 1,037,526
29,853 Alcatel Alsthom Cie Generale d'Electricite SA 4,572,174
16,390 Axa SA 2,039,346
43,041 Banque Nationale de Paris 3,291,453
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
53,495 BIC SA 2,802,603
3,788 Bouygues 1,044,281
5,883 Cap Gemini SA 1,009,832
5,442 Chargeurs International SA 324,768
6,170 Christian Dior 990,594
15,281 Club Mediterranee SA * 1,581,775
3,351 Colas SA 653,037
61,921 Compagnie Generale d'Industrie et de Participations 3,060,933
7,679 Dollfus-Mieg and Cie * 41,122
66,499 Elf Aquitaine SA 11,659,768
3,073 Elf Gabon 322,314
7,764 Eridania Beghin-Say SA 1,026,731
661,570 Eurotunnel SA Units (Bearer) * 1,006,248
20,107 France Telecom SA 1,565,242
17,482 Gaz Et Eaux 898,340
8,750 Groupe Andre 1,303,148
6,789 Groupe Danone 1,679,420
2,299 Guyenne Et Gascogne 1,249,370
6,694 Imetal 1,066,237
8,290 Labinal SA 1,170,719
9,780 Lafarge Coppee SA 1,050,574
58,910 Lagardere Groupe 2,389,390
2,441 Louis Vuitton Moet Hennessy 742,810
41,831 Lyonnaise Des Eaux 6,976,653
43,484 Michelin SA Class B 1,883,588
26,833 Pechiney SA Class A 1,561,664
17,367 Pernod Ricard 1,331,767
19,292 Peugeot SA 3,545,628
9,740 Pinault Printemps Redoute 1,687,212
14,600 Renault SA 786,484
53,242 Rhone Poulenc SA Class A 2,582,397
10,530 Saint-Gobain 2,035,383
28,177 Seita 1,535,717
5,565 Sidel (Bearer) 615,430
18,442 Sophia SA 769,435
35,745 SPIE Batignolles 2,397,484
6,315 Sylea (Bearer) 386,206
62,544 Thomson CSF 2,285,749
22,098 Total SA 2,847,604
101,550 Usinor Sacilor 1,571,391
9,260 Vallourec 371,771
24,686 Worms et Compagnie SA 363,741
-----------------
85,115,059
-----------------
</TABLE>
See accompanying notes to the financial statements 3
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - 6.3%
60,300 Adidas Salomon AG 5,604,885
128,500 Bankgesellschaft Berlin AG 2,285,662
43,990 Bayer AG 1,912,012
65,500 BHF Bank AG 3,092,542
28,700 Brau und Brunnen * 1,849,177
9,945 Cologne Reinsurance (Registered) 9,611,532
148,000 Commerzbank AG 5,299,418
182,810 Continental AG 4,209,429
94,555 Deutsche Bank AG 6,461,830
185,940 Dresdner Bank 8,563,002
12,740 Holzmann (Philipp) * 2,260,713
3,331 Koelnische Rueckversicherungs-Gesellschaft AG 3,219,307
165,750 K&S AG 2,535,063
168,500 Lufthansa AG 3,257,000
55,000 Rheinmetall AG 1,161,875
137,360 RWE AG 5,926,784
268,000 Stinnes AG * 4,231,971
136,600 Veba AG 8,700,310
-----------------
80,182,512
-----------------
Greece - 0.1%
83,000 Hellenic Telecommunications ADR 855,938
-----------------
Hong Kong - 3.4%
1,792,400 Amoy Properties Ltd 1,765,820
470,000 CLP Holdings Ltd 2,221,335
3,355,052 Dairy Farm International 3,338,277
293,000 Goldlion Holdings Ltd 52,071
1,444,800 Hang Lung Development Co Ltd 1,655,953
1,265,000 HKR International Ltd 977,444
2,796,587 Hong Kong Electric Holdings Ltd 9,201,728
4,191,641 Hong Kong Land Holdings 6,203,629
1,044,358 Hysan Development Co Ltd 1,358,379
302,000 Jardine International Motor Holdings Ltd 185,708
6,440,000 Lai Sun Development 447,847
1,110,266 Liu Chong Hing Bank Ltd 1,265,379
1,173,000 National Mutual Asia Ltd 823,275
530,000 New World Development Co Ltd 1,276,344
220,000 Orient Overseas International Ltd 99,869
7,704,073 Regal Hotels International Ltd 823,472
7,460,882 Semi Tech (Global) Co Ltd * 220,988
5,827,000 South China Morning Post Ltd 3,676,980
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
681,500 Swire Pacific Ltd Class A 3,510,557
2,844,500 Swire Pacific Ltd Class B 2,234,529
1,079,000 Wheelock and Co Ltd 1,396,489
-----------------
42,736,073
-----------------
India - 1.4%
111,353 Asian Paints Ltd 1,019,578
248,950 Bharat Heavy Electricals Ltd 1,818,407
156,100 Bharat Petrol Corp 991,168
154,000 Container Corp of India 1,240,007
100,000 Container Corp of India * 805,199
145,300 Corporation Bank 353,326
597,350 Corporation Bank 1,413,411
182,105 Hindustan Petroleum 1,060,141
548,071 Indo Gulf Corporation Ltd 882,613
14,700 Indo Gulf Fertilizers 23,673
629,097 Industrial Credit & Investment Corp of India Ltd 1,165,061
980,177 Industrial Development Bank of India 856,887
59,007 Mahindra & Mahindra GDR (Reg S) (d) 687,432
238,491 Reliance Industries 1,061,118
115,000 Videsh Sanchar Nigam GDR 144A 1,627,250
141,800 Videsh Sanchar Nigam Ltd 3,239,861
-----------------
18,245,132
-----------------
Indonesia - 0.2%
1,401,000 Indah Kiat Pulp & Paper * 511,114
35,700 Indosat ADR Class B 551,119
9,600,000 Matahari Putra Prima Tbk * 969,381
690,404 PT Daya Guna Samudera * 278,860
300,000 Tambang Timah Persero (Foreign Registered) 197,394
-----------------
2,507,868
-----------------
Ireland - 0.1%
117,335 Allied Irish Banks Plc 1,516,966
80,000 Eircom Plc * 364,449
-----------------
1,881,415
-----------------
Italy - 4.5%
93,061 Assicurazioni Generali SPA 3,140,547
328,328 Banca Commerciale Italiana SPA 2,233,369
65,113 Banca di Legano SPA 361,760
140,039 Banca Nazionale Del Lavora SPA * 455,582
236,958 Banca Toscana 1,033,685
534,369 Banco Ambrosiano Veneto SPA (Non Convertible) 1,083,700
758,012 Credito Italiano 3,498,841
168,447 Danieli & Co Di Risp (Non Convertible) 526,650
228,852 Edison SPA 1,909,627
389,652 ENI SPA 2,341,833
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
31,984 Ericsson SPA 1,030,385
146,530 Falck Acciaierie and Ferriere Lombarde 1,067,929
24,290 Fiat SPA 782,518
2,907 Fiat SPA (Non Convertible) 46,610
72,520 Gruppo Editoriale L' Express 1,160,479
86,303 IFIL Finanziaria di Partecipazoni SPA (Non Convertible) 370,100
650,940 Industriali Riunite SPA 968,078
1,094,404 Istituto Nazionale Delle Assicurazioni 2,635,598
165,256 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 829,120
549,422 Italgas SPA 2,280,685
154,999 Magneti Marelli SPA 406,020
231,101 Mediaset SPA 2,040,680
43,386 Mediobanca SPA 450,016
536,081 Montedison SPA 634,184
54,425 Montefibre SPA 37,251
462,667 Olivetti and Co SPA * 1,075,122
58,000 Pagnossin SPA 232,798
199,293 RAS SPA 1,873,479
76,677 Rinascente per l'Esercizio di Grandi Magazzini SPA 612,285
122,196 SAI di Risp 615,662
93,292 San Paolo IMI SPA 1,252,439
2,399,372 Seat Pagine Gialle Di Risp 2,012,263
131,669 Sirti SPA 680,079
1,276,706 Telecom Italia Mobile SPA (Non Convertible) 4,423,148
648,492 Telecom Italia SPA 6,527,761
734,162 Telecom Italia SPA (Non Convertible) 4,202,986
72,569 Toro Assicurazioni 918,279
159,857 Unicem Di Risp 710,854
1,697,304 Unione Immobiliaer SPA 813,921
-----------------
57,276,323
-----------------
Japan - 24.2%
30,240 Aiful Corp 5,242,942
151,000 Ajinomoto Co Inc 1,722,842
300 Akita Bank 1,122
127,000 Alps Electric Co Ltd 3,683,342
63,000 Arisawa Manufacturing 1,631,812
297,000 Asahi Breweries Ltd 4,507,346
343,000 Asahi Chemical Industry Co 1,830,042
294,000 Bridgestone Corp 8,312,281
243,000 Canon Inc 7,091,979
38,300 Chubu Electric Power Co Inc 714,337
115,000 Chugai Pharmaceutical Co Ltd 1,269,096
54,580 Circle K Japan Co Ltd 2,324,671
197,000 Cosmo Oil Co Ltd 359,342
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
262,000 Dainippon Ink & Chemicals Inc 1,015,550
104,000 Dainippon Printing Co Ltd 1,697,843
260,000 Daiwa Securities Co Ltd 2,349,948
592 East Japan Railway Co 3,579,698
455,000 Fuji Electric Co 2,079,028
180,000 Fuji Photo Film Co Ltd 6,566,647
166,000 Fujitec Co 1,733,504
388,000 Fujitsu Ltd 11,359,205
20,000 H I S Co Ltd 674,905
66,000 Hitachi Credit Corp 1,453,691
66,000 Hitachi Information Systems 1,896,119
25,312 Hokkaido Electric Power 393,375
380,000 Honda Motor Co Ltd 15,249,213
158,000 Hosiden Corp 4,164,531
95,000 INAX Corp 700,078
26,500 Internet Initiative Japan Inc ADR * 1,368,063
72,000 Japan Airport Terminal Co Ltd 860,231
129 Japan Tobacco Inc 1,788,317
107,650 Kansai Electric Power 2,061,790
266,000 Kao Corp 7,544,895
33,000 Kinden Corp 331,068
911,000 Marubeni Corp 2,151,936
89,000 Matsushita Electric Industrial Co Ltd 1,753,295
594,000 Minebea Co Ltd 7,151,078
334,000 Minolta Co Ltd 1,861,225
218,000 Mitsubishi Corp 1,811,282
479,000 Mitsui Petrochemical Industries Ltd 3,494,915
353,000 Mitsui & Co 2,482,220
132,000 Nihon Unisys Ltd 3,996,899
37,400 Nintendo Co Ltd 6,480,916
700 Nippon Electric Glass Co 8,619
130,000 Nippon Express Co Ltd 992,385
82,000 Nippon Meat Packers Inc 1,121,802
98,000 Nippon Mining & Metals Co Ltd 759,725
25,000 Nippon Shinpan Co 86,643
419 Nippon Telegraph & Telephone 4,700,351
3,510 Nippon Television Network 1,920,744
24,600 Nitta Corp 190,033
79,000 NSK Ltd 507,237
171 NTT Mobile Communication Network Inc 2,838,433
684 NTT Mobile Communication Network * 11,291,349
130,000 Onward Kashiyama Co Ltd 1,984,769
111,500 Orix Corp 10,718,318
40,788 Paris Miki Inc 3,348,005
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
90,000 Pioneer Electronics Corp 1,594,054
28,000 Rinnai Corp 678,006
61,000 Rohm Co Ltd 12,128,232
1,104,000 Sakura Bank Ltd 5,839,938
48,000 Sanrio Co Ltd 2,272,060
108,000 Sekisui House Ltd 1,159,342
159,000 Shibusawa Warehouse 500,296
36,000 Shimachu Co 666,515
167,750 Shin-Etsu Chemical Co Ltd 6,823,521
111,000 Shionogi and Co Ltd 951,617
68,000 Showa Corp 354,745
24,500 SMC 3,731,588
68,500 Sony Corp 8,858,863
79,000 Sumitomo Bakelite Co Ltd 824,260
268,000 Sumitomo Trust & Banking 1,784,304
358,000 Suzuki Motor Corp 6,040,403
217,000 Takeda Chemical Industries Ltd 10,885,129
101,000 TDK Corp 12,251,357
297,000 Terumo Corp 9,480,596
26,000 Tokyo Broadcasting System Inc 420,904
80,000 Tokyo Seimitsu Co Ltd 7,879,976
53,000 Toppan Printing Co Ltd 676,729
617,000 Toshiba Corp 5,475,316
112,000 Tsubaki Nakashima Co Ltd 1,661,945
15,000 Unicharm Corp 778,421
208,000 UNY Co Ltd 2,845,547
100,000 Ushio Inc 1,285,968
226 West Japan Railway Co 896,621
145,000 Yamaha Corp 1,586,940
307,000 Yamanouchi Pharmaceutical Co Ltd 13,663,733
111,000 Yamatake Honeywell 1,245,200
114,000 Yamato Kogyo Co 725,724
-----------------
305,178,882
-----------------
Korea - 1.4%
390 Daehan Flour Mill 25,769
264,350 Daewoo Corp 414,272
7,022 Daewoo Securities 129,079
57,929 Hana Bank GDR 566,256
15,671 Hansol Paper Manufacturing Ltd 212,398
28,288 Hyundai Motor Co GDR * 62,799
41,000 Hyundai Motor Service Co GDR 144A 362,850
65,000 Kookmin Bank GDR (Registered) 144A 869,375
7,440 Korea Chemical 584,864
50,000 Korea Data Systems Co * 688,268
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - continued
82,000 Korea Telecommunications ADR * 2,665,000
68 Korea Trust * 464,440
48,946 LG Electronics Co 2,073,105
7,290 LG Securities Co Ltd 126,595
22,290 Nhong Shim 1,382,150
42,890 Pacific Chemical Corp 1,068,163
102,000 Pantech Co Ltd 959,085
162,578 Samsung Corp 2,864,568
178,373 Shinhan Bank 1,918,964
6,880 Sindoricom Co Ltd 268,090
-----------------
17,706,090
-----------------
Malaysia - 0.4%
750,800 Genting Berhad 2,766,105
315,000 New Straits Times 688,026
407,000 Resorts World Berhad 1,033,566
477,000 Tanjong 1,104,632
-----------------
5,592,329
-----------------
Mexico - 0.2%
1,540,000 Controladora Coml Mexicana Classes B and C 1,444,930
89,400 Nuevo Grupo Iusacell SA ADR * 1,005,750
-----------------
2,450,680
-----------------
Netherlands - 4.5%
137,263 ABN Amro Holdings NV 3,341,882
50,929 Aegon NV 4,454,123
77,312 Akzo Nobel NV 3,597,158
555,358 ASM International NV * 4,095,765
14,410 Bam Groep 776,249
68,964 Dordtsche Petroleum 3,587,529
95,422 Elsevier NV 1,098,605
13,329 Fugro NV 441,369
56,682 Hal Trust Class B 1,089,641
66,932 Hal Trust (Participating Units) 1,265,475
43,865 Hunter Douglas NV 1,378,389
26,360 ING Groep NV 1,445,039
44,664 Kon Bolswessanen 547,246
73,531 Koninklijke KPN NV 3,293,086
12,285 Koninklijke Pakhoed 315,966
23,173 Koninklijke Philips Electronics ADR * 2,382,474
82,743 Koninklijke Philips Electronics * 8,525,606
83,507 Koninklijke Volker Wessels 1,671,471
96,930 Laurus NV 2,175,624
86 Moeara Enim Petroleum 2,016,593
20,560 Nedlloyd 586,346
51,843 Royal Dutch Petroleum 3,186,984
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Netherlands - continued
62,692 TNT Post Group NV 1,546,200
11,683 Unilever NV * 812,600
17,833 Van Ommeren (Koninklijke) (Participating Certificate) 612,173
30,122 Vendex NV 789,046
61,000 Wegener Arcade NV 844,049
29,107 Wereldhave NV 1,431,146
-----------------
57,307,834
-----------------
New Zealand - 1.4%
461,000 Air New Zealand Class B 834,180
6,853,617 Brierley Investment Ltd * 1,629,927
1,843,825 Carter Holt Harvey Ltd 2,182,960
38,750 DB Group Ltd 46,478
105,248 Fisher and Paykel Industries Ltd 310,155
1,324,019 Fletcher Challenge Buildings 1,834,508
1,275,433 Fletcher Challenge Energy 3,264,024
2,395,891 Fletcher Challenge Ltd * 1,151,968
2,270,521 Fletcher Challenge Paper 1,643,403
204,200 Independent Newspapers Ltd * 786,507
273,307 Lion Nathan Ltd 607,589
503,450 Telecom Corp of New Zealand 2,256,659
7,039,327 Trans Tasman Properties Ltd 1,128,193
485,082 Wrightson Ltd 95,299
-----------------
17,771,850
-----------------
Norway - 0.4%
33,800 Dyno Industrier AS 714,979
25,900 Elkem AS Class A 462,058
30,000 Norsk Data AS Class B ADR (b) * 300
5,400 Norske Skogindustrier AS Class A 225,702
214,500 Petroleum Geo-Services * 4,291,367
-----------------
5,694,406
-----------------
Russia - 0.0%
5,215,000 Irkutskenergo (Registered) (c) 469,350
-----------------
Singapore - 0.4%
383,712 Jardine Matheson Holdings Ltd 1,834,143
723,263 Jardine Strategic Holdings Ltd 1,663,505
755,000 Singapore Land Ltd 1,828,890
-----------------
5,326,538
-----------------
South Africa - 1.6%
20,300 Anglo Gold Ltd 1,018,004
460,700 Barlow Ltd 2,348,191
433,000 C.G. Smith Ltd 1,153,338
1,232,606 Goldfields Ltd 4,255,956
250,700 Johnnies Industrial Corp 1,710,630
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa - continued
277,853 Liberty Life Association of Africa Ltd 3,257,303
2,535,100 Murray & Roberts Holdings Ltd 1,871,522
2,960,000 Sanlam Limited 3,528,445
1,300,814 Sun International Ltd 295,153
290,500 Western Areas Gold Mining Co Ltd * 811,986
-----------------
20,250,528
-----------------
Spain - 2.7%
13,800 Acerinox SA 457,111
624 Aguas de Barcelona * 10,315
55,000 Argentaria Corporacion Bancaria de Espana SA 1,251,920
225,066 Banco Bilbao Vizcaya SA 3,000,102
23,115 Banco Popular Espanol 1,693,195
496,292 Banco Santander Central Hispano 4,985,222
26,392 Bankinter SA 1,075,756
12,107 Corporacion Mapfre (Registered) 228,266
186,548 Endesa 3,743,785
129,580 FENOSA SA 1,847,730
10,000 Ferrovial SA * 209,138
186,643 Iberdrola SA 2,681,127
7,550 Metrovacesa SA 162,285
14,298 Midesa 312,466
158,580 Repsol SA 3,321,527
19,000 Tabacalera SA Class A 364,649
495,164 Telefonica de Espana SA 7,897,556
15,000 Transportes Azkar SA 157,645
39,451 Vallehermoso SA 368,781
-----------------
33,768,576
-----------------
Sweden - 0.3%
109,000 Castellum AB 1,016,225
36,000 Diligentia AB 268,071
132,400 Munksjo AB 1,050,030
32,900 Svenska Cellulosa Class B 956,048
-----------------
3,290,374
-----------------
Switzerland - 2.8%
2,298 Banque Cantonale Vaudoise (Bearer) 720,448
2,186 Belimo Automation AG 735,833
379 Bobst SA (Bearer) 452,769
31,322 CS Holdings (Registered) 5,912,542
1,825 Fischer (George) AG (Registered) 560,112
291 Flughafen Immobilien 561,795
3,197 Forbo Holdings AG (Registered) 1,266,055
5,230 Geberit International AG * 1,353,152
19,660 Hero AG * 2,595,208
847 Holderbank Financiere Glarus AG (Bearer) 1,042,608
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland - continued
3,526 Jelmoli (Registered) 726,099
1,703 Keramik (Bearer) * 639,566
6,545 Kraftwerk Laufenberg (Bearer) 1,049,723
2,149 Merkur Holding AG (Registered) 541,824
1,781 Nestle AG (Registered) 3,514,745
2,696 Novartis AG (Registered) 3,879,137
416 Societe Generale de Surveillance Holding SA (Bearer) 473,083
1,554 Sulzer Gebrueder AG (Registered) * 975,417
2,368 Sulzer Medica AG 450,125
4,003 Swatch Group AG (Bearer) 2,943,266
168 Swiss Insurance Co 316,019
627 Swiss Reinsurance (Bearer) 1,222,880
3,835 Zellweger Luwa AG (Bearer) 2,323,629
2,591 Zurich Allied 1,520,295
-----------------
35,776,330
-----------------
Taiwan - 0.1%
2,347,000 Pacific Electric Wire & Cable * 1,208,787
530,000 Standard Foods Taiwan Ltd * 452,728
-----------------
1,661,515
-----------------
Thailand - 0.1%
428,900 First Bangkok City (Foreign Registered) (b) * 112
645,900 Jasmine International Public Co (Foreign Registered) * 298,911
9,000 Telecomasia Corp Public Co Ltd GDR 144A * 82,827
487,700 Thai Telephone & Telecommunications (Foreign Registered) * 113,167
204,800 Total Access Communication * 458,752
-----------------
953,769
-----------------
United Kingdom - 16.7%
137,441 Allied Domecq Plc 1,269,635
208,321 Allied Zurich Plc 2,547,445
163,777 Anglian Water Plc 1,948,755
440,000 Arjo Wiggins Appleton Plc 1,531,733
118,084 BAA 1,234,176
190,056 Bank of Scotland 2,369,932
182,277 Barclays Plc 5,422,208
124,000 Bass Plc 1,667,862
240,613 Berkley Group 3,046,788
803,347 BG Plc 4,834,344
865,000 Billiton Plc 3,522,395
186,000 Blue Circle Industries 1,281,552
144,325 BOC Group Plc 3,040,083
135,200 Boots Co 1,669,592
226,953 BPB Industries Plc 1,377,607
286,115 British Airways Plc 1,873,589
219,821 British American Tobacco 1,850,369
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
399,350 British Energy Plc 3,326,258
501,600 British Energy Plc Class A * 455,699
145,000 British Land Co 1,214,726
532,499 British Petroleum Co Plc 9,889,477
1,091,250 British Steel Plc 2,864,508
1,024,655 British Telecom Plc 15,701,571
360,000 British-Borneo Oil & Gas Plc 1,259,025
650,468 BTR Siebe Plc 3,320,796
281,000 Cable & Wireless 3,226,094
133,375 Capital Shopping Centres Plc 931,830
408,800 Caradon Plc 1,140,467
179,371 Carillion Plc * 398,019
958,074 Centrica Plc 2,553,437
216,381 Commercial Union Plc 3,223,570
380,000 Cookson Group 1,411,459
432,916 Diageo Plc 4,385,476
51,000 Dixons Group 960,284
292,000 Enterprise Oil 2,112,846
315,000 FKI Plc 1,076,322
38,927 Flextech Plc * 575,540
702,000 Gallaher Group Plc 4,740,880
265,000 General Electric Plc 2,650,384
133,219 Glaxo Wellcome Plc 3,504,467
276,948 Granada Group Plc 2,473,744
410,586 Great Portland Estates Plc 1,488,755
224,139 Great Universal Stores Plc 2,259,735
172,008 Hanson Plc 1,463,110
799,467 HSBC Holdings Plc 9,891,945
220,136 Imperial Chemical Industries Plc 2,502,552
137,816 Imperial Tobacco Group Plc 1,555,641
180,000 Johnson Matthey 1,772,765
118,060 Ladbroke Group 451,332
726,000 Lasmo Plc 1,786,079
112,762 Liberty International Plc 843,583
340,000 Marks & Spencer 2,271,551
306,140 Mirror Group Plc 1,250,335
369,600 National Power 2,629,770
203,924 National Westminster Bank 4,193,836
143,000 Norwich Union Plc 977,232
334,000 Nycomed Amersham Plc 2,170,628
711,000 Old Mutual Plc * 1,502,195
160,107 Peninsular & Oriental Steam Navigation Co 2,627,217
109,086 Powergen Plc 1,090,141
205,000 Prudential Corp 3,060,612
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
2,148,935 Raglan Property Plc 993,422
105,630 Railtrack Group Plc 2,022,887
235,831 Rolls-Royce 937,583
306,506 Royal & Sun Alliance Insurance Group 2,552,944
227,799 Safeway Plc 945,027
154,000 Sainsbury (J) 1,062,308
195,000 Scottish Hydro-Electric Plc 1,790,372
350,000 Scottish Power Plc 3,221,930
153,771 Scottish & Newcastle Plc 1,516,916
95,000 Securicor Plc 897,437
160,593 Severn Trent Plc 2,336,941
1,045,000 Shell Transport & Trading (Registered) 8,334,326
350,000 Smith (David S.) Holdings Plc 1,027,078
180,991 Smithkline Beecham Plc 2,358,753
53,825 Standard Chartered 790,182
130,000 Sun Life & Province Holding 1,002,838
179,371 Tarmac Plc * 1,459,403
171,000 Tate & Lyle 1,108,087
249,746 Taylor Woodrow Plc 740,913
138,263 Thames Water Plc 1,987,541
226,228 TI Group Plc 1,825,182
284,000 Tomkins Plc 1,242,109
379,642 Unilever Plc 3,583,294
256,000 United Assurance Group Plc 1,646,541
194,904 United Utilities 2,314,429
189,721 Viglen Technology Plc 198,290
149,000 Whitbread Plc Class A 2,058,031
91,762 Williams Plc 520,847
119,146 Wolseley 950,241
-----------------
211,099,810
-----------------
United States - 0.1%
116,000 Freeport-McMoran Copper & Gold * 1,863,250
-----------------
TOTAL COMMON STOCKS (Cost $895,035,815) 1,115,303,384
-----------------
PREFERRED STOCKS - 1.3%
Brazil - 0.0%
6,439,529 Gerdau SA 97,163
2,809,994 Metalurgica Gerdau SA 82,604
-----------------
179,767
-----------------
France - 0.1%
15,155 Casino Guichard Perrachon 992,463
-----------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - 0.8%
46,800 Bayerische Motoren Werke AG 756,317
36,410 Dyckerhoff AG (Non Voting) 1,230,658
52,800 GEA AG 1,756,755
29,772 Metro AG Class I 951,262
23,144 Rheinmetall AG 367,910
5,150 Villeroy & Boch (Non-Voting) 484,132
146,700 Volkswagen AG 5,066,926
-----------------
10,613,960
-----------------
Italy - 0.1%
36,213 Fiat SPA 568,395
20,541 IFI Istituto Finanziario Industries 540,241
-----------------
1,108,636
-----------------
Korea - 0.1%
22,000 Daewoo Securities Ltd 279,543
27,310 Dongwon Securities Co 348,171
68,540 Jinro Ltd * 231,660
30,000 LG Securities Co 282,084
27,230 Shinyoung Securities 317,164
-----------------
1,458,622
-----------------
Thailand - 0.2%
2,300,000 Siam Commercial Bank Ltd * 2,608,526
-----------------
TOTAL PREFERRED STOCKS (Cost $16,304,061) 16,961,974
-----------------
CONVERTIBLE BONDS - 0.4%
Hong Kong - 0.1%
USD 860,000 Sino Land Co, 5.00% due 2/26/01 (d) 847,100
-----------------
Japan - 0.2%
USD 2,200,000 SB Treasury Co, 9.40% due 6/30/08 (d) 2,211,000
-----------------
Korea - 0.0%
KRW 19,462 Shinhan Bank, 15.00% due 12/2/48 (e) 253,888
-----------------
Mexico - 0.0%
USD 870,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 69,600
-----------------
Singapore - 0.1%
USD 1,830,000 Keppel Corp, 2.00% due 8/12/02 144A 1,862,025
-----------------
TOTAL CONVERTIBLE BONDS (Cost $5,181,266) 5,243,613
-----------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT FUNDS - 0.4%
Chile - 0.1%
85,050 Five Arrows Chile Investment Trust Ltd 186,064
56,700 Five Arrows Chile Investment Trust Ltd Convertible Units 127,859
-----------------
313,923
-----------------
India - 0.1%
157,150 India Fund Class A 795,971
40,000 India Liberalisation (c) (d) * 644,400
-----------------
1,440,371
-----------------
Japan - 0.1%
2,360 Shohkoh Fund 1,706,854
-----------------
Korea - 0.0%
39,500 Korea Investment Fund 286,375
-----------------
Russia - 0.1%
180,000 First Russian Frontiers Trust Plc 1,041,952
38,000 First Russian Frontiers Trust Plc Warrants 6/3/2001 32,079
-----------------
1,074,031
-----------------
United States - 0.0%
11,000 Morgan Stanley India Fund Inc * 136,813
-----------------
TOTAL INVESTMENT FUNDS (Cost $6,455,703) 4,958,367
-----------------
RIGHTS & WARRANTS - 0.1%
Canada - 0.0%
116,600 KAP Resources Ltd Class A Warrants 8/5/00 * 781
-----------------
Italy - 0.0%
667 Olivetti SPA Rights * 88
5,456 Toro Assicurazioni Warrants 12/31/00 * 27,201
-----------------
27,289
-----------------
Thailand - 0.1%
645,900 Jasmine International Pcl Warrants 6/15/04 * 214,711
2,300,000 Siam Commercial Bank Ltd Warrants 5/10/02 * 1,034,415
-----------------
1,249,126
-----------------
TOTAL RIGHTS & WARRANTS (Cost $356,977) 1,277,196
-----------------
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 7.9%
Cash Equivalents - 7.9%
$ 60,900,000 First National Bank of Chicago Time Deposit, 5.50%
due 9/01/99 60,900,000
39,403,337 The Boston Global Investment Trust (a) 39,403,337
-----------------
100,303,337
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $100,303,337) 100,303,337
-----------------
TOTAL INVESTMENTS - 98.1%
(Cost $1,023,637,159) 1,244,047,871
Other Assets and Liabilities (net) - 1.9% 23,472,184
-----------------
TOTAL NET ASSETS - 100.0% $ 1,267,520,055
=================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
KRW Korean Won
USD United States Dollar
(a) Represents investment of security lending collateral
(Note 1).
(b) Bankrupt issuer.
(c) Valued by management (Note 1).
(d) Security is restricted as to public resale. The
aggregate market value of restricted securities is
$5,396,993 or .43% of net assets.
(e) Warrants included in position of security.
144A Securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be
resold in transactions exempt from registration,
normally to qualified institutional buyers.
* Non-income producing security.
See accompanying notes to the financial statements. 17
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification
of the Fund's investments was as follows:
Industry Sector
Banking 10.1%
Consumer Goods 7.8
Telecommunications 7.4
Utilities 6.2
Electronic Equipment 6.1
Oil and Gas 6.0
Conglomerates 5.1
Insurance 4.7
Health Care 3.8
Machinery 3.7
Chemicals 3.7
Construction 3.6
Metals and Mining 3.5
Retail Trade 3.4
Food and Beverage 3.3
Financial Services 2.9
Automotive 2.9
Services 2.9
Real Estate 2.5
Transportation 2.4
Computers 2.0
Paper and Allied Products 1.9
Communications 1.7
Aerospace 0.4
Textiles 0.3
Miscellaneous 1.7
------
100.0%
======
18 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $1,023,637,159) (Note 1) $ 1,244,047,871
Foreign currency, at value (cost $32,909,530) (Note 1) 33,089,992
Cash 8,668
Receivable for investments sold 25,209,798
Receivable for fund shares sold 5,000,000
Dividends and interest receivable 2,104,238
Foreign withholding taxes receivable 989,607
Receivable for expenses waived or borne by Manager (Note 2) 99,169
----------------
Total assets 1,310,549,343
----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 39,403,337
Payable for investments purchased 1,769,660
Payable for fund shares repurchased 350,000
Accrued capital gains taxes payable (Note 1) 325,821
Accrued Malaysian repatriation taxes (Note 1) 276,528
Payable to affiliate for (Note 2):
Management fee 634,566
Shareholder service fee 154,846
Accrued expenses 114,530
----------------
Total liabilities 43,029,288
----------------
Net assets $ 1,267,520,055
================
Net assets consist of:
Paid-in capital $ 962,689,744
Accumulated undistributed net investment income 7,489,133
Accumulated undistributed net realized gain 77,199,631
Net unrealized appreciation 220,141,547
----------------
$ 1,267,520,055
================
Net assets attributable to:
Class II Shares $ 50,649,235
================
Class III Shares $ 1,084,463,710
================
Class IV Shares $ 132,407,110
================
Shares outstanding:
Class II 3,650,749
================
Class III 78,087,085
================
Class IV 9,530,420
================
Net asset value per share:
Class II $ 13.87
================
Class III $ 13.89
================
Class IV $ 13.89
================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,700,029) $ 17,154,494
Interest (including security lending income of $155,832) 1,037,777
--------------
Total income 18,192,271
--------------
Expenses:
Management fee (Note 2) 3,599,193
Custodian fees 449,525
Audit fees 27,050
Transfer agent fees 24,654
Legal fees 17,848
Trustees fees (Note 2) 6,347
Registration fees 728
Miscellaneous 2,944
Fees waived or borne by Manager (Note 2) (529,096)
--------------
3,599,193
Shareholder service fee (Note 2)
Class II 49,087
Class III 763,052
Class IV 61,992
--------------
Net expenses 4,473,324
--------------
Net investment income 13,718,947
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 80,684,559
Foreign currency, forward contracts and foreign currency
related transactions (1,327,841)
--------------
Net realized gain 79,356,718
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 118,793,673
Foreign currency, forward contracts and foreign currency
related transactions 491,561
--------------
Net unrealized gain 119,285,234
--------------
Net realized and unrealized gain 198,641,952
--------------
Net increase in net assets resulting from operations $ 212,360,899
==============
</TABLE>
20 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, 1999 Year Ended
Operations: (Unaudited) February 28, 1999
------------------- ------------------
<S> <C> <C>
Net investment income $ 13,718,947 $ 18,297,050
Net realized gain 79,356,718 31,609,905
Change in net unrealized appreciation (depreciation) 119,285,234 (47,678,215)
------------------- ------------------
Net increase in net assets resulting from operations 212,360,899 2,228,740
------------------- ------------------
Distributions to shareholders from:
Net investment income
Class II (24,351) (1,237,030)
Class III (760,382) (18,110,163)
Class IV (114,460) (3,254,066)
------------------- ------------------
Total distributions from net investment income (899,193) (22,601,259)
------------------- ------------------
Distributions to shareholders from:
Net realized gains
Class II (775,764) (536,347)
Class III (16,956,509) (7,886,316)
Class IV (2,127,054) (1,226,681)
------------------- ------------------
Total distributions from net realized gains (19,859,327) (9,649,344)
------------------- ------------------
Net share transactions: (Note 5)
Class II 9,959,196 (19,441,415)
Class III (4,237,455) 104,968,005
Class IV (21,451,838) (85,018,178)
------------------- ------------------
Increase (decrease) in net assets resulting from
net share transactions (15,730,097) 508,412
------------------- ------------------
Total increase (decrease) in net assets 175,872,282 (29,513,451)
Net assets:
Beginning of period 1,091,647,773 1,121,161,224
------------------- ------------------
End of period (including accumulated undistributed net
investment income of $7,489,133 and distributions
in excess of net investment income of $5,330,621,
respectively) $ 1,267,520,055 $ 1,091,647,773
=================== ==================
</TABLE>
See accompanying notes to the financial statements. 21
<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, 1999 Year Ended Year Ended Period Ended
(Unaudited) February 28, 1999 February 28, 1998 February 28, 1997*
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.79 $ 12.09 $ 10.65 $ 10.02
-------------- ----------------- ----------------- -----------------
Income from investment operations:
Net investment income 0.14 (c) 0.20 (c) 0.18 (c) 0.06
Net realized and unrealized gain (loss) 2.17 (0.14) 1.48 0.65
-------------- ----------------- ----------------- -----------------
Total from investment operations 2.31 0.06 1.66 0.71
-------------- ----------------- ----------------- -----------------
Less distributions to shareholders from:
Net investment income (0.01) (0.25) (0.22) (0.08)
Net realized gains (0.22) (0.11) (0.00)(d)
-------------- ----------------- ----------------- -----------------
Total distributions (0.23) (0.36) (0.22) (0.08)
-------------- ----------------- ----------------- -----------------
Net asset value, end of period $ 13.87 $ 11.79 $ 12.09 $ 10.65
============== ================= ================= =================
Total Return (a) 19.66% 0.36% 15.94% 7.08%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 50,649 $ 33,780 $ 53,949 $ 21,957
Net expenses to average
daily net assets 0.82% ** 0.82% 0.82% 0.84 ** (b)
Net investment income to average
daily net assets 2.16% ** 1.64% 1.60% 0.83%**
Portfolio turnover rate 31% 27% 19% 13%
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
</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 approximate .02% of average daily net assets.
(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 III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended Year Ended Period Ended
(Unaudited) February 28, 1999 February 28, 1998 February 28, 1997*
--------------- ----------------- ----------------- ------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.81 $ 12.10 $ 10.66 $ 10.00
-------------- ----------------- ------------- --------------
Income from investment operations:
Net investment income 0.15 (c) 0.20 (c) 0.21 (c) 0.08
Net realized and unrealized gain (loss) 2.16 (0.12) 1.45 0.66
-------------- ----------------- ------------- -------------
Total from investment operations 2.31 0.08 1.66 0.74
-------------- ----------------- ------------- -------------
Less distributions to shareholders from:
Net investment income (0.01) (0.26) (0.22) (0.08)
Net realized gains (0.22) (0.11) (0.00)(d) -
-------------- ----------------- ------------- -------------
Total distributions (0.23) (0.37) (0.22) (0.08)
-------------- ----------------- ------------- -------------
Net asset value, end of period $ 13.89 $ 11.81 $ 12.10 $ 10.66
============== ================= ============= =============
Total Return (a) 19.65% 0.48% 15.95% 7.37%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,084,464 $ 927,108 $ 847,427 $ 671,829
Net expenses to average daily net
assets 0.75% ** 0.75% 0.75% 0.76% ** (b)
Net investment income to average
daily net assets 2.28% ** 1.60% 1.80% 1.24% **
Portfolio turnover rate 31% 27% 19% 13%
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
</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 approximate .01% of average daily net assets.
(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. 23
<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
August 31, 1999 Year Ended Period Ended
(Unaudited) February 28, 1999 February 28, 1998*
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.81 $ 12.11 $ 10.90
----------------- ----------------- -----------------
Income from investment operations:
Net investment income 0.16 (d) 0.22 (d) - (b)
Net realized and unrealized gain (loss) 2.15 (0.15) 1.21
----------------- ----------------- ------------------
Total from investment operations 2.31 0.07 1.21
----------------- ----------------- -----------------
Less distributions to shareholders from:
Net investment income (0.01) (0.26) -
Net realized gains (0.22) (0.11) -
----------------- ------------------ ------------------
Total distributions (0.23) (0.37) -
----------------- ------------------ ------------------
Net asset value, end of period $ 13.89 $ 11.81 $ 12.11
================= ================== =================
Total Return (a) 19.67% 0.53% 11.10%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 132,407 $ 130,760 $ 219,785
Net expenses to average
daily net assets 0.69% ** 0.69% 0.69% **
Net investment income to average
daily net assets 2.37% ** 1.81% 0.26% **
Portfolio turnover rate 31% 27% 19%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of
the following per share
amounts: $ 0.01 $ 0.03 $ (c)
</TABLE>
* Period from January 9, 1998 (commencement of operations) to February 28,
1998.
** Annualized.
(a) The total returns would have been lower had certain expenses not been
waived during the periods 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.
(d) Computed using average shares outstanding throughout the period.
24 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 high total return through investment in equity securities of
non-U.S. issuers. The Fund's current benchmark is the Morgan Stanley
Capital International EAFE Index.
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. 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.
25
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, currency gains and losses realized between the trade
and settlement dates on securities transactions and the difference between
the amount of investment income and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. There were no forward foreign
currency contracts outstanding as of August 31, 1999.
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 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 and agency 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
26
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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. As of August 31, 1999, there were no outstanding futures contracts.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
When the Fund writes a call or put option, an amount equal to the premium
received is recorded as a liability and subsequently marked to market to
reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At August 31, 1999 there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1999, the Fund loaned securities having a market
value of $36,889,234 collateralized by cash in the amount of $39,403,337
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,
27
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded an accrual in
the amount of $325,821 for potential capital gains and repatriation taxes
at August 31, 1999. The accrual for capital gains and repatriation taxes is
included in net realized and unrealized gain in the Statement of
Operations.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $276,528 for potential
repatriation tax on principal invested prior to February 15, 1999.
Effective September 1, 1999, the Malaysian government exempted funds
invested prior to February 15, 1999 from all levies, and such funds may now
be freely repatriated. Accordingly, effective September 1, 1999 no accrual
for potential Malaysian repatriation taxes 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 dividends 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.
28
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 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.
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
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be 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 .60% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions, certain other transaction costs
(including stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
0.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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) exceeded .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, 1999, was $6,347. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
29
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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, 1999 aggregated
$194,255,215 and $316,693,544, respectively.
At August 31, 1999 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
---------------- ------------------ ------------------ ----------------
$1,023,637,159 $285,940,905 $65,530,193 $220,410,712
4. Principal shareholder
At August 31, 1999, 12.6% of the outstanding shares of the Fund were held
by one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------------------- ----------------------------------
Class II: Shares Amount Shares Amount
-------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 852,214 $ 10,905,461 854,704 $ 10,796,765
Shares issued to shareholders
in reinvestment of
distributions 59,540 799,598 146,654 1,773,377
Shares repurchased (125,271) (1,745,863) (2,597,721) (32,011,557)
-------------- --------------- -------------- ----------------
Net increase (decrease) 786,483 $ 9,959,196 (1,596,363) $ (19,441,415)
============== =============== ============== ================
</TABLE>
30
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------------------------------- ----------------------------------------
Class III: Shares Amount Shares Amount
------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Shares sold 2,187,898 $ 27,913,922 17,082,138 $ 209,494,684
Shares issued to shareholders in
reinvestment of distributions 1,292,375 17,382,438 1,616,582 19,533,092
Shares repurchased (3,924,787) (49,533,815) (10,176,725) (124,059,771)
------------------- --------------------- ------------------ ------------------
Net increase (decrease) (444,514) $ (4,237,455) 8,521,995 $ 104,968,005
=================== ===================== ================== ==================
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------------------------------- ----------------------------------------
Class IV: Shares Amount Shares Amount
------------------- --------------------- ------------------ ------------------
Shares sold 2,877,065 $ 36,897,955 445,359 $ 5,633,670
Shares issued to shareholders in
reinvestment of distributions 161,529 2,170,952 128,073 1,542,577
Shares repurchased (4,580,566) (60,520,745) (7,653,734) (92,194,425)
------------------- --------------------- ------------------ ------------------
Net decrease (1,541,972) $ (21,451,838) (7,080,302) $ (85,018,178)
=================== ===================== ================== ==================
</TABLE>
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 79.9%
Brazil - 5.3%
145,000 Brahma ON 58,845
1,160,000 CIA Saneamento Basico SAO PA 76,643
1,200,000 Companhia Petroquimica do Sul 33,590
7,232,000 Companhia Siderurgica Nacional SA 174,930
40,409,000 Electrobras 628,631
10,331 Itausa-Investimentos Itau SA 4,730
48,191 Souza Cruz (Registered) 270,792
7,000 Telebras ADR * 328
9,642 Telebras Holders ADR 715,316
17,000,000 Telebras SA 442
17,000,000 Telecomunicacoes Brasileiras SA * 698,663
13,800 Vale Do Rio Doce 222,581
5,000 Vidraria Santa Marina 4,553
-----------------
2,890,044
-----------------
Chile - 1.3%
700 Banco de Edward ADR 10,588
6,000 Banco Santander ADR 100,500
3,000 Banco Santiago ADR 63,000
5,600 Chilectra SA ADR 109,200
2,600 Compania Cervecerias 68,088
3,400 Compania de Telefones de Chile ADR 76,500
3,100 Distribucion y Servicio ADR 51,150
7,182 Empresa Natl de Electricidad ADR 88,877
7,100 Gener SA ADR 130,019
-----------------
697,922
-----------------
China - 5.0%
147,000 China Merchants Holdings Co Ltd 123,996
662,000 China Overseas Land & Investment Ltd 79,285
98,000 China Resources Enterprise 160,911
2,600 China Telecom (Hong Kong) Ltd ADR * 161,684
296,000 China Telecom Ltd Class H * 918,669
208,000 Citic Ka Wah Bank Ltd 83,038
120,000 Cosco Pacific Ltd 105,085
5,500 Huaneng Power International ADR 68,750
626,000 Huaneng Power International Inc 201,542
2,288,000 Maanshan Iron & Steel * 194,469
46,000 Shanghai Industrial Holdings 109,888
2,128,000 Shanghai Petrochemical Co Class H 457,655
-----------------
2,664,972
-----------------
Czech Republic - 0.7%
10,910 Ceska Sporitelna * 53,867
1,770 Ceske Radiokomunikace * 64,830
2,975 Komercni Banka AS * 74,645
430 Severoceske Doly 12,401
2,792 SPT Telecom AS * 47,427
362 Tabak AS 85,400
20,700 Unipetrol 36,416
-----------------
374,986
-----------------
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
India - 0.0%
100 Castrol India 998
100 Satyam Computer Service 1,997
100 Satyam Computer Service New Shares 1,993
-----------------
4,988
-----------------
Indonesia - 5.9%
411,000 Astra International * 144,586
18,400 Bank Internasional Indonesia * 360
3,677,500 Bank Negara Indonesia 107,809
354,000 Gajah Tunggal Tbk * 31,134
607,100 Gudang Garam 1,463,368
9,000 Gulf Resources Ltd ADR * 92,813
126,900 HM Sampoerna * 263,721
731,900 Indah Kiat Pulp & Paper * 267,012
599,000 Indorama Synthetics * 101,459
941,000 Matahari Putra Prima Tbk * 95,020
364,000 PT Daya Guna Samudera * 147,023
198,600 PT Indofood Sukses Makmur Tbk * 212,185
20,000 PT Indosat (Persero) Tbk 31,075
66,500 Semen Gresik 129,967
41,000 Tambang Timah Persero (Foreign Registered) 26,977
198,612 Telekomunikasi Indonesia 76,339
-----------------
3,190,848
-----------------
Korea - 20.0%
8,860 Cheil Jedang Corp 701,745
55,700 Daewoo Corp 87,289
47,000 Daewoo Heavy Industries 74,452
11,200 Daewoo Securities 205,879
70,000 Daewoo Electronics * 128,674
23,084 Hana Bank 205,321
11,450 Housing & Commercial Bank 267,700
9,400 Hyundai Heavy Industries 527,133
15,433 Hyundai Merchant Marine 237,934
25,000 Kookmin Bank 349,428
11,700 Korea Electric Power Corp 436,086
11,150 Korea Telecommunications ADR * 362,375
13,404 LG Chemicals Ltd 428,065
4,800 LG Information & Communication 428,971
11,520 Pohang Iron & Steel (b) 1,557,274
1,000 Pohang Iron & Steel ADR 36,750
22,928 Samsung Corp 403,983
3,000 Samsung Display Devices 173,571
10,624 Samsung Electronics 2,015,905
2,564 Samsung Electronics GDR 144A (1/2 Voting) 238,324
7,614 Samsung Electronics GDS 144A (Non Voting) 529,554
4,000 Samsung Fire & Marine Insurance 197,543
11,321 Samsung Securities 444,017
13,000 SK Corporation 313,850
19,600 Ssangyong Oil Refining 486,472
-----------------
10,838,295
-----------------
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - 10.3%
58,000 Edaran Otomobil Berhad 213,684
69,000 Hong Leong Bank Berhad 78,805
100,000 Malakoff Berhad 265,789
258,000 Malayan Banking Berhad 848,684
77,000 Nestle Malaysia 297,868
250,000 Oriental Holdings Berhad 549,342
90,000 Public Bank Berhad (Alien Market) 84,789
58,000 Renong Berhad * 38,158
63,000 Resorts World Berhad 159,987
41,000 Rothmans of Pall Mall Berhad 285,921
683,000 Sime Darby Berhad 898,684
1,077,000 Tan Chong International Ltd 298,198
344,000 Tanjong 796,632
139,000 United Engineers * 261,539
249,000 YTL Corp 507,829
-----------------
5,585,909
-----------------
Mexico - 3.2%
123,602 Alfa SA Class A 467,840
31,961 Cemex SA Class B 141,761
16,800 Cemex SA CPO 74,157
34,062 Cifra SA de CV * 56,364
17,803 Grupo Carso SA de CV Class A 68,999
3,000 Grupo Financiero Banamex Acciva * 5,758
12,715 Grupo Mexico Class B 54,973
6,324 Grupo Televisa SA PTG Certs (1A,L & D) * 113,952
35,163 Kimberly Clark Class A 111,349
8,650 Telefonos de Mexico ADR Class L 643,344
-----------------
1,738,497
-----------------
Pakistan - 0.3%
77,760 Pakistan State Oil 187,373
-----------------
Phillippines - 4.2%
896,153 Ayala Corp 242,814
90,900 Ayala Land Inc 22,682
27,285 Equitable Banking Corp 58,456
285,554 Filinvest Development Corp * 21,952
130,988 La Tondena Distillers Inc 132,061
8,910 Manila Electric Class B 26,500
25,880 Metro Bank & Trust Co 213,628
1,991,071 Metro Pacific Corp * 72,266
891,200 Petron Corp 79,742
7,100 Philippine Commercial International Bank 45,633
35,835 Philippine Long Distance Telephone 849,021
223,519 San Miguel Corp Class B 363,377
914,941 SM Prime Holdings 168,345
-----------------
2,296,477
-----------------
Poland - 0.1%
3,500 Agora SA GDR * 38,500
-----------------
</TABLE>
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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Russia - 3.2%
103,000 Irkutskenergo ADR (b) 446,052
17,900 Lukoil Holding Co ADR 528,050
96,000 Norilsk Nickel (Registered) (b) * 257,837
23,000 Surgutneftegaz ADR 179,774
33,000 Unified Energy Systems GDR * 222,750
13,500 Unified Energy Systems GDR 91,125
-----------------
1,725,588
-----------------
South Africa - 8.3%
58,340 Amalgamated Bank of South Africa 300,237
7,677 Anglo American Corp Plc 422,601
3,300 Anglo Gold Ltd 165,488
33,563 Bidvest Group Ltd 240,603
29,100 Comparex Holding Ltd 180,380
26,700 De Beers Centenary Link Units 728,741
5,500 De Beers Consolidated Mines Ltd ADR 149,531
67,029 Dimension Data Holdings * 278,277
12,010 Investec Group Ltd 418,632
7,599 Liberty International Plc 56,849
33,600 Liberty Life Association of Africa Ltd 393,897
4,700 Nedcor Ltd 93,505
44,900 Rembrandt Group Ltd 336,639
61,700 Sasol Ltd 448,395
4,700 South African Breweries Plc 38,639
75,500 Standard Bank Investment Corp 235,860
-----------------
4,488,274
-----------------
Taiwan - 0.7%
22,080 China Steel Corp GDR * 399,648
-----------------
Thailand - 9.5%
52,700 Advanced Info Service Public Co Ltd (Foreign Registered) 722,727
234,800 Bangkok Bank Pcl (Foreign Registered) * 596,871
594,400 Bank of Ayudhya Pcl (Foreign Registered) * 267,329
36,200 BEC World Public Co Ltd (Foreign Registered) 224,628
35,745 Delta Electronics Public Co Ltd (Foreign Registered) 283,313
6,400 Electricity Generating Public Co Ltd (Foreign Registered) 10,012
287,431 Krung Thai Bank Public Co Ltd * 112,409
187,100 National Finance Pcl * 86,586
53,700 PTT Exploration and Production Public Co Ltd (Foreign Registered) * 422,824
257,300 Securities One Ltd * 59,705
90,436 Shinawatra Computer Public Co Ltd (Foreign Registered) * 412,627
7,100 Siam Cement Pcl (Foreign Registered) * 183,632
36,700 Siam City Cement (Foreign Registered) * 135,873
245,535 Siam Commercial Bank Pcl (Foreign Registered) * 275,271
27 Siam Makro Co Ltd 51
405,000 Telecomasia (Foreign Registered) * 388,052
171,100 Thai Airways International (Foreign Registered) * 301,115
102,087 Thai Farmers Bank Pcl (Foreign Registered) * 146,390
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - continued
613,700 Thai Military Bank * 292,010
327,900 Thai Petrochemical (Foreign Registered) * 162,433
136,200 United Broadcasting Pcl (Foreign Registered) * 87,000
-----------------
5,170,858
-----------------
Venezuela - 1.9%
45,424 Compania Anonima Nacional Telefonos de Venezuela (CANTV) Sponsored ADR 905,641
59,300 Siderurgica Venezolana (Sivensa) Registered ADR Class A 103,775
-----------------
1,009,416
-----------------
TOTAL COMMON STOCKS (Cost $40,169,008) 43,302,595
-----------------
INVESTMENT FUNDS - 2.8%
Taiwan - 2.5%
173,900 R.O.C. Taiwan Fund 1,369,463
-----------------
United States - 0.3%
15,000 Morgan Stanley Emerging Markets Fund 167,813
-----------------
TOTAL INVESTMENT FUNDS (Cost $1,349,730) 1,537,276
-----------------
PREFERRED STOCKS - 2.8%
Brazil - 2.8%
30,000 Aracruz Celulose SA Class B 60,094
18,254,950 Banco Bradesco SA 72,184
1,000,000 Banco Estado Sao Paulo 30,963
133,000 Brahma PN 70,375
5,200 Companhia Vale do Rio Doce 115,255
32,767,000 Electrobras Class B (Registered) 517,419
436,229 Investimentos Itau SA 199,432
250,000 Itaubanco SA (Registered) 115,765
624,000 Petroleo Brasileiro SA (Petrobras) 83,438
3,177,000 Telebras SA (Registered) 99
3,177,000 Telecomunicacoes Brasileiras SA * 236,870
-----------------
1,501,894
-----------------
TOTAL PREFERRED STOCKS (Cost $1,737,786) 1,501,894
-----------------
DEBT OBLIGATIONS - 2.4%
U.S. Government - 2.4%
$ 1,054,255 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 (a) 1,008,461
$ 304,023 U.S. Treasury Inflation Indexed Note, 3.875% due 1/15/09 (a) 299,843
-----------------
1,308,304
-----------------
TOTAL DEBT OBLIGATIONS (Cost $1,320,995) 1,308,304
-----------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS & WARRANTS - 0.2%
Indonesia - 0.0%
57,050 Bank Internasional Indonesia Warrants 4/16/02 (b)* 387
-----------------
Thailand - 0.2%
102,087 Thai Farmers Bank Rights 12/31/49 * 93,157
-----------------
TOTAL RIGHTS & WARRANTS (Cost $88,140) 93,544
-----------------
SHORT-TERM INVESTMENTS - 11.3%
Cash Equivalents - 11.3%
$ 6,100,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 6,100,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,100,000) 6,100,000
-----------------
TOTAL INVESTMENTS - 99.4%
(Cost $50,765,659) 53,843,613
Other Assets and Liabilities (net) - 0.6% 315,214
-----------------
TOTAL NET ASSETS - 100.0% $ 54,158,827
=================
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
(a) All or a portion of this security is held as collateral for open swaps (Note 6).
(b) 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 buyers.
* Non income-producing security.
</TABLE>
6 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, industry sector diversification of the Fund's
equity investments was as follows:
Industry Sector
Telecommunications 11.7 %
Banking 9.8
Electronic Equipment 8.3
Financial Services 8.3
Utilities 7.3
Metals and Mining 6.5
Oil and Gas 6.1
Food and Beverage 5.6
Conglomerates 4.8
Real Estate 3.9
Consumer Goods 3.1
Construction 3.0
Communications 2.6
Automotive 2.2
Paper and Allied Products 1.5
Insurance 1.3
Chemicals 1.3
Machinery 1.3
Transportation 1.1
Services 0.5
Health Care 0.3
Textiles 0.2
Retail Trade 0.2
Miscellaneous 9.1
-------
100.0 %
=======
See accompanying notes to the financial statements. 7
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $50,765,659) (Note 1) $ 53,843,613
Foreign currency, at value (cost $704,448) (Note 1) 703,390
Cash 12,884
Receivable for investments sold 28,772
Dividends and interest receivable 170,472
Receivable for open swap contracts (Notes 1 and 6) 25,746
Receivable for expenses waived or borne by Manager (Note 2) 6,799
-------------------
Total assets 54,791,676
-------------------
Liabilities:
Payable for investments purchased 12,033
Net payable for open forward foreign currency contracts (Notes 1 and 6) 260,241
Accrued capital gain and repatriation taxes payable (Note 1) 11,631
Accrued Malaysian repatriation taxes (Note 1) 247,953
Payable to affiliate for (Note 2):
Management fee 27,109
Shareholder service fee 6,175
Accrued expenses 67,707
-------------------
Total liabilities 632,849
-------------------
Net assets $ 54,158,827
===================
Net assets consist of:
Paid-in capital $ 56,118,016
Accumulated undistributed net investment income 102,552
Accumulated net realized loss (4,626,547)
Net unrealized appreciation 2,564,806
-------------------
$ 54,158,827
===================
Net assets attributable to Class III Shares $ 54,158,827
===================
Shares outstanding - Class III 5,514,816
===================
Net asset value per share - Class III $ 9.82
===================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $65,285) $ 363,853
Interest 66,911
-------------------
Total income 430,764
-------------------
Expenses:
Management fee (Note 2) 144,136
Custodian fees 105,543
Audit fees 24,290
Transfer agent fees 13,800
Legal fees 643
Registration fees 364
Trustees fees (Note 2) 184
Miscellaneous 4,150
Fees waived or borne by Manager (Note 2) (39,649)
-------------------
253,461
Shareholder service fee - Class III (Note 2) 33,262
-------------------
Net expenses 286,723
-------------------
Net investment income 144,041
-------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 8,456,069
Closed swap contracts 1,441,530
Foreign currency, forward contracts and foreign
currency related transactions 5,382
-------------------
Net realized gain 9,902,981
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 11,845,413
Open swap contracts (459,220)
Foreign currency, forward contracts and foreign
currency related transactions (293,525)
-------------------
Net unrealized gain 11,092,668
-------------------
Net realized and unrealized gain 20,995,649
-------------------
Net increase in net assets resulting from operations $ 21,139,690
===================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
-------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 144,041 $ 1,569,067
Net realized gain (loss) 9,902,981 (13,606,696)
Change in net unrealized appreciation (depreciation) 11,092,668 (7,524,498)
-------------------- --------------------
Net increase (decrease) in net assets resulting from operations 21,139,690 (19,562,127)
-------------------- --------------------
Distributions to shareholders from:
Net investment income - Class III - (1,117,606)
-------------------- --------------------
Net share transactions - Class III (Note 5) 1,300,848 12,699,670
-------------------- --------------------
Total increase (decrease) in net assets 22,440,538 (7,980,063)
Net assets:
Beginning of period 31,718,289 39,698,352
-------------------- --------------------
End of period (including accumulated undistributed net
investment income of $102,552 and distributions in excess of
net investment income of $41,489, respectively) $ 54,158,827 $ 31,718,289
==================== ====================
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period from August 29, 1997
August 31, 1999 Year Ended (commencement of operations)
(Unaudited) February 28, 1999 to February 28, 1998
--------------------- --------------------- -------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 5.74 $ 8.61 $ 10.00
--------------------- --------------------- -------------------------
Income from investment operations:
Net investment income 0.03 0.23 0.03 +
Net realized and unrealized gain (loss) 4.05 (2.94) (1.42)
--------------------- --------------------- -------------------------
Total from investment operations 4.08 (2.71) (1.39)
--------------------- --------------------- -------------------------
Less distributions to shareholders:
From net investment income - (0.16) -
--------------------- --------------------- -------------------------
Total distributions - (0.16) -
--------------------- --------------------- -------------------------
Net asset value, end of period $ 9.82 $ 5.74 $ 8.61
===================== ===================== =========================
Total Return (a) 71.08% (31.60%) (13.90%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 54,159 $ 31,718 $ 39,698
Net expenses to average
daily net assets 1.29% * 1.27% 1.65% * (b)
Net investment income to average
daily net assets 0.65% * 3.65% 0.78% *
Portfolio turnover rate 104% 158% 56%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share
amounts: $ 0.01 $ 0.02 $ 0.03
</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 .16% of average daily net assets.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Evolving Countries 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 equity securities
traded in the securities markets of developing countries of Asia, Latin
America, the Middle East, Africa and Europe ("Emerging Markets"). The
Fund's current benchmark is the IFC Investable 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, currency gains and losses realized between the trade
and settlement dates on securities transactions and the
12
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown
under Note 6, and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of August 31, 1999.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
When the Fund writes a call or put option, an amount equal to the premium
received is recorded as a liability and subsequently marked to market to
reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At August 31, 1999 there were no open written option
contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing put and call options is limited to the
premium paid.
13
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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 and agency 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. As of August
31, 1999, there were no outstanding futures contracts.
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 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 will be 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, 1999.
14
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 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, 1999, the Fund had a capital loss
carryforward available to offset future capital gains, if any, of $353,921
and $10,409,816, expiring in 2006 and 2007, respectively.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests. The Fund has recorded an accrual in
the amount of $11,631 for potential capital gains and repatriation taxes at
August 31, 1999. The accrual for capital gains and repatriation taxes is
included in net realized and unrealized gain in the Statement of
Operations.
Effective February 4, 1999, the Malaysian government imposed levies on the
repatriation by foreigners of proceeds from the sale of Malaysian
securities. Funds invested in Malaysia prior to February 15, 1999 and
repatriated within one year of September 1, 1998, or one year from the date
of the investment if after September 1, 1998, were subject to a graduated
repatriation tax on the principal invested with a maximum of 30%. The Fund
has recorded an accrual in the amount of $247,953 for potential
repatriation tax on principal invested prior to February 15, 1999.
Effective September 1, 1999, the Malaysian government exempted funds
invested prior to February 15, 1999 from all levies, and such funds may now
be freely repatriated. Accordingly, effective September 1, 1999 no accrual
for potential Malaysian repatriation taxes 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 dividends 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
15
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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, 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, 1999, the Fund
received $102,544 in purchase premiums and $20,462 in redemption fees.
There is no premium for reinvested distributions. While no purchase premium
is normally 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.
Investment risk
Investments in securities of emerging countries present certain risks that
are not inherent in many other investments. Many emerging countries present
elements of political and/or economic instability. The securities markets
of emerging countries are generally smaller and less developed than the
securities markets of the U.S. and developed foreign markets. 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 .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.
GMO has entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding custody fees, brokerage commissions,
16
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
certain other transaction costs (including stamp duties and transfer
taxes), shareholder service fees and extraordinary expenses) exceed the
management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.80% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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)
exceeded .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, 1999, was $184.
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, 1999, were as
follows:
Purchases Proceeds
------------- -------------
U.S. Government securities $ 800,128 $ 1,756,813
Investments (non-U.S. Government securities) 39,301,869 41,253,519
At August 31, 1999, 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 Appreciation
---------------- ------------------ ------------------ ----------------
$50,765,659 $8,537,235 $5,459,281 $3,077,954
4. Principal shareholders
At August 31, 1999, 54% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
17
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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:
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
---------------------- ---------------------------
Class III: Shares Amount Shares Amount
-------- ----------- ----------- ------------
Shares sold 647,629 $ 6,534,028 3,158,638 $ 26,166,632
Shares issued to
shareholders in
reinvestment of
distributions - - 134,305 804,354
Shares repurchased
(660,421) (5,233,180) (2,378,020) (14,271,316)
-------- ----------- ----------- -------------
Net increase
(decrease) (12,792) $ 1,300,848 914,923 $ 12,699,670
======== =========== =========== =============
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1999 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver of Currency Value (Depreciation)
-------------- --------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Buy
10/06/99 IDR 84,263,250,000 $ 10,913,044 $ (1,347,162)
=================
Sale
10/06/99 IDR 84,263,520,000 $ 10,913,079 $ 1,086,921
=================
</TABLE>
Currency Abbreviation:
IDR Indonesian Rupiah
18
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Notional Expiration Net Unrealized
Amount Date Description Appreciation
-------------- ---------- ----------------------------------------------------- ----------------
<S> <C> <C> <C>
$ 622,562 3/16/00 Agreement with Credit Agricole Indosuez (W.I. Carr) $ 24,490
dated 3/16/99 to receive (pay) the notional amount
multiplied by the return on the MSCI Taiwan Index
and to pay the notional amount multiplied by 3
month LIBOR adjusted by a specified spread.
635,124 3/17/00 Agreement with Credit Agricole Indosuez (W.I. Carr) 1,256
dated 3/17/99 to receive (pay) the notional amount
multiplied by the return on the MSCI Taiwan Index
and to pay the notional amount multiplied by 3
month LIBOR adjusted by a specified spread.
----------------
$ 25,746
================
</TABLE>
19
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE COMPANIES - 87.7%
Canada - 10.2%
13,700 Brookfield Properties Corp 167,555
9,000 Canadian Hotel Income Properties (REIT) 55,187
37,722 Concord Pacific Group * 18,960
49,591 Oxford Properties Group * 528,412
4,000 Trizec Hahn Corp (Sub-Voting) 78,000
-----------------
848,114
-----------------
Finland - 1.2%
20,000 Sponda Oyj 96,330
-----------------
France - 12.9%
4,662 Compagnie Fonciere Klepierre 487,500
1,357 Silic 222,166
9,101 Sophia SA 379,711
-----------------
1,089,377
-----------------
Hong Kong - 6.8%
125,000 Amoy Properties Ltd 123,146
15,000 Cheung Kong Holdings 130,873
51,275 Great Eagle Holdings Ltd 75,277
166,000 Kerry Properties Ltd 207,362
115,000 Tai Cheung Holdings Ltd 28,139
-----------------
564,797
-----------------
Japan - 7.6%
8,000 Daibiru Corp 53,628
5,000 Hankyu Realty Co Ltd 20,977
10,000 Heiwa Real Estate Co Ltd 30,918
5,000 Keihanshin Real Estate 19,609
26,000 Mitsubishi Real Estate Co Ltd 268,430
13,000 Mitsui Fudosan Co Ltd 105,641
7,000 Sankei Building Co Ltd 23,686
11,000 Sumitomo Realty and Development Co Ltd 44,042
6,180 TOC Co Ltd 53,320
5,000 Tokyo Rakutenchi 17,420
-----------------
637,671
-----------------
Netherlands - 5.2%
6,019 Nagron Nationaal Grandbezit NV 153,535
2,186 Vastned Retail NV 110,138
5,327 Vastned (Offices) NV 169,925
-----------------
433,598
-----------------
New Zealand - 4.9%
2,557,821 Trans Tasman Properties Ltd 409,942
-----------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Singapore - 1.3%
25,000 DBS Land Ltd 56,997
20,000 Singapore Land Ltd 48,447
-----------------
105,444
-----------------
Spain - 1.0%
5,400 SOL Melia SA 73,516
1,800 SOL Melia SA Warrants 6/30/00 * 6,274
-----------------
79,790
-----------------
Sweden - 4.9%
140,500 Hufvudstaden AB Class A 406,581
-----------------
United Kingdom - 3.9%
100,000 Nursing Home Properties 321,590
-----------------
United States - 27.8%
6,000 Arden Realty Group Inc (REIT) 139,875
4,500 Bedford Properties Investments Inc (REIT) 79,875
3,000 Boston Properties Inc (REIT) 99,938
3,000 Bradley Real Estate Inc (REIT) 57,375
2,000 Brandywine Realty Trust (REIT) 35,875
8,500 Crescent Real Estate Equities (REIT) 176,375
800 Crestline Capital Corp 15,150
4,500 Eastgroup Properties Inc (REIT) 83,813
5,000 Felcor Lodging Trust Inc (REIT) 89,688
10,200 First Industrial Realty Trust Inc (REIT) 261,375
3,000 Gables Residential Trust (REIT) 71,813
2,000 Glimcher Realty Trust (REIT) 30,500
8,696 Host Marriott Corp (REIT) 80,438
683 Interstate Hotels Corp * 2,476
18,000 Meditrust Companies (REIT) 160,875
2,000 Parkway Properties Inc (REIT) 66,000
3,500 Prentiss Properties Trust (REIT) 79,406
4,000 Prison Realty Corp (REIT) 52,250
6,000 Reckson Associates Realty Corp (REIT) 124,500
960 Reckson Service Industries Inc * 13,200
4,000 Simon Property Group Inc (REIT) 102,000
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States - continued
3,000 Smith (Charles E) Residential Realty (REIT) 102,938
7,000 Starwood Hotels & Resorts (REIT) 166,688
5,000 Urban Shopping Centers Inc (REIT) 153,438
20,498 Wyndham International Class A * 73,024
-----------------
2,318,885
-----------------
TOTAL INVESTMENTS IN REAL ESTATE
COMPANIES (Cost $9,218,733) 7,312,119
-----------------
TOTAL INVESTMENTS - 87.7%
(Cost $9,218,733) 7,312,119
Other Assets and Liabilities (net) - 12.3% 1,026,302
-----------------
TOTAL NET ASSETS - 100.0% $ 8,338,421
=================
Notes to the Schedule of Investments
* Non-income producing security.
REIT - Real Estate Investment Trust
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $9,218,733) (Note 1) $ 7,312,119
Foreign currency, at value (cost $428,435) 436,061
Cash 48,555
Receivable for investments sold 551,015
Dividends receivable 52,998
Foreign withholding taxes receivable 12,263
Receivable for expenses waived or borne by Manager (Note 2) 5,740
------------------
Total assets 8,418,751
------------------
Liabilities:
Payable for investments purchased 43,883
Payable to affiliate for (Note 2):
Management fee 4,231
Shareholder service fee 1,063
Accrued expenses 31,153
------------------
Total liabilities 80,330
------------------
Net assets $ 8,338,421
==================
Net assets consist of:
Paid-in capital $ 9,993,463
Accumulated undistributed net investment income 62,495
Accumulated undistributed net realized gain 179,746
Net unrealized depreciation (1,897,283)
------------------
$ 8,338,421
==================
Net assets attributable to Class III Shares $ 8,338,421
==================
Shares outstanding - Class III 992,455
==================
Net asset value per share - Class III $ 8.40
==================
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $13,985) $ 283,868
Interest 8,551
-----------------
Total income 292,419
-----------------
Expenses:
Management fee (Note 2) 25,183
Custodian fees 31,027
Audit fees 17,759
Transfer agent fees 13,709
Registration fees 364
Legal fees 184
Trustees fees (Note 2) 32
Miscellaneous 243
Fees waived or borne by Manager (Note 2) (32,291)
-----------------
56,210
Shareholder service fee - Class III (Note 2) 6,301
-----------------
Net expenses 62,511
-----------------
Net investment income 229,908
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 182,695
Foreign currency and foreign currency related transactions (2,773)
-----------------
Net realized gain 179,922
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments 172,092
Foreign currency and foreign currency related transactions 6,743
-----------------
Net unrealized gain 178,835
-----------------
Net realized and unrealized gain 358,757
-----------------
Net increase in net assets resulting from operations $ 588,665
=================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
---------------------- -----------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 229,908 $ 309,183
Net realized gain 179,922 158,277
Change in net unrealized appreciation (depreciation) 178,835 (2,047,672)
---------------------- -----------------------
Net increase (decrease) in net assets resulting from operations 588,665 (1,580,212)
---------------------- -----------------------
Distributions to shareholders from:
Net investment income - Class III (33,133) (329,064)
In excess of net investment income - Class III - (38,660)
Net realized gains - Class III (121,807) (221,135)
---------------------- -----------------------
(154,940) (588,859)
---------------------- -----------------------
Net share transactions - Class III (Note 5) 72,865 (60,157)
---------------------- -----------------------
Total increase (decrease) in net assets 506,590 (2,229,228)
Net assets:
Beginning of period 7,831,831 10,061,059
---------------------- -----------------------
End of period (including accumulated undistributed net
investment income and distributions in excess of net
investment income of $62,495 and $134,280, respectively) $ 8,338,421 $ 7,831,831
====================== =======================
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1999 Year Ended Year Ended Period Ended
(Unaudited) February 28, 1999 February 28, 1998 February 28, 1997*
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.96 $ 10.14 $ 10.06 $ 10.00
--------------- ----------------- ----------------- -----------------
Income from investment operations:
Net investment income 0.23 0.40 0.30 0.04
Net realized and unrealized gain (loss) 0.36 (1.97) 0.10 0.02 (b)
--------------- ----------------- ----------------- -----------------
Total from investment operations 0.59 (1.57) 0.40 0.06
--------------- ----------------- ----------------- -----------------
Less distributions to shareholders from:
Net investment income (0.03) (0.33) (0.32) -
In excess of net investment income - (0.06) - -
Net realized gains (0.12) (0.22) - -
--------------- ----------------- ----------------- -----------------
Total distributions (0.15) (0.61) (0.32) -
--------------- ----------------- ----------------- -----------------
Net asset value, end of period $ 8.40 $ 7.96 $ 10.14 $ 10.06
=============== ================= ================= =================
Total Return (a) 7.49% (15.87%) 4.07% 0.60%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,338 $ 7,870 $ 10,061 $ 9,464
Net expenses to average
daily net assets 1.49% ** 1.43% 1.43% 1.98% **
Net investment income to average
daily net assets 5.48% ** 3.44% 2.89% 2.39% **
Portfolio turnover rate 7% 26% 15% 0%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.10 $ 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, 1999 (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 high total return 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 ("real estate
companies"). The Fund's current benchmark is the Salomon Smith Barney BMI
World Property 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
exchange contracts, 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.
8
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (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 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 dividends 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.
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 taking into consideration, among other things, the
nature and type of expense and the relative size of the Funds.
9
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, 1999, the Fund received no purchase premiums and $244 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 including the possible
imposition of capital controls or other foreign governmental laws or
restrictions. In addition, the securities of some foreign companies and
securities markets are less liquid and at times may be 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 .60% 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 entered into a binding agreement effective until June 30, 2000 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding custody fees, brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed the management fee.
Prior to March 1, 1999, GMO earned a management fee at the annual rate of
.75% of average daily net assets. GMO had agreed to waive a portion of its
fee and bear other expenses 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)
exceeded .60% of average daily net assets.
10
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1999 was $32. 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, 1999,
aggregated $515,566 and $1,314,763, respectively.
At August 31, 1999, 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
----------------- ------------------ ------------------ ----------------
$9,218,733 $425,133 $2,331,747 $1,906,614
4. Principal shareholder
At August 31, 1999, 69% of the outstanding shares of the Fund were held by
one shareholder, who is an affiliate of the Manager. Investment activities
of this shareholder could have a material effect.
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
August 31, 1999 February 28, 1999
-------------------------------- --------------------------------
Class III: Shares Amount Shares Amount
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold - $ - 6,092 $ 51,612
Shares issued to shareholders
in reinvestment of
distributions 18,000 153,896 65,429 570,231
Shares repurchased (9,810) (81,031) (79,398) (682,000)
--------------- -------------- --------------- --------------
Net increase (decrease) 8,190 $ 72,865 (7,877) $ (60,157)
=============== ============== =============== ==============
</TABLE>
11
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1999
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 90.2%
Advertising - 0.1%
7,500 Cordiant Communications Group Plc ADR 115,313
-----------------
Aerospace - 0.3%
10,000 Boeing Company 453,125
-----------------
Automotive - 2.7%
12,500 Delphi Automotive Systems Corp 234,375
17,500 General Motors Corp 1,157,188
35,000 Mascotech Industries Inc 603,750
62,500 Michelin SA Class B* 2,711,401
-----------------
4,706,714
-----------------
Banking and Financial Services - 11.3%
15,000 American Express Co 2,062,500
10,000 Bank of America Corp 605,000
20,000 Bank One Corp 802,500
75,000 Block (H & R) Inc 4,171,875
50,000 Chase Manhattan Corp 4,184,375
120,000 Citigroup Inc 5,332,500
7,500 First Union Corp 311,250
5,000 PNC Bank Corp 261,563
25,000 Washington Mutual Inc 793,750
35,000 Wells Fargo Co 1,393,438
-----------------
19,918,751
-----------------
Chemicals - 0.3%
15,000 Albemarle Corp 259,688
5,000 Du Pont (E I) De Nemours & Co Inc 316,875
-----------------
576,563
-----------------
Computer and Office Equipment - 4.5%
70,000 Compaq Computer Corp 1,623,125
5,000 Hewlett - Packard Co 526,875
45,000 International Business Machines Corp 5,605,294
25,000 Maxtor Corp * 160,156
-----------------
7,915,450
-----------------
Consumer Goods - 2.1%
42,500 Eastman Kodak 3,121,094
25,000 Mattel Inc 532,813
-----------------
3,653,907
-----------------
Electronic Equipment - 2.1%
87,500 International Rectifier Corp* 1,410,938
40,000 Stoneridge Inc* 720,000
32,500 Thomas & Betts Corp 1,462,500
-----------------
3,593,438
-----------------
Food and Beverage - 4.4%
35,000 Anheuser-Busch Cos Inc 2,695,000
17,500 ConAgra Inc 428,750
5,000 Coors (Adolph) Co 285,313
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage - continued
27,500 Nestle SA ADR 2,713,607
87,500 Pepsi Bottling Group Inc 1,657,031
-----------------
7,779,701
-----------------
Health Care - 0.9%
65,000 Acuson Corp* 1,023,750
50,000 Owens and Minor Holdings Co 553,125
-----------------
1,576,875
-----------------
Insurance - 0.9%
35,000 Allstate Corp 1,148,438
75,000 Reliance Group Holdings Inc 356,250
-----------------
1,504,688
-----------------
Machinery - 1.8%
10,000 Baker Hughes Inc 340,000
15,000 FMC Corp* 873,750
15,000 Milacron Inc 270,000
50,000 Pall Corp 993,750
25,000 Stanley Works 659,375
-----------------
3,136,875
-----------------
Manufacturing - 5.7%
52,500 American Greetings Corp 1,453,594
50,000 Clayton Homes Inc 475,000
40,000 Corning Inc 2,660,000
17,500 General Electric Co 1,965,469
65,000 Owens Corning 1,828,125
25,000 United Technologies Corp 1,653,125
-----------------
10,035,313
-----------------
Metals and Mining - 0.9%
7,500 Alcan Aluminum Ltd 246,563
25,000 Allegheny Teledyne Inc 467,188
50,000 Amcol International Corp 725,000
5,000 Placer Dome Inc 51,875
-----------------
1,490,626
-----------------
Oil and Gas - 6.8%
12,500 Amerada Hess Corp 775,781
25,000 Cabot Oil & Gas Corp, Class A 476,563
20,000 Enron Oil & Gas Co 477,500
150,000 Gulf Canada Resources Ltd 600,000
12,500 Kerr-McGee Corp 700,000
50,000 Lasmo Plc ADR 353,125
22,500 Mitchell Energy Class A 458,438
45,000 Mitchell Energy Class B 888,750
2,500 Mobil Corp 255,938
82,500 Occidental Petroleum Corp 1,789,219
20,000 Triton Energy Ltd* 242,500
100,000 Union Pacific Resources Group Inc 1,793,750
35,000 Unocal Corp 1,465,625
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas - continued
47,500 USX - Marathon Group 1,478,438
12,500 Westcoast Energy Inc 243,750
-----------------
11,999,377
-----------------
Paper and Allied Products - 4.5%
50,000 Abitibi-Consolidated Inc 593,750
30,000 International Paper Co 1,411,875
85,000 Kimberly-Clark Corp 4,839,688
25,000 Tenneco Inc 503,125
10,000 Weyerhaeuser Co 562,500
-----------------
7,910,938
-----------------
Pharmaceuticals - 1.6%
37,500 Bergen Brunswig Corp 578,906
20,000 Lilly (Eli) & Co 1,492,500
12,500 Mylan Laboratories Inc 247,656
7,500 Smithkline Beecham PLC 478,125
-----------------
2,797,187
-----------------
Primary Processing - 0.8%
50,000 Engelhard Corp 996,875
35,000 Intermet Corp 403,594
-----------------
1,400,469
-----------------
Printing and Publishing - 0.4%
25,000 R. R. Donnelley & Sons Co 784,375
-----------------
Real Estate - 8.6%
7,500 Avalonbay Communities Inc 264,375
20,000 Boston Properties Inc 666,250
62,500 Brandywine Realty Trust 1,121,094
75,000 Equity Office Properties Trust 1,917,188
50,000 Equity Residential Properties Trust 2,200,000
25,000 Glenborough Realty Trust Inc 432,813
165,000 JP Realty Inc 3,196,875
32,500 Mack-Cali Realty Corp 922,188
10,000 Prime Group Realty Trust 165,625
15,000 Reckson Associates Realty Corp 311,250
22,500 Spieker Properties Inc 860,625
100,000 Summit Properties Inc 1,987,500
50,000 United Dominion Realty Trust Inc 575,000
25,000 Walden Residential Properties Inc 470,313
-----------------
15,091,096
-----------------
Refining - 0.5%
32,500 Conoco Inc 873,438
-----------------
Retail Trade - 5.1%
50,000 Federated Department Stores* 2,300,000
75,000 Saks Inc * 1,260,938
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade - continued
35,000 Sears Roebuck & Co 1,312,500
125,000 Toys R Us Inc* 1,726,563
52,500 Wal-Mart Stores Inc 2,326,406
-----------------
8,926,407
-----------------
Services - 4.7%
7,500 Core Laboratories NV* 143,438
15,000 Hilton Hotels Corp 183,750
57,500 Manpower Inc 1,552,500
150,000 Modis Professional Services Inc * 2,371,875
12,500 Republic Services Inc* 135,938
175,000 Waste Management Inc 3,817,188
-----------------
8,204,689
-----------------
Technology - 6.4%
12,500 Computer Sciences Corp* 864,844
25,000 Data General Corp* 460,938
15,000 Electronic Data Systems Corp 841,875
25,000 GTECH Holdings Corp* 631,250
100,000 Information Resources Inc* 1,087,500
22,500 Intel Corp 1,849,219
100,000 Parametric Technology Corp * 1,400,000
180,000 Storage Technology Corp* 3,780,000
7,500 Xerox Corp 358,125
-----------------
11,273,751
-----------------
Telecommunications - 4.2%
5,000 Bell Atlantic Corp 306,250
52,500 GTE Corp 3,602,813
27,500 MediaOne Group Inc* 1,808,125
12,500 SBC Communications Inc 600,000
20,000 US WEST Inc 1,045,000
-----------------
7,362,188
-----------------
Transportation - 3.2%
10,000 Airborne Freight Corp 251,875
15,000 AMR Corp* 879,375
15,000 Brunswick Corp 383,438
47,500 Canadian Pacific Ltd 1,113,281
10,000 Delta Air Lines Inc 508,125
12,500 FDX Corp* 530,469
75,000 Ryder System Inc 1,654,688
7,500 US Airways Group Inc* 231,094
-----------------
5,552,345
-----------------
Utilities - 5.4%
10,000 Cinergy Corp 303,750
5,000 Duke Energy Co 287,500
15,000 Illinova Corp 478,125
37,500 K N Energy Inc 764,063
75,000 Niagara Mohawk Holdings Inc* 1,134,375
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities - continued
20,000 Northern States Power Co 471,250
75,000 Sempra Energy 1,673,438
57,500 Texas Utilities 2,325,156
25,000 TransCanada Pipeline Ltd 356,250
42,500 Unicom Corp 1,641,563
-----------------
9,435,470
-----------------
TOTAL COMMON STOCKS (Cost $119,321,491) 158,069,069
-----------------
PREFERRED STOCKS - 0.4%
Metals and Mining - 0.2%
25,000 Freeport-McMoran Corp Preferred $0.2273 417,188
-----------------
Oil and Gas - 0.2%
5,000 Unocal Corp Convertible Preferred 6.25% 289,375
-----------------
TOTAL PREFERRED STOCKS (Cost $1,154,170) 706,563
-----------------
DEBT OBLIGATIONS - 9.4%
Banking and Financial Services - 0.6%
$ 1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 972,650
-----------------
Computer and Office Equipment - 0.8%
1,500,000 International Business Machines Corp, 6.50% due 1/15/28 1,351,425
-----------------
Electronic Equipment - 0.4%
1,000,000 Advanced Micro Devices Inc, 6.00% due 5/15/05 757,500
-----------------
Food and Beverage - 0.3%
500,000 Anheuser-Busch Cos Inc, 7.10% due 6/15/07 492,395
-----------------
Technology - 0.6%
1,000,000 Data General Corp, 6.00% due 5/15/04 990,000
-----------------
Transportation - 0.5%
750,000 United Air Lines Inc, 9.13% due 1/15/12 816,300
-----------------
U.S. Government - 6.2%
6,250,000 U.S. Treasury Bond, 11.13% due 8/15/03 7,338,875
1,250,000 U.S. Treasury Bond, 10.75% due 8/15/05 1,528,713
750,000 U.S. Treasury Note, 7.75% due 2/15/01 771,090
1,500,000 U.S. Treasury Note, 6.625% due 5/15/07 1,538,670
-----------------
11,177,348
-----------------
TOTAL DEBT OBLIGATIONS (Cost $16,824,952) 16,557,618
-----------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS - 100.0%
(Cost $137,300,613) 175,333,250
Other Assets and Liabilities (net) - (0.0%) (52,367)
-----------------
TOTAL NET ASSETS - 100.0% $ 175,280,883
=================
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $137,300,613) (Note 1) $ 175,333,250
Dividends and interest receivable 351,939
Foreign withholding taxes receivable 15,040
Receivable for investments sold 845,059
Receivable for Fund shares sold 200
Receivable for expenses waived or borne by Manager (Note 2) 12,778
----------------------
Total assets 176,558,266
----------------------
Liabilities:
Due to custodian 235,359
Payable for investments purchased 805,825
Payable for Fund shares repurchased 32,920
Payable to affiliate for management fee (Note 2) 134,707
Accrued expenses and other liabilities 68,572
----------------------
Total liabilities 1,277,383
----------------------
Net Assets (equivalent to $15.87 per share based
on 11,044,013 shares outstanding, unlimited shares authorized) $ 175,280,883
======================
Net Assets consist of:
Paid-in capital $ 110,631,548
Accumulated undistributed net investment income 378,170
Accumulated undistributed net realized gain 26,238,335
Net unrealized appreciation 38,032,830
----------------------
Net assets $ 175,280,883
======================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
Pelican Fund
(A Series of GMO Trust)
<TABLE>
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of withholding taxes of $21,954) $ 1,823,819
Interest 882,018
---------------------
Total income 2,705,837
---------------------
Expenses:
Management fee (Note 2) 903,071
Custodian and transfer agent fees 84,466
Audit fees 19,597
Registration fees 4,277
Legal fees 3,314
Trustees fees (Note 2) 1,197
Miscellaneous 4,600
---------------------
Total expenses 1,020,522
Less: expenses waived or borne by Manager (Note 2) (67,288)
---------------------
Net expenses 953,234
---------------------
Net investment income 1,752,603
---------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 27,348,209
Foreign currency and foreign currency related transactions (415)
---------------------
Net realized gain 27,347,794
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments (14,802,445)
Foreign currency and foreign currency related transactions 193
---------------------
Net unrealized loss (14,802,252)
---------------------
Net realized and unrealized gain 12,545,542
---------------------
Net increase in net assets resulting from operations $ 14,298,145
=====================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Year Ended
(Unaudited) February 28, 1999
------------------------ ------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,752,603 $ 3,881,844
Net realized gain 27,347,794 30,658,342
Change in net unrealized appreciation (depreciation) (14,802,252) (25,781,297)
---------------------- ----------------------
Net increase in net assets resulting from operations 14,298,145 8,758,889
---------------------- ----------------------
Distributions to shareholders from:
Net investment income (2,061,258) (4,037,021)
Net realized gains (7,332,211) (31,637,977)
---------------------- ----------------------
(9,393,469) (35,674,998)
---------------------- ----------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 6,247,932 20,859,512
Net asset value of shares issued to shareholders
in payment of distributions declared 9,040,801 35,005,102
Cost of shares repurchased (68,849,116) (41,297,725)
---------------------- ----------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (53,560,383) 14,566,889
---------------------- ----------------------
Total decrease in net assets (48,655,707) (12,349,220)
Net assets:
Beginning of period 223,936,590 236,285,810
---------------------- ----------------------
End of period (including accumulated
undistributed net investment income
of $378,170 and $686,825, respectively) $ 175,280,883 $ 223,936,590
====================== ======================
</TABLE>
See accompanying notes to the financial statements. 9
<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, 1999 ---------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.73 $ 17.78 $ 16.31 $ 14.52 $ 11.99 $ 12.08
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.17 0.30 0.32 0.33 0.31 0.37
Net realized and unrealized gain (loss) 0.83 0.43 4.13 2.27 3.04 0.46
--------- --------- --------- --------- --------- ---------
Total from investment operations 1.00 0.73 4.45 2.60 3.35 0.83
--------- --------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.18) (0.31) (0.40) (0.27) (0.29) (0.37)
From net realized gains (0.68) (2.47) (2.58) (0.54) (0.53) (0.55)
--------- --------- --------- --------- --------- ---------
Total distributions (0.86) (2.78) (2.98) (0.81) (0.82) (0.92)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 15.87 $ 15.73 $ 17.78 $ 16.31 $ 14.52 $ 11.99
========= ========= ========= ========= ========= =========
Total Return (a) 6.25% 3.89% 28.97% 18.40% 28.54% 7.38%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 175,281 $ 223,937 $ 236,286 $ 207,369 $ 177,238 $ 117,920
Net expenses to average
daily net assets 0.95% * 0.95% 0.95% 0.95% 1.05% 1.10%
Net investment income to average
daily net assets 1.75% * 1.68% 1.77% 2.10% 2.42% 2.51%
Portfolio turnover rate 17% 34% 28% 27% 32% 40%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 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.
10 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1999 (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 growth of capital primarily through investment in
equity securities. The Fund's current benchmark is the Standard & Poor's
500 Composite Stock Market 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 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. 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
gains and losses on disposition of foreign currencies and forward foreign
currency contracts, 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
11
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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. At August 31,
1999 there were no open forward foreign currency contracts.
Options
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying instrument.
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 added to
the proceeds or offset against the amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There is
the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. At August 31, 1999 there were no open
written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. 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.
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, 1999 (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 dividends 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 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 entered into a binding agreement
effective until June 30, 2000 to reimburse the Fund to the extent that the
Fund's total annual operating expenses (including the management fee but
excluding brokerage commissions, certain other transaction costs (including
transfer taxes), and extraordinary expenses) exceed .95% of average daily
net assets.
Prior to March 1, 1999, GMO had agreed to waive a portion of its fee and
bear other expenses to the extent that the Fund's annual expenses
(including the management fee but excluding brokerage commissions, certain
other transaction costs (including transfer taxes), and extraordinary
expenses) exceeded .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, 1999, was $1,197. 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, 1999, 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 $183,656 $515,781
Investments (non-U.S. Government securities) $31,616,591 $89,364,592
</TABLE>
13
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1999, 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
---------------- ------------------ ------------------ ----------------
$137,300,613 $48,198,934 $10,166,297 $38,032,637
4. Principal shareholder
At August 31, 1999, 46.40% of the outstanding shares of the Fund were held
by one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------- ---------------------
<S> <C> <C>
Shares sold 377,820 1,214,307
Shares issued to shareholders in
reinvestment of distributions 546,702 2,112,963
Shares repurchased (4,116,046) (2,378,657)
------------------- -------------------
Net increase (decrease) (3,191,524) 948,613
Fund shares:
Beginning of period 14,235,537 13,286,924
------------------- -------------------
End of period 11,044,013 14,235,537
=================== ===================
</TABLE>
14
