<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 96.5%
AEROSPACE -- 1.4%
25,000 Boeing Co 1,340,625
60,000 Lockheed Martin Corp 1,702,500
-------------
3,043,125
-------------
AUTOMOTIVE -- 1.5%
25,000 Delphi Automotive Systems 410,937
48,075 Ford Motor Co 1,162,810
25,000 General Motors Corp 1,804,687
-------------
3,378,434
-------------
BANKING AND FINANCIAL SERVICES -- 11.0%
30,000 Bank of America Corp 1,606,875
50,000 Bank One Corp 1,762,500
105,000 Block (H&R) Inc 3,766,875
82,500 Chase Manhattan Corp 4,609,687
107,500 Citigroup Inc 6,275,313
50,000 First Union Corp 1,446,875
37,500 Firstar Corp 895,312
97,500 Washington Mutual Inc 3,412,500
10,000 Wells Fargo & Co 431,875
-------------
24,207,812
-------------
CHEMICALS -- 1.5%
30,000 Du Pont (E.I.) De Nemours 1,346,250
10,000 Hercules Inc 132,500
30,000 PPG Industries Inc 1,215,000
17,500 Rohm & Haas Co 506,406
-------------
3,200,156
-------------
COMPUTER AND OFFICE EQUIPMENT -- 4.2%
28,500 Computer Associates International Inc 904,875
25,000 Electronic Data Systems Corp 1,245,312
32,500 IBM Corp 4,290,000
25,000 Pitney Bowes Inc 914,062
100,000 Unisys Corp* 1,300,000
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER AND OFFICE EQUIPMENT -- CONTINUED
35,000 Xerox Corp 562,187
-------------
9,216,436
-------------
CONSUMER GOODS -- 3.3%
30,000 Black and Decker Corp 1,201,875
87,500 Eastman Kodak Co 5,446,875
37,500 Mattel Co 370,312
5,000 Procter and Gamble Co 309,062
-------------
7,328,124
-------------
ELECTRONIC EQUIPMENT -- 2.4%
30,000 General Electric Co 1,760,625
57,500 Motorola Inc 2,073,594
50,000 Raytheon Co, Class B 1,390,625
-------------
5,224,844
-------------
FOOD AND BEVERAGE -- 2.8%
15,000 Anheuser Busch Cos Inc 1,182,187
40,000 Coca Cola Enterprises Inc 745,000
75,000 ConAgra Inc 1,373,437
5,000 Nestle SA ADR 538,603
22,500 Pepsico Inc 959,062
75,000 Sara Lee Corp 1,396,875
-------------
6,195,164
-------------
HEALTH CARE -- 1.7%
32,500 Bausch & Lomb Inc 1,161,875
75,000 Becton Dickinson & Co 2,259,375
2,500 Johnson & Johnson 229,844
-------------
3,651,094
-------------
INSURANCE -- 1.3%
30,000 Aetna Inc 1,678,125
40,000 Allstate Corp 1,162,500
-------------
2,840,625
-------------
MACHINERY -- 1.3%
32,500 Baker Hughes Inc 1,188,281
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MACHINERY -- CONTINUED
20,000 Caterpillar Inc 735,000
22,500 Ingersoll Rand Co 1,025,156
-------------
2,948,437
-------------
MANUFACTURING -- 3.2%
2,500 Minnesota Mining and Manufacturing Co 232,500
95,000 Owens Corning 492,812
112,500 Rockwell International Corp 4,549,219
30,000 United Technologies Corp 1,873,125
-------------
7,147,656
-------------
METALS AND MINING -- 0.8%
32,500 Alcan Aluminum Ltd 1,066,406
35,000 Inco Ltd* 625,625
-------------
1,692,031
-------------
OIL AND GAS -- 11.0%
22,500 Amerada Hess Corp 1,539,844
20,000 Anadarko Petroleum Corp 1,315,400
75,000 Burlington Resources Inc 2,948,437
7,500 Chevron Corp 633,750
125,000 Occidental Petroleum Corp 2,703,125
100,000 Petroleo Brasileiro SA ADR* 3,181,250
75,000 Texaco Inc 3,862,500
150,000 Unocal Corp 5,006,250
115,000 USX - Marathon Group 3,155,312
-------------
24,345,868
-------------
PAPER AND ALLIED PRODUCTS -- 4.4%
50,000 Fort James Corp 1,581,250
62,500 International Paper Co 1,992,187
102,500 Kimberly-Clark Corp 5,996,250
5,000 Weyerhaeuser Co 231,563
-------------
9,801,250
-------------
PHARMACEUTICALS -- 3.9%
62,500 Abbott Laboratories 2,734,375
5,000 Glaxo Wellcome PLC ADR 287,813
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS -- CONTINUED
15,000 Lilly (Eli) & Co 1,095,000
85,000 McKesson HBOC Inc 2,119,688
32,500 Schering Plough Corp 1,304,063
15,000 Smithkline Beecham PLC ADR 979,688
-------------
8,520,627
-------------
PRIMARY PROCESSING -- 0.6%
10,000 Alcoa Inc 332,500
40,000 Dow Chemical Co 1,047,500
-------------
1,380,000
-------------
PRINTING AND PUBLISHING -- 1.1%
95,000 R.R. Donnelley and Sons 2,446,250
-------------
REAL ESTATE -- 5.8%
20,000 Duke Realty Investments, REIT 475,000
150,000 Equity Office Properties Trust, REIT 4,331,250
75,000 Equity Residential Properties Trust, REIT 3,600,000
30,000 JP Realty Inc, REIT 532,500
75,000 Liberty Property Trust, REIT 1,959,375
75,000 Mack-Cali Realty Corp, REIT 1,964,063
-------------
12,862,188
-------------
REFINING -- 2.4%
87,500 Conoco Inc 2,203,906
97,500 Conoco Inc, Class B 2,547,188
10,000 Royal Dutch Petroleum Co 611,875
-------------
5,362,969
-------------
RETAIL TRADE -- 9.6%
75,000 Albertsons Inc 1,612,500
132,500 CVS Corp 4,919,063
87,500 Federated Department Stores Inc* 2,417,188
175,000 Kroger Co* 3,970,313
25,000 McDonald's Corp 746,875
225,000 Staples Inc* 3,459,375
167,500 Toys R Us Inc* 3,046,406
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL TRADE -- CONTINUED
20,000 Wal Mart Stores Inc 948,750
-------------
21,120,470
-------------
SERVICES -- 2.6%
50,000 FedEx Corp* 2,017,500
15,000 Halliburton Company 795,000
2,000 Meredith Corp 54,625
150,000 Waste Management Inc 2,840,625
-------------
5,707,750
-------------
TECHNOLOGY -- 6.4%
32,500 Avnet Inc 1,945,938
50,000 BMC Software Inc* 1,350,000
132,500 Compaq Computer Corp 4,513,281
10,000 Computer Sciences Corp* 790,625
55,000 Honeywell International Inc 2,120,938
220,000 Storage Technology Corp* 3,478,750
-------------
14,199,532
-------------
TELECOMMUNICATIONS -- 5.6%
75,000 AT & T Corp 2,362,500
25,000 Bellsouth Corp 932,813
35,000 SBC Communications Inc 1,461,250
12,500 Sprint Corp 418,750
162,500 Verizon Communications 7,089,063
-------------
12,264,376
-------------
TRANSPORTATION -- 3.4%
67,500 AMR Corp* 2,214,844
47,500 Canadian Pacific 1,297,344
15,000 Delta Air Lines Inc 742,500
25,000 Ryder System Inc 479,688
45,000 Union Pacific Corp 1,788,750
30,000 USAir Group Inc* 1,020,000
-------------
7,543,126
-------------
UTILITIES -- 3.3%
17,500 El Paso Energy Corp 1,019,375
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
5,000 Reliant Energy Inc 185,625
50,000 Sempra Energy 975,000
50,000 Southern Co 1,496,875
67,500 TXU Corp 2,358,281
25,000 Unicom Corp 1,142,188
-------------
7,177,344
-------------
TOTAL COMMON STOCKS (COST $211,977,232) 212,805,688
-------------
PREFERRED STOCKS -- 3.0%
OIL AND GAS -- 1.0%
50,000 Unocal Corp Convertible 6.25% 144A 2,237,500
-------------
REAL ESTATE -- 0.6%
32,500 Crescent Real Estate 6.75% 528,125
37,500 Reckson Associates Realty Corp 7.625% 860,156
-------------
1,388,281
-------------
TRANSPORTATION -- 1.4%
75,000 Union Pacific Capital Trust 6.25% 144A(a) 3,084,375
-------------
TOTAL PREFERRED STOCKS (COST $7,801,954) 6,710,156
-------------
SHORT-TERM INVESTMENTS -- 6.3%
CASH EQUIVALENTS -- 6.2%
$ 2,870,537 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(b) 2,870,537
$ 3,480,358 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(b) 3,480,358
5,203,705 Merrimac Cash Fund Premium Class(b) 5,203,705
$ 2,000,000 Prudential Securities Group, Inc. Master Note, 6.96%,
due 12/08/00(b) 2,000,000
-------------
13,554,600
-------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 0.1%
$ 315,566 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $315,616,
and an effective yield of 5.73%, collateralized by a
U.S. Treasury Obligation with a rate of 9.25%, maturity
date of 2/15/16 and market value, including accrued
interest, of $324,735. 315,566
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $13,870,166) 13,870,166
-------------
TOTAL INVESTMENTS -- 105.8%
(Cost $233,649,352) 233,386,010
Other Assets and Liabilities (net) -- (5.8%) (12,808,995)
-------------
TOTAL NET ASSETS -- 100.0% $ 220,577,015
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
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.
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Valued by management (Note 1).
(b) 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $233,649,352) (Note 1) $233,386,010
Receivable for investments sold 468,833
Dividends and interest receivable 507,697
Receivable for expenses waived or borne by Manager (Note
2) 8,494
------------
Total assets 234,371,034
------------
LIABILITIES:
Payable for investments purchased 93,012
Payable upon return of securities loaned (Note 1) 13,554,600
Due to custodian 250
Payable to affiliate for (Note 2):
Management fee 84,434
Shareholder service fee 27,532
Accrued expenses 34,191
------------
Total liabilities 13,794,019
------------
NET ASSETS $220,577,015
============
NET ASSETS CONSIST OF:
Paid-in capital $219,255,012
Accumulated undistributed net investment income 605,619
Accumulated net realized gain 979,726
Net unrealized depreciation (263,342)
------------
$220,577,015
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $220,577,015
============
SHARES OUTSTANDING:
Class III 24,050,402
============
NET ASSET VALUE PER SHARE:
Class III $ 9.17
============
</TABLE>
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $9,648) $ 2,772,336
Interest (including securities lending income of $13,879) 86,880
-----------
Total income 2,859,216
-----------
EXPENSES:
Management fee (Note 2) 484,472
Custodian and transfer agent fees 25,944
Audit fees 19,412
Legal fees 5,612
Trustees fees (Note 2) 1,288
Miscellaneous 1,748
Fees waived or borne by Manager (Note 2) (54,004)
-----------
484,472
Shareholder service fee - Class III (Note 2) 157,980
-----------
Net expenses 642,452
-----------
Net investment income 2,216,764
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 4,406,294
-----------
Change in net unrealized appreciation (depreciation) on
investments 31,015,206
-----------
Net realized and unrealized gain 35,421,500
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $37,638,264
===========
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,216,764 $ 4,452,651
Net realized gain 4,406,294 24,670,419
Change in net unrealized appreciation (depreciation) 31,015,206 (47,175,356)
------------ ------------
Net increase (decrease) in net assets from
operations 37,638,264 (18,052,286)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,611,145) (4,344,843)
------------ ------------
Total distributions from net investment income (1,611,145) (4,344,843)
------------ ------------
In excess of net investment income
Class III -- (520,269)
------------ ------------
Total distributions in excess of net investment
income -- (520,269)
------------ ------------
Net realized gains
Class III (8,651,705) (33,002,007)
------------ ------------
Total distributions from net realized gains (8,651,705) (33,002,007)
------------ ------------
(10,262,850) (37,867,119)
------------ ------------
Net share transactions: (Note 5)
Class III 14,872,116 31,407,142
------------ ------------
Increase in net assets resulting from net share
transactions 14,872,116 31,407,142
------------ ------------
Total increase (decrease) in net assets 42,247,530 (24,512,263)
NET ASSETS:
Beginning of period 178,329,485 202,841,748
------------ ------------
End of period (including accumulated undistributed
net investment income of $605,619 and $0,
respectively) $220,577,015 $178,329,485
============ ============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.98 $ 10.40 $ 14.33 $ 14.85 $ 14.25 $ 12.05
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.10 0.21 0.26 0.31 0.31 0.39
Net realized and unrealized gain
(loss) 1.53 (0.83) 0.13 3.81 2.47 3.71
-------- -------- -------- -------- -------- --------
Total from investment operations 1.63 (0.62) 0.39 4.12 2.78 4.10
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.07) (0.21) (0.27) (0.35) (0.32) (0.39)
In excess of net investment income -- (0.02) -- -- -- --
From net realized gains (0.37) (1.57) (4.05) (4.29) (1.86) (1.51)
-------- -------- -------- -------- -------- --------
Total distributions (0.44) (1.80) (4.32) (4.64) (2.18) (1.90)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.17 $ 7.98 $ 10.40 $ 14.33 $ 14.85 $ 14.25
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 20.82%+ (8.45)% 2.24% 31.54% 21.26% 35.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $220,577 $178,329 $202,842 $332,103 $469,591 $317,612
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 2.10%** 2.06% 1.82% 1.89% 2.17% 2.66%
Portfolio turnover rate 41% 104% 37% 40% 84% 65%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) --(b) $ 0.04 $ 0.05 $ 0.04 $ 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.
+ Not annualized.
See accompanying notes to the financial statements. 11
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks long-term capital growth primarily through investment in
equity securities. The Fund's benchmark is the Russell 1000 Value Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
12
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. As of August 31, 2000 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, 2000, the Fund loaned securities having a
market value of $13,014,400 collateralized by cash in the amount of
$13,554,600, which was invested in short-term instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the
13
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
relative performance of two different groups or "baskets" of securities,
adjusted by an interest rate payment. To the extent that the relative
performance of the two baskets of securities exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change in value, 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, 2000 the
Fund held 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual
14
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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
Effective April 7, 2000, the Fund no longer charges a premium on cash
purchases of Fund shares. Prior to April 7, 2000, the premium on cash
purchases of Fund shares was .14% of the amount invested. For the period
March 1, 2000 through April 7, 2000, the Fund received $5,600 in purchase
premiums. There is no premium for 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 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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $1,288. 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, 2000,
aggregated $89,115,285 and $82,877,764, respectively.
15
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$233,649,352 $23,088,001 $(23,351,343) $(263,342)
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 70.3% 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, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
---------------------- ------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,356,503 $12,104,592 3,412,687 $ 40,253,289
Shares issued to shareholders
in reinvestment of distributions 1,044,043 8,977,795 3,457,550 33,971,151
Shares repurchased (698,479) (6,210,271) (4,031,453) (42,817,298)
--------- ----------- ---------- ------------
Net increase 1,702,067 $14,872,116 2,838,784 $ 31,407,142
========= =========== ========== ============
</TABLE>
16
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 95.3%
AEROSPACE -- 1.3%
6,100 Boeing Co 327,112
4,400 General Dynamics Corp 276,925
40,100 Lockheed Martin Corp 1,137,837
16,800 Northrop Grumman Corp 1,307,250
5,700 Textron Inc 319,556
8,100 TRW Inc 370,069
------------
3,738,749
------------
AUTOMOTIVE -- 3.9%
27,000 Autonation Inc* 175,500
16,700 Dana Corp 412,281
16,500 Delphi Automotive Systems 271,219
8,200 Eaton Corp 544,275
125,694 Ford Motor Co* 3,040,218
78,413 General Motors Corp 5,660,439
18,214 General Motors Corp, Class H* 603,339
13,300 Genuine Parts Co 273,481
32,500 Goodyear Tire & Rubber Co 759,687
------------
11,740,439
------------
BANKING AND FINANCIAL SERVICES -- 16.3%
21,200 Amsouth Bancorp 386,900
17,500 Associates First Capital Corp 492,187
26,264 Bank of America Corp 1,406,765
15,821 Bear Stearns Cos Inc 1,060,996
7,000 Charter One Financial Inc 166,250
51,850 Chase Manhattan Corp 2,897,119
284,229 Citigroup Inc 16,591,887
3,600 Comerica Inc 202,725
16,100 Countrywide Credit Industries Inc 609,787
6,700 Donaldson Lufkin & Jenrette 592,950
71,600 Fannie Mae 3,848,500
69,600 Firstar Corp 1,661,700
37,900 Fleet Boston Financial Corp 1,617,856
25,100 Franklin Resources Inc 953,800
44,100 Freddie Mac 1,857,712
22,900 Golden West Financial Corp 1,090,612
19,100 Household International Inc 916,800
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
10,600 J.P. Morgan & Co Inc 1,772,187
8,100 Lehman Brothers Holding Inc 1,174,500
300 M & T Bank Corp 145,406
55,300 MBNA Corp 1,952,781
25,900 Merrill Lynch 3,755,500
15,900 MGIC Investment Corp 935,119
3,190 Old Kent Financial Corp 93,507
15,100 Paine Webber Group Inc 1,079,650
6,900 State Street Corp 812,475
3,600 Summit Bancorp 99,675
6,800 UnionBanCal Corp 168,725
7,400 Washington Mutual Inc 259,000
5,500 Wells Fargo & Co 237,531
------------
48,840,602
------------
CHEMICALS -- 1.4%
18,600 Air Products and Chemicals 675,412
7,600 Du Pont (E.I.) De Nemours 341,050
6,800 Eastman Chemical Co 293,250
25,100 PPG Industries Inc 1,016,550
21,200 Praxair Inc 938,100
21,300 Sherwin Williams Co 489,900
12,400 Union Carbide Corp 496,775
------------
4,251,037
------------
COMPUTER AND OFFICE EQUIPMENT -- 11.3%
18,900 Advanced Micro Devices Inc* 711,112
7,800 Apple Computer Inc* 475,312
91,100 Cisco Systems Inc* 6,240,350
36,700 Computer Associates International Inc 1,165,225
38,200 EMC Corp* 3,743,600
12,800 Gateway Inc* 871,680
4,300 Hewlett Packard Co 519,225
6,400 IBM Corp 844,800
13,700 Micron Technology Inc* 1,119,975
135,300 Oracle Corp* 12,303,844
45,500 Sun Microsystems Inc* 5,775,656
------------
33,770,779
------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION -- 0.4%
22,300 Georgia-Pacific Corp 596,525
10,650 Home Depot Inc 511,866
------------
1,108,391
------------
CONSUMER GOODS -- 1.5%
21,200 Eastman Kodak Co 1,319,700
17,100 Fortune Brands Inc 436,050
6,100 Johnson Controls 325,969
26,100 Jones Apparel Group Inc* 639,450
1,800 Newell Rubbermaid Inc 46,687
12,000 Nike Inc, Class B 474,750
10,400 Procter and Gamble Co 642,850
10,500 VF Corp 240,187
5,900 Whirlpool Corp 224,200
------------
4,349,843
------------
ELECTRONIC EQUIPMENT -- 5.9%
6,900 ADC Telecommunications Inc* 282,469
24,200 American Power Conversion Corp* 576,262
8,500 Analog Devices Inc* 854,250
8,100 Applied Micro Circuits Corp* 1,643,794
34,000 Atmel Corp* 680,000
18,600 AVX Corp 556,837
6,900 Ciena Corp* 1,529,644
11,800 Conexant Systems Inc* 438,812
6,600 Cypress Semiconductor Corp* 326,287
23,400 Emerson Electric Co 1,548,787
58,300 General Electric Co 3,421,481
14,000 National Semiconductor Corp* 623,000
5,900 PMC-Sierra Inc* 1,392,400
7,500 Qualcomm Inc* 449,062
34,300 Raytheon Co, Class B 953,969
200 Scientific Atlanta Inc 15,587
3,800 SDL Inc* 1,509,787
13,100 Texas Instruments Inc 876,881
------------
17,679,309
------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT & LEISURE -- 0.1%
12,700 Fox Entertainment Group Inc, Class A* 367,506
------------
FOOD AND BEVERAGE -- 2.2%
5,000 Anheuser Busch Cos Inc 394,062
52,267 Archer Daniels Midland Co 460,601
3,000 Bestfoods 211,875
22,200 Coca Cola Co 1,168,275
35,600 ConAgra Inc 651,925
2,200 General Mills Co 70,675
2,400 Heinz (HJ) Co 91,500
30,200 Nabisco Group Holdings 847,487
5,600 Pepsico Inc 238,700
3,800 Ralston-Purina Group 85,975
8,000 Sara Lee Corp 149,000
25,300 Seagrams Co Ltd 1,522,744
3,100 Sysco Corp 131,169
7,200 Wrigley (William Jr) Co 533,250
------------
6,557,238
------------
HEALTH CARE -- 2.2%
1,200 Baxter International Inc 99,900
53,500 Boston Scientific Corp* 1,013,156
1,400 Cardinal Health Inc 114,537
6,500 Celera Genomics Group* 704,844
21,200 HCA - The Healthcare Company 731,400
21,000 Johnson & Johnson 1,930,687
2,300 Medtronic Inc 117,875
3,400 Stryker Corp 152,362
34,300 Tenet Healthcare Corp 1,063,300
8,900 Wellpoint Health Network* 768,181
------------
6,696,242
------------
INSURANCE -- 4.9%
21,000 Aetna Inc 1,174,687
83,900 Allstate Corp 2,438,344
10,100 AMBAC Inc 652,713
12,100 American General Corp 881,031
12,700 AXA Financial Inc 657,225
15,100 Chubb Corp 1,156,094
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
10,100 Cigna Corp 982,225
7,900 CNA Financial Corp* 313,531
33,166 Conseco Inc 279,838
22,000 Hartford Financial Services Group Inc 1,465,750
6,700 Jefferson Pilot Corp 443,456
12,800 Lincoln National Corp 691,200
13,700 MBIA Inc 900,775
21,700 Saint Paul Cos Inc 1,033,463
10,300 Torchmark Corp 289,044
9,500 UnitedHealth Group Inc 897,750
21,100 Unumprovident Corp 457,606
------------
14,714,732
------------
MACHINERY -- 1.2%
20,300 Applied Materials Inc* 1,752,144
13,400 Caterpillar Inc 492,450
22,000 Deere and Co 724,625
8,400 Ingersoll Rand Co 382,725
8,000 Parker-Hannifin Corp 278,500
------------
3,630,444
------------
MANUFACTURING -- 1.6%
8,500 Corning Inc 2,787,469
5,300 Gillette Co 159,000
15,900 Leggett & Platt Inc 281,231
10,900 Minnesota Mining and Manufacturing Co 1,013,700
16,600 Owens Illinois Inc* 216,838
11,600 Rockwell International Corp 469,075
------------
4,927,313
------------
METALS AND MINING -- 0.5%
26,000 Alcan Aluminum Ltd 853,125
13,400 Phelps Dodge Corp 596,300
------------
1,449,425
------------
OIL AND GAS -- 3.2%
9,300 Amerada Hess Corp 636,469
1,500 Anadarko Petroleum Corp 98,655
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
OIL AND GAS -- CONTINUED
8,700 Apache Corp 548,100
18,400 Burlington Resources Inc 723,350
6,700 Chevron Corp 566,150
10,100 Columbia Energy Group 708,894
19,700 Diamond Offshore Drilling Inc 882,806
24,777 Exxon Mobil Corp 2,022,423
2,000 Kerr-McGee Corp 126,375
25,400 Occidental Petroleum Corp 549,275
10,900 Phillips Petroleum Co 674,438
22,400 Texaco Inc 1,153,600
3,400 Unocal Corp 113,475
26,100 USX - Marathon Group 716,119
2,100 Vastar Resources Inc 173,775
------------
9,693,904
------------
PAPER AND ALLIED PRODUCTS -- 0.8%
41,270 International Paper Co 1,315,481
4,900 Kimberly-Clark Corp 286,650
7,400 Mead Corp 198,413
11,000 Weyerhaeuser Co 509,438
------------
2,309,982
------------
PHARMACEUTICALS -- 5.6%
87,800 Abbott Laboratories 3,841,250
27,500 Amgen Inc* 2,084,844
55,900 Bristol Myers Squibb Co 2,962,700
6,400 Ivax Corp* 221,600
5,000 Lilly (Eli) & Co 365,000
13,300 McKesson HBOC Inc 331,669
22,700 Merck & Co Inc 1,586,163
50,650 Pfizer Inc 2,190,613
8,800 Pharmacia Corp 515,350
67,400 Schering Plough Corp 2,704,425
1,600 Watson Pharmaceutical Inc* 98,700
------------
16,902,314
------------
PRIMARY PROCESSING -- 0.2%
4,900 Dow Chemical Co 128,319
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
PRIMARY PROCESSING -- CONTINUED
14,900 Nucor Corp 547,575
------------
675,894
------------
PRINTING AND PUBLISHING -- 0.1%
7,900 Knight Ridder Inc 431,538
------------
REFINING -- 0.7%
26,700 Royal Dutch Petroleum Co 1,633,706
17,800 Tosco Corp 542,900
------------
2,176,606
------------
RETAIL TRADE -- 3.4%
72,676 Albertsons Inc 1,562,534
20,000 Autozone Inc* 450,000
51,000 Federated Department Stores Inc* 1,408,875
124,200 Kmart Corp* 869,400
31,700 May Department Stores Co 727,119
8,900 McDonald's Corp 265,888
63,700 Office Depot Inc* 465,806
33,800 Penney (JC) Co Inc 473,200
12,300 Safeway Inc* 606,544
56,800 Sears Roebuck & Co 1,771,450
49,400 Toys R Us Inc* 898,463
13,600 Wal Mart Stores Inc 645,150
------------
10,144,429
------------
SERVICES -- 1.4%
17,600 Ceridian Corp* 425,700
10,700 Marriott International Inc, Class A 422,650
1,900 Millennium Pharmaceuticals Inc* 271,938
14,400 Paychex Inc 642,600
15,100 Robert Half International Inc* 480,369
17,400 The Walt Disney Co 677,513
59,900 Waste Management Inc 1,134,356
------------
4,055,126
------------
TECHNOLOGY -- 9.9%
33,800 BEA Systems Inc* 2,300,513
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
63,000 BMC Software Inc* 1,701,000
7,800 Brocade Communications Systems Inc* 1,761,338
86,800 Honeywell International Inc 3,347,225
8,500 i2 Technologies Inc* 1,438,094
20,600 Infospace Inc* 803,400
118,200 Intel Corp 8,850,225
15,040 JDS Uniphase Corp* 1,874,360
9,200 KLA Instruments Corp* 603,750
14,400 Microsoft Corp* 1,005,300
8,700 Network Appliance Inc* 1,017,900
9,400 Siebel Systems Inc* 1,851,800
19,300 Veritas Software Corp* 2,326,856
21,900 Vignette Corp* 834,938
------------
29,716,699
------------
TELECOMMUNICATIONS -- 9.9%
183,432 AT & T Corp 5,778,108
66,400 AT & T Liberty Media Group* 1,419,300
23,500 Bellsouth Corp 876,844
15,300 McLeodUSA Inc* 241,931
17,500 Nextel Communications Inc, Class A* 970,156
69,800 Nortel Networks Corp 5,693,063
3,800 PanAmSat Corp* 123,263
9,292 Qwest Communications International Inc* 479,700
3,600 Redback Networks Inc* 537,750
96,914 SBC Communications Inc 4,046,160
26,100 Sprint Corp (PCS Group)* 1,309,894
5,100 Telephone and Data Systems Inc 591,600
3,800 United States Cellular Corp* 279,538
77,284 Verizon Communications 3,371,515
28,601 Viacom Inc, Class B* 1,925,205
54,538 WorldCom Inc* 1,990,637
------------
29,634,664
------------
TRANSPORTATION -- 1.9%
30,800 AMR Corp* 1,010,625
59,600 Burlington Northern Santa Fe Railroad Co 1,333,550
25,900 CSX Corp 618,363
17,500 Delta Air Lines Inc 866,250
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
30,300 Norfolk Southern Corp 486,694
11,900 UAL Corp 568,225
20,500 Union Pacific Corp 814,875
------------
5,698,582
------------
UTILITIES -- 3.5%
4,400 AES Corp* 280,500
8,700 Ameren Corp 351,806
12,560 American Electric Power Inc 442,740
5,500 Cinergy Corp 161,563
7,700 Coastal Corp 530,338
13,700 Consolidated Edison Inc 428,981
11,300 Constellation Energy Group Inc 432,225
4,700 Dominion Resources Inc 249,100
27,200 DTE Energy Co 945,200
16,000 Edison International 331,000
1,700 El Paso Energy Corp 99,025
45,900 Entergy Corp 1,397,081
19,600 Firstenergy Corp 485,100
9,000 FPL Group Inc 480,375
28,300 General Public Utilities Inc 866,688
9,300 Keyspan Corp 320,269
11,400 Niagara Mohawk Holdings Inc* 146,775
23,500 PG & E Corp 680,031
2,800 Pinnacle West Capital Corp 115,325
2,300 Potomac Electric Power Co 57,931
6,700 Public Service Enterprise Group Inc 242,875
5,200 Reliant Energy Inc 193,050
2,600 Teco Energy Inc 63,863
22,900 TXU Corp 800,069
9,570 Xcel Energy Inc 239,848
------------
10,341,758
------------
TOTAL COMMON STOCKS (COST $258,234,949) 285,603,545
------------
SHORT-TERM INVESTMENTS -- 13.1%
CASH EQUIVALENTS -- 7.8%
$ 3,813,192 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(a) 3,813,192
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
CASH EQUIVALENTS -- CONTINUED
$ 4,037,563 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(a) 4,037,563
2,361,335 Merrimac Cash Fund Premium Class(a) 2,361,335
$ 13,000,000 Prudential Securities Group, Inc. Master Note, 6.96%,
due 12/08/00(a) 13,000,000
------------
23,212,090
------------
U.S. GOVERNMENT -- 0.9%
$ 2,760,000 U.S. Treasury Bill, 5.94%, due 12/07/00(b) 2,714,487
------------
REPURCHASE AGREEMENT -- 4.4%
$ 13,255,554 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of
$13,257,664 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a rate
of 9.25%, maturity date of 2/15/16 and market value,
including accrued interest, of $13,521,956. 13,255,554
------------
TOTAL SHORT-TERM INVESTMENTS (COST $39,183,470) 39,182,131
------------
TOTAL INVESTMENTS -- 108.4%
(Cost $297,418,419) 324,785,676
Other Assets and Liabilities (net) -- (8.4%) (25,238,566)
------------
TOTAL NET ASSETS -- 100.0% $299,547,110
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
* 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 open financial futures contracts (Note 6).
10 See accompanying notes to the financial statements.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $297,418,419) (Note 1) $324,785,676
Receivable for investments sold 11,679,609
Dividends and interest receivable 438,710
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 73,858
Receivable for expenses waived or borne by Manager (Note
2) 11,873
------------
Total assets 336,989,726
------------
LIABILITIES:
Payable for investments purchased 14,030,261
Payable upon return of securities loaned (Note 1) 23,212,090
Payable for Fund shares repurchased 47,000
Payable to affiliate for (Note 2):
Management fee 80,902
Shareholder service fee 36,773
Accrued expenses 35,590
------------
Total liabilities 37,442,616
------------
NET ASSETS $299,547,110
============
NET ASSETS CONSIST OF:
Paid-in capital $254,722,382
Accumulated undistributed net investment income 638,234
Accumulated net realized gain 16,664,186
Net unrealized appreciation 27,522,308
------------
$299,547,110
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $299,547,110
============
SHARES OUTSTANDING:
Class III 19,392,691
============
NET ASSET VALUE PER SHARE:
Class III $ 15.45
============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $15,549) $ 2,177,462
Interest (including securities lending income of $48,078) 504,855
-----------
Total income 2,682,317
-----------
EXPENSES:
Management fee (Note 2) 529,831
Custodian and transfer agent fees 39,836
Audit fees 16,652
Legal fees 8,740
Trustees fees (Note 2) 2,208
Miscellaneous 1,748
Fees waived or borne by Manager (Note 2) (69,184)
-----------
529,831
Shareholder service fee (Note 2)
Class III 240,833
-----------
Net expenses 770,664
-----------
Net investment income 1,911,653
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 17,409,796
Closed futures contracts 457,321
-----------
Net realized gain 17,867,117
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 18,796,117
Open futures contracts 249,577
-----------
Net unrealized gain 19,045,694
-----------
Net realized and unrealized gain 36,912,811
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,824,464
===========
</TABLE>
12 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, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,911,653 $ 3,465,339
Net realized gain 17,867,117 42,458,647
Change in net unrealized appreciation (depreciation) 19,045,694 (10,993,687)
------------ ------------
Net increase in net assets from operations 38,824,464 34,930,299
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,048,309) (3,120,661)
------------ ------------
Total distributions from net investment income (2,048,309) (3,120,661)
------------ ------------
Net realized gains
Class III (12,609,766) (34,891,112)
------------ ------------
Total distributions from net realized gains (12,609,766) (34,891,112)
------------ ------------
(14,658,075) (38,011,773)
------------ ------------
Net share transactions: (Note 5)
Class III (46,404,973) 97,708,683
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (46,404,973) 97,708,683
------------ ------------
Total increase (decrease) in net assets (22,238,584) 94,627,209
NET ASSETS:
Beginning of period 321,785,694 227,158,485
------------ ------------
End of period (including accumulated undistributed
net investment income of $638,234 and $774,890,
respectively) $299,547,110 $321,785,694
============ ============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.35 $ 14.26 $ 14.05 $ 12.98 $ 12.93 $ 10.65
-------- -------- -------- ------- ------- -------
Income from investment operations:
Net investment income 0.09+ 0.20 0.18 0.22 0.24 0.28
Net realized and unrealized gain 1.79 1.94 1.99 4.07 2.41 3.71
-------- -------- -------- ------- ------- -------
Total from investment operations 1.88 2.14 2.17 4.29 2.65 3.99
-------- -------- -------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.10) (0.19) (0.19) (0.22) (0.24) (0.25)
From net realized gains (0.68) (1.86) (1.77) (3.00) (2.36) (1.46)
-------- -------- -------- ------- ------- -------
Total distributions (0.78) (2.05) (1.96) (3.22) (2.60) (1.71)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.45 $ 14.35 $ 14.26 $ 14.05 $ 12.98 $ 12.93
======== ======== ======== ======= ======= =======
TOTAL RETURN(a) 13.61%** 15.10% 16.29% 37.82% 22.76% 38.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $299,547 $321,786 $227,158 $99,922 $66,260 $57,485
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 1.19%* 1.34% 1.35% 1.66% 1.83% 2.25%
Portfolio turnover rate 39% 108% 77% 70% 131% 81%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ --(b) $ 0.01 $ 0.03 $ 0.04 $ 0.04 $ 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.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
14 See accompanying notes to the financial statements.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in U.S. equity
securities. The Fund's benchmark is the S&P 500 Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
15
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000, the Fund loaned securities having a
market value of $22,624,217, collateralized by cash in the amount of
$23,212,090, 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the
16
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
relative performance of two different groups or "baskets" of securities,
adjusted by an interest rate payment. To the extent that the relative
performance of the two baskets of securities 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 in
value, 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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
17
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, 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
Effective April 7, 2000, the Fund no longer charges a premium on cash
purchases of Fund shares. Prior to April 7, 2000, the premium on cash
purchases of Fund shares was .14% of the amount invested. For the period
March 1, 2000 through April 7, 2000 the Fund received no purchase
premiums.
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, 2001 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 six months ended August 31, 2000 was $2,208. 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, 2000,
aggregated $115,183,217 and $170,522,594, respectively.
18
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$297,418,419 $50,167,705 $(22,800,448) $27,367,257
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 45.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
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, 2000 February 29, 2000
------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 847,866 $ 12,655,470 8,011,905 $123,086,297
Shares issued to shareholders
in reinvestment of distributions 998,284 14,218,699 2,549,261 37,093,513
Shares repurchased (4,878,283) (73,279,142) (4,062,483) (62,471,127)
----------- ------------ ----------- ------------
Net increase (decrease) (3,032,133) $(46,404,973) 6,498,683 $ 97,708,683
=========== ============ =========== ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
---------------------------- --------------------------------------------- --------------- ---------- --------------
<C> <S> <C> <C> <C>
Buys
12 S&P 500 September 2000 $4,563,600 $155,051
========
</TABLE>
At August 31, 2000 the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
19
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 91.8%
AEROSPACE -- 0.2%
5,700 Kaman Corp, Class A 74,812
--------------
AUTOMOTIVE -- 1.5%
7,825 ArvinMeritor Inc 129,112
2,300 Autoliv Inc 53,044
2,900 Borg Warner Automotive Inc 99,687
4,300 Modine Manufacturing Co 120,937
800 Paccar Inc 33,950
3,900 Superior Industries International Inc 126,506
12,400 United Automotive Group Inc* 104,625
--------------
667,861
--------------
BANKING AND FINANCIAL SERVICES -- 8.0%
500 Affiliated Managers Group Inc* 27,875
1,100 Andover Bancorp Inc 32,175
4,300 Bancwest Corp 76,056
2,900 Bank United Corp 130,500
6,900 Banknorth Group Inc 112,987
1,800 BSB Bancorp Inc 39,600
1,200 Charter Municipal Mortgage Acceptance 16,275
3,700 Commercial Federal Corp 66,831
2,300 Compass Bankshares Inc 41,975
1,200 Corus Bancshares Inc 39,600
3,600 Credit Acceptance Corp* 21,600
1,700 Dain Rauscher Corp 136,744
6,100 Dime Bancorp Inc 112,087
4,400 Downey Financial Corp 147,400
4,400 Edwards (AG) Inc 228,800
1,200 First Citizens Bancshares, Class A 78,975
500 First Indiana Corp 10,469
4,100 GBC Bancorp (California) 155,287
2,200 Greenpoint Financial Corp 57,475
5,400 Heller Financial Inc 134,325
5,800 Hibernia Corporation, Class A 72,862
27,400 Imperial Credit Industries Inc* 54,800
2,300 IndyMac Bancorp Inc 38,812
4,200 Jefferies Group Inc 127,837
3,500 Leucadia National Corp 91,437
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
3,800 Liberty Financial Cos 89,775
700 Midland Co 18,025
1,000 National Discount Brokers Group Inc* 36,187
800 North Fork Bancorp 14,300
4,100 Pacific Century Financial Corp 57,400
4,050 PMI Group Inc 251,100
1,200 Provident Financial Group 31,575
2,700 Raymond James Financial Corp 76,950
2,800 Richmond County Financial Corp 56,350
1,800 Ryland Group Inc 44,212
2,800 Silicon Valley Bancshares* 161,350
19,200 Sovereign Bancorp Inc 163,200
2,400 Student Loan Group 114,450
2,450 Three Rivers Bancorp Inc 19,600
1,460 UMB Financial Corp 52,651
6,500 Washington Federal Inc 134,875
809 Wells Fargo & Co 34,939
100 Wesco Financial Corp 24,000
6,500 Westcorp 84,906
--------------
3,518,629
--------------
CHEMICALS -- 1.8%
2,100 Albemarle Corp 52,106
4,800 Cytec Industries Inc* 160,200
8,300 Engelhard Corp 155,625
7,300 IMC Global Inc 107,219
5,000 Lubrizol Corp 108,437
6,400 Millenium Chemicals Inc 105,600
300 Stepan Co 6,262
6,900 Wellman Inc 83,231
--------------
778,680
--------------
COMPUTER AND OFFICE EQUIPMENT -- 0.9%
6,600 Advanced Micro Devices Inc* 248,325
900 Analogic Corp 33,750
1,000 C-Cube Microsystems Inc* 23,250
5,600 Reynolds & Reynolds Inc, Class A 101,500
--------------
406,825
--------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION -- 2.3%
2,700 Centex Corp 77,962
3,300 Foster Wheeler Corp 23,306
3,600 Horton (DR) Inc 70,650
3,000 Johns Manville Corp 37,500
7,300 Kaufman & Broad Home Corp 181,131
300 MDC Holdings Inc 7,519
4,700 Pulte Corp 154,806
4,200 Texas Industries Inc 143,325
1,400 The Shaw Group Inc* 77,962
6,600 Toll Brothers Inc* 215,325
--------------
989,486
--------------
CONSUMER GOODS -- 3.3%
4,200 Callaway Golf Co 60,637
675 CoorsTek Inc* 31,641
5,100 Footstar Inc* 151,725
7,100 Furniture Brands International Inc* 114,487
3,800 Hon Industries Inc 102,362
4,500 Kellwood Co 72,000
2,600 Kimball International, Class B 44,200
4,200 Liz Claiborne Inc 184,537
900 Mohawk Industries Inc* 21,375
2,800 Oakley Inc* 47,425
1 Pittston Brinks Group 16
1,900 Polo Ralph Lauren Corp* 36,812
7,200 Reebok International Ltd* 138,150
2,100 Russell Corp 40,031
5,100 Tech Data Corp* 263,287
9,900 US Industries Inc 126,225
--------------
1,434,910
--------------
ELECTRONIC EQUIPMENT -- 8.9%
10,000 American Power Conversion Corp* 238,125
3,100 Amkor Technologies Inc* 105,787
2,300 Andrew Corp* 68,137
600 APW Ltd* 26,400
6,100 Arrow Electronics Inc* 221,887
5,000 Atmel Corp* 100,000
300 Baldor Electric Co. 5,887
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC EQUIPMENT -- CONTINUED
6,900 Cable Design Technologies Corp* 186,300
100 Cree Inc* 13,775
5,000 Cypress Semiconductor Corp* 247,187
4,800 Diebold Inc 135,600
1,600 Genlyte Group Inc* 37,400
15,100 Glenayre Technologies Inc* 164,212
1,700 Harman International Industries 130,475
2,000 Hubbell Inc, Class B 51,750
4,200 Integrated Device Technology Inc* 368,550
2,400 International Rectifier Corp* 151,050
5,300 Kemet Corp* 159,000
2,500 Litton Industries * 138,281
2,400 MEMC Electronic Materials Inc* 43,200
900 Moog Inc, Class A* 29,250
5,900 National Semiconductor Corp* 262,550
3,300 Oak Technology Inc* 96,112
12,300 Pioneer Standard Electronics Inc 168,356
200 Powertel Inc* 15,600
2,400 Primex Technologies 58,200
500 SDL Inc* 198,656
8,400 Sensormatic Electronics Corp* 139,650
1,600 Siliconix Inc* 89,400
3,600 Stewart & Stevenson Services Corp 58,050
1,300 Triumph Group Inc* 39,894
3,700 Vishay Intertechnology Inc* 149,156
--------------
3,897,877
--------------
ENTERTAINMENT & LEISURE -- 1.5%
1,300 Anchor Gaming* 95,225
1,700 Gaylord Entertainment 44,412
7,200 Harrahs Entertainment Inc* 204,300
4,600 Mandalay Resort Group* 127,937
3,900 Metro Goldwyn Mayer Inc* 99,937
5,400 Park Place Entertainment Corp* 79,312
1,000 Six Flags Inc* 14,937
--------------
666,060
--------------
FOOD AND BEVERAGE -- 2.3%
1,600 Agribrands International Inc* 63,600
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
FOOD AND BEVERAGE -- CONTINUED
1,100 Corn Product International Inc 27,637
200 Farmer Brothers Co 34,462
10,500 IBP Inc 168,656
4,000 Michael Foods Inc 95,000
2,200 Pepsi Bottling Group Inc 69,850
4,200 RJ Reynolds Tobacco Holdings 150,675
3,600 Suiza Foods Corp* 180,000
6,100 Universal Corp 157,837
1,200 Universal Foods Corp 24,600
3,400 Whitman Corp 44,837
--------------
1,017,154
--------------
HEALTH CARE -- 5.1%
800 Arrow International Inc 28,500
1 Beverly Enterprises Inc* 5
2,900 Celera Genomics Group* 314,469
2,100 Coventry Health Care Inc* 33,600
3,200 Datascope Corp 112,800
3,500 Dentsply International Inc 116,812
12,800 Foundation Health Systems Inc, Class A* 224,800
950 Gentiva Health Services Inc* 10,569
24,100 Health Management Associates Inc* 393,131
3,300 Hillenbrand Industries Inc 114,881
900 Invacare Corp 24,244
2,200 Lincare Holdings Inc* 56,100
1,900 Mallinckrodt Inc 85,619
1,100 Mentor Corp 23,306
2,200 Mid Atlantic Medical Services Inc* 35,475
14,800 Pediatrix Medical Group Inc* 197,025
900 Quest Diagnostics Inc* 111,375
6,400 Quorum Health Group Inc* 82,400
13,400 Steris Corp* 137,350
2,200 Trigon Healthcare Inc* 113,575
--------------
2,216,036
--------------
INSURANCE -- 5.8%
910 ACE Ltd 31,964
2,100 Allmerica Financial Corp 127,837
3,900 American Financial Group Inc 96,769
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
2,400 American National Insurance Co 147,600
5,700 Amerus Life Holdings Inc 140,719
3,200 Berkley (WR) Corp 84,800
2,200 Commerce Group Inc 57,200
1,836 Delphi Financial Group Inc* 75,964
2,300 Enhance Financial Services Group Inc 36,225
2,500 Erie Indemnity Co, Class A 77,344
1,300 Everest Re Group Ltd 52,325
3,300 Fidelity National Financial Inc 65,794
2,600 First American Financial Corp 42,900
4,000 Harleysville Group Inc 77,000
7,500 HCC Insurance Holdings Inc 158,437
2,800 Landamerica Financial Group Inc 71,225
4,100 Mercury General Corp 112,494
3,500 Mony Group Inc 132,344
1 Ohio Casualty Corp 7
10,200 Old Republic International Corp 244,162
1,000 Pacificare Health Systems Inc* 53,937
300 PMA Capital Corp, Class A 5,062
6,300 Presidential Life Corp 95,287
3,500 Protective Life Corp 100,625
2,000 Radian Group Inc 124,250
200 RLI Corp 7,700
400 SCPIE Holdings Inc 8,700
6,600 Selective Insurance Group 118,387
3,700 Stewart Information Services Corp 49,719
1,900 Transatlantic Holding Inc 165,656
--------------
2,562,433
--------------
LODGING -- 0.2%
8,300 Boca Resorts Inc* 92,337
--------------
MACHINERY -- 1.6%
12,800 Agco Corp 134,400
1,000 Cummins Engine Inc 35,500
2,100 Donaldson Co Inc 44,362
2,900 FMC Corp* 196,656
4,300 Kennametal Inc 110,187
2,700 Lam Research Corp* 81,337
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
MACHINERY -- CONTINUED
2,100 Milacron Inc 32,419
2,600 Paxar Corp* 28,600
2,000 Ultratech Stepper Inc* 36,000
--------------
699,461
--------------
MANUFACTURING -- 2.1%
5,700 American Greetings Corp 106,162
600 Applied Power Inc, Class A 2,962
13,800 Clayton Homes Inc 134,550
3,500 Crane Co 87,937
4,400 Harsco Corp 122,375
1,500 Hughes Supply Inc 31,950
355 Huttig Building Products Inc* 1,620
4,100 International Game Technology* 118,900
3,600 Lafarge Corp 87,750
700 NCI Building Systems Inc* 12,337
5,200 Omnicare Inc 71,175
1,000 Snap-On Inc 30,813
700 Temple Inland Inc 29,706
2,300 Tower Automotive Inc* 26,163
3,001 Trinity Industries Inc 58,144
--------------
922,544
--------------
METALS AND MINING -- 2.0%
530 Arch Coal Inc 3,975
32,800 Bethlehem Steel Corp* 114,800
500 Cleveland Cliffs Inc 12,563
2,900 Commercial Metals Co 81,019
4,200 Phelps Dodge Corp 186,900
5,250 Reliance Steel and Aluminum Co 108,281
7,900 Timken Co 128,869
14,300 Titanium Metals Corp* 125,125
5,300 USX-US Steel Group Inc 92,088
--------------
853,620
--------------
OIL AND GAS -- 5.5%
1,100 BJ Services Co* 73,700
2,200 Cabot Oil & Gas Corp, Class A 44,000
700 Equitable Resources Inc 39,419
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
OIL AND GAS -- CONTINUED
1,100 Global Marine Inc* 35,544
2,900 Helmerich & Payne Inc 107,119
12,600 Kinder Morgan Inc 463,838
4,101 National-Oilwell Inc* 142,253
1,100 Northwest Natural Gas Co 25,300
7,900 Ocean Energy Inc* 119,981
16,500 Parker Drilling Co* 118,594
600 Peoples Energy Corp 19,500
8,300 Pride International Inc* 204,388
2,200 Questar Corp 47,713
6,200 R&B Falcon Corp* 176,700
3,500 Rowan Cos Inc* 108,500
2,750 Seacor Smit Inc* 125,297
4,900 Tidewater Inc 197,838
997 Varco International Inc* 20,127
9,400 Veritas DGC Inc* 250,863
4,800 Vintage Petroleum Inc 100,800
--------------
2,421,474
--------------
PAPER AND ALLIED PRODUCTS -- 1.4%
1,000 Boise Cascade Corp 29,875
1,300 Bowater Inc 66,788
1,400 Consolidated Papers Inc 55,038
3,100 Mead Corp 83,119
3,300 Pentair Inc 107,250
3,300 Schweitzer-Mauduit International 47,850
3,100 Sonoco Products Co 59,869
2,000 United Stationers Inc* 64,875
4,300 Westvaco Corp 117,713
--------------
632,377
--------------
PHARMACEUTICALS -- 1.3%
1,600 Henry Schein Inc* 29,400
3,600 ICN Pharmaceuticals Inc 101,925
6,000 Mark IV Industries Inc 134,250
9,200 Mylan Laboratories Inc 244,375
3,300 NBTY Inc* 23,306
7,400 Twinlab Corp* 36,538
--------------
569,794
--------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
PRIMARY MATERIALS -- 0.3%
3,100 Carlisle Cos Inc 142,019
--------------
PRIMARY PROCESSING -- 0.6%
900 Belden Inc 23,513
700 Carpenter Technology Corp 22,750
2,400 Precision Castparts Corp 182,400
1,900 Worthington Industries Inc 19,831
--------------
248,494
--------------
PRINTING AND PUBLISHING -- 0.2%
4,700 Hollinger International Inc 76,963
--------------
REAL ESTATE -- 8.4%
2,600 AMB Property Corp, REIT 62,888
2,400 Apartment Investment & Management Co, Class A, REIT 107,700
3,200 Archstone Communities Trust, REIT 78,800
2,600 Arden Realty Group Inc, REIT 66,300
2,300 Avalonbay Communities Inc, REIT 102,781
1,800 Boston Properties Inc, REIT 72,788
2,100 Bradley Real Estate Inc, REIT 45,938
2,500 Cabot Industrial Trust, REIT 49,063
2,000 Camden Property Trust, REIT 59,875
3,300 Capstead Mortgage Corp, REIT 28,256
2,300 CarrAmerica Realty Corp, REIT 66,844
2,400 CBL & Associates Properties Inc, REIT 57,300
700 Chelsea GCA Realty Inc, REIT 23,494
2,000 Colonial Properties Trust, REIT 53,500
3,400 Crescent Real Estate Equities, REIT 75,225
3,100 Developers Diversified Realty Corp, REIT 44,950
4,500 Duke Realty Investments, REIT 106,875
2,000 Federal Realty Investment Trust 40,000
3,500 Felcor Lodging Trust Inc, REIT 77,875
1,800 First Industrial Realty Trust, REIT 53,438
1,700 Franchise Finance Corp of America, REIT 38,250
2,100 Gables Residential Trust, REIT 58,275
2,200 General Growth Properties, REIT 70,675
1,800 Glenborough Realty Trust Inc, REIT 33,525
2,800 Glimcher Realty Trust, REIT 43,050
1,100 Health Care Property Investors Inc, REIT 28,944
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- CONTINUED
3,300 Health Care REIT Inc 59,606
2,000 Healthcare Realty Trust Inc, REIT 39,500
2,700 Highwood Properties Inc, REIT 64,969
1,700 Home Properties of NY Inc, REIT 50,469
2,100 Hospitalities Properties Trust, REIT 48,825
6,900 Host Marriott Corp, REIT 73,744
3,300 iStar Financial Inc, REIT 69,094
1,600 Kimco Realty Corp, REIT 65,000
5,278 Lennar Corp 145,805
2,900 Liberty Property Trust, REIT 75,763
2,300 LNR Property Corp 48,875
2,200 Mack-Cali Realty Corp, REIT 57,613
2,200 Meristar Hospitality Corp, REIT 48,675
3,900 New Plan Excel Realty Trust, REIT 53,869
1,100 Pinnacle Holdings Inc, REIT* 44,275
2,200 Plum Creek Timber Co Inc, REIT 53,350
1,700 Post Properties Inc, REIT 71,931
2,100 Prentiss Properties Trust, REIT 51,056
16,600 Prison Realty Trust Inc, REIT 39,425
3,400 Prologis Trust, REIT 77,775
1,900 PS Business Parks Inc, REIT 50,350
2,900 Public Storage Inc, REIT 70,688
1,400 Realty Income Corp, REIT 31,850
2,100 Reckson Associates Realty Corp, REIT 51,056
2,800 Rouse Co, REIT 67,550
6,800 Security Capital Group Inc, Class B, REIT* 115,600
1,300 Shurgard Storage Centers Inc, REIT 30,956
1,900 SL Green Realty Corp, REIT 50,944
2,200 Spieker Properties Inc, REIT 120,175
1,300 Storage USA Inc, REIT 39,163
1,400 Summit Properties Inc, REIT 32,550
1,400 Sun Communities Inc, REIT 43,313
5,400 United Dominion Realty Trust Inc, REIT 58,388
2,100 Vornado Realty Trust, REIT 77,700
1,300 Weingarten Realty, REIT 52,650
--------------
3,679,161
--------------
REFINING -- 1.2%
5,000 Ashland Inc 176,250
5,300 Lyondell Petro Chemical Co 69,231
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
REFINING -- CONTINUED
3,900 Sunoco Inc 106,031
3,700 Tesoro Petroleum Corp* 35,613
4,000 Ultramar Diamond Shamrock Corp 93,750
2,100 Valero Energy Corp 63,263
--------------
544,138
--------------
RETAIL TRADE -- 3.3%
2,600 Borders Group Inc* 34,613
3,800 CBRL Group Inc 45,838
19,000 Charming Shoppes Inc* 103,313
2,100 Claire's Stores Inc 41,344
7,400 Dillard's Inc 94,813
7,100 Dress Barn Inc* 151,319
1,200 Great Atlantic & Pacific Tea Co 16,800
9,200 Landry's Seafood Restaurants 72,450
11,700 Lone Star Steakhouse and Saloon Inc 98,719
2,700 Michaels Stores Inc* 94,500
1,500 Neiman Marcus Group Inc, Class A* 50,344
4,800 Outback Steakhouse Inc* 110,100
2,500 Payless ShoeSource Inc* 133,438
1,600 Petco Animal Supplies Inc* 33,600
1,600 Phillips Van Heusen 14,600
12,300 Pier 1 Imports Inc 144,525
3,500 Ruby Tuesday Inc 43,750
4,400 Value City Department Stores Inc* 39,600
6,200 Venator Group Inc* 86,800
800 Zale Corp* 29,550
--------------
1,440,016
--------------
SERVICES -- 5.0%
269 Adecco SA ADR 25,925
1,200 Amerco* 23,550
12,400 Arctic Cat Inc 146,863
3,500 Aztar Corp* 50,969
2,900 Banta Corp 63,981
1,600 Bowne and Co Inc 16,600
10,900 Buffets Inc* 144,425
8,300 Capital Senior Living Corp* 26,456
1,400 Chris Craft Industries Inc* 109,550
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
SERVICES -- CONTINUED
1,800 Dollar Thrifty Automotive Group Inc* 40,725
30,300 Edgewater Technology Inc* 189,375
2,900 Electro Rent Corp* 35,525
14,800 Fleming Cos Inc 228,475
4,100 Fluor Corp 122,744
47 Global Sources Ltd* 1,560
7,100 Ingram Micro Inc* 106,500
700 Jacobs Engineering Group* 26,600
2,600 Kelly Services, Class A 60,125
1,500 Manpower Inc 54,281
900 Marcus Corp 11,081
3,200 Modis Professional Services Inc* 22,000
1,500 National Processing Inc* 17,719
4,600 NCO Group Inc* 79,925
6,567 Pfsweb Inc* 18,059
6,800 Spherion Corp* 83,725
12,329 Supervalu Inc 184,164
13,800 Veterinary Centers of America Inc* 200,100
2,600 XTRA Corp* 115,375
--------------
2,206,377
--------------
TECHNOLOGY -- 4.6%
2,400 Aspen Technologies Inc* 110,250
3,871 Avnet Inc 231,776
1,500 Brocade Communications Systems Inc* 338,719
10,900 Cabletron Systems Inc* 408,069
11,200 Cadence Design Systems Inc* 238,000
2,500 Cirrus Logic Corp* 75,625
1,000 Esterline Corp* 19,375
1,300 G TECH Holdings Corp* 23,238
2,900 Hypercom Corp* 32,806
4,700 Input/Output Inc* 42,300
5,400 J.D. Edwards & Co.* 133,988
5,400 Keane Inc* 93,488
2,200 Midway Games Inc* 18,975
2,700 Network Associates Inc* 69,863
1,500 Sybase Inc* 41,156
1,000 Tektronix Inc 76,188
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
3,172 Thermo Electron Corp* 73,749
--------------
2,027,565
--------------
TELECOMMUNICATIONS -- 2.6%
9,200 Ameripath Inc* 125,350
1,900 Aspect Communications Corp* 42,869
1,801 Brightpoint Inc* 11,369
10,400 Citizens Communications Co* 169,650
600 McLeodUSA Inc* 9,488
2,200 MRV Communications Inc* 169,538
1,100 North Pittsburgh Systems 15,538
1,200 Northpoint Communications Group Inc* 13,725
2,700 VoiceStream Wireless Corp* 303,919
4,500 West Teleservices* 106,875
400 Western Wireless Corp, Class A* 20,450
2,200 Winstar Communications Inc* 59,125
11,400 World Access Inc* 103,313
--------------
1,151,209
--------------
TRANSPORTATION -- 4.0%
1,800 Airborne Freight Corp 26,888
4,100 Alexander & Baldwin Inc 107,881
1,100 America West Holdings Corp, Class B* 16,088
4,100 Brunswick Corp 76,875
3,400 Continental Airlines Inc, Class B* 163,625
9,500 Fleetwood Enterprises Inc 130,031
900 Florida East Coast Industries Inc 39,263
6,000 Fritz Companies Inc* 88,875
3,000 GATX Corp 122,063
1,400 Heartland Express Inc* 24,500
900 Landstar System Inc* 45,900
12,200 Offshore Logistics Inc* 211,975
1,800 Overseas Shipholding Group Inc 52,988
4,059 Quebecor World Inc 94,118
5,600 Ryder System Inc 107,450
4,000 UAL Corp 191,000
5,500 US Freightways Corp 171,531
2,700 Wisconsin Central Transport* 36,113
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
2,000 Yellow Corp* 30,500
--------------
1,737,664
--------------
UTILITIES -- 5.9%
2,200 Alliant Energy Corp 64,350
1,300 American Water Works Co 31,850
1,300 CH Energy Group Inc 49,075
4,400 CMP Group Inc 129,250
5,400 Connectiv Inc 95,850
2,600 Dynegy Inc 117,000
1,800 Eastern Enterprises 113,850
4,200 El Paso Electric Co* 56,438
1,400 Energy East Corp 31,763
1,200 General Public Utilities Inc 36,750
2,200 Hawaiian Electric Industries Inc 72,050
600 IDACORP Inc 23,663
1,000 Kansas City Power and Light Co 26,875
5,200 MCN Corp 124,800
1,100 Minnesota Power & Light Co 24,406
8,600 Niagara Mohawk Holdings Inc* 110,725
5,200 Northeast Utilities 118,300
1,200 NSTAR 50,475
1,600 OGE Energy Corp 34,200
3,100 Oneok Inc 99,006
3,300 Pinnacle West Capital Corp 135,919
2,400 Potomac Electric Power Co 60,450
9,600 Public Service Co of New Mexico 205,200
2,500 Puget Sound Power and Light Co 58,438
4,300 RGS Energy Group Inc 106,963
2,500 SCANA Corp 68,438
1,800 Sierra Pacific Resources 31,838
1,100 Southwestern Energy Co 8,525
4,900 Teco Energy Inc 120,356
2,100 UIL Holdings Corp 105,656
1,200 UniSource Energy Corp 18,675
4,900 Utilicorp United Inc 116,681
800 Washington Gas Light Co 20,250
600 Western Gas Resources Inc 13,163
3,500 Western Resources Inc 70,000
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
2,400 Wisconsin Energy Corp 51,000
--------------
2,602,228
--------------
TOTAL COMMON STOCKS (COST $36,651,390) 40,278,204
--------------
SHORT-TERM INVESTMENTS -- 1.3%
REPURCHASE AGREEMENT -- 1.3%
$ 570,856 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00 with a maturity value of $570,947
and an effective yield of 5.73%, collateralized by a
U.S. Treasury Obligation with a rate of 9.25%, maturity
date of 2/15/16 and market value, including accrued
interest, of $584,523. 570,856
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $570,856) 570,856
--------------
TOTAL INVESTMENTS -- 93.1%
(Cost $37,222,246) 40,849,060
Other Assets and Liabilities (net) -- 6.9% 3,008,570
--------------
TOTAL NET ASSETS -- 100.0% $ 43,857,630
==============
</TABLE>
<TABLE>
<S> <C>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
</TABLE>
* Non-income producing security.
See accompanying notes to the financial statements. 15
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $37,222,246) (Note 1) $40,849,060
Receivable for Fund shares sold 3,000,000
Dividends and interest receivable 53,600
Receivable for expenses waived or borne by Manager (Note
2) 4,495
-----------
Total assets 43,907,155
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 18,595
Shareholder service fee 5,071
Payable for variation margin on open futures contracts
(Notes 1 and 6) 394
Accrued expenses 25,465
-----------
Total liabilities 49,525
-----------
NET ASSETS $43,857,630
===========
NET ASSETS CONSIST OF:
Paid-in capital $45,211,669
Accumulated undistributed net investment income 102,522
Accumulated net realized loss (5,082,981)
Net unrealized appreciation 3,626,420
-----------
$43,857,630
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $43,857,630
===========
SHARES OUTSTANDING:
Class III 4,386,046
===========
NET ASSET VALUE PER SHARE:
Class III $ 10.00
===========
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $155) $ 316,977
Interest 50,293
----------
Total income 367,270
----------
EXPENSES:
Management fee (Note 2) 112,056
Audit fees 16,376
Custodian and transfer agent fees 8,740
Legal fees 1,012
Trustees fees (Note 2) 276
Miscellaneous 552
Fees waived or borne by Manager (Note 2) (26,956)
----------
112,056
Shareholder service fee (Note 2)
Class III 30,561
----------
Net expenses 142,617
----------
Net investment income 224,653
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (4,443,245)
Closed futures contracts 573
----------
Net realized loss (4,442,672)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 6,240,391
Open futures contracts (394)
----------
Net unrealized gain 6,239,997
----------
Net realized and unrealized gain 1,797,325
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,021,978
==========
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM JUNE 1, 1999
AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) THROUGH FEBRUARY 29, 2000
---------------- ----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 224,653 $ 289,774
Net realized loss (4,442,672) (640,309)
Change in net unrealized appreciation (depreciation) 6,239,997 (2,613,577)
----------- -----------
Net increase (decrease) in net assets from
operations 2,021,978 (2,964,112)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (187,832) (224,073)
----------- -----------
Total distributions from net investment income (187,832) (224,073)
----------- -----------
Net share transactions: (Note 5)
Class III 3,023,525 42,188,144
----------- -----------
Increase in net assets resulting from net share
transactions 3,023,525 42,188,144
----------- -----------
Total increase in net assets 4,857,671 38,999,959
NET ASSETS:
Beginning of period 38,999,959 --
----------- -----------
End of period (including accumulated undistributed
net investment income of $102,522 and $65,701,
respectively) $43,857,630 $38,999,959
=========== ===========
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1999
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2000 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 29, 2000
---------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 10.00
------- -------
Income from investment operations:
Net investment income 0.05+ 0.08
Net realized and unrealized gain (loss) 0.48 (0.50)
------- -------
Total from investment operations 0.53 (0.42)
------- -------
Less distributions to shareholders:
From net investment income (0.05) (0.06)
------- -------
Total distributions (0.05) (0.06)
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.00 $ 9.52
======= =======
TOTAL RETURN(a) 5.53%++ (4.25)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $43,858 $39,000
Net expenses to average daily net assets 0.70%* 0.70%*
Net investment income to average daily net assets 1.10%* 1.08%*
Portfolio turnover rate 58% 18%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share
amounts: $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
See accompanying notes to the financial statements. 19
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Tax Managed Small Companies 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 benchmark is the Russell 2500 Index (After Tax).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
20
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 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, 2000.
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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the relative performance of two different groups
or "baskets" of securities, adjusted by an interest rate payment. To the
extent that the relative performance of the two baskets of securities
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 in value, 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, 2000 the Fund held no open swap agreements.
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
21
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000 the Fund had a capital loss carryforward available to
offset future capital gains, if any, in the amount of $640,309, expiring
2008. The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
22
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 six months ended
August 31, 2000, the Fund received $26,287 in purchase premiums. There is
no premium for 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, 2001 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 six months ended August 31, 2000 was $276. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2000,
aggregated $26,038,456 and $22,250,105, respectively.
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$37,222,246 $5,728,162 $(2,101,348) $3,626,814
</TABLE>
23
<PAGE>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 71.9% 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 were as follows:
<TABLE>
<CAPTION>
Period from June 1, 1999
(commencement of
operations)
Six Months Ended through February 29,
August 31, 2000 2000
---------------------- -------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 523,356 $ 5,257,330 4,096,497 $42,171,883
Shares issued to shareholders
in reinvestment of distributions 1,461 13,972 1,677 16,261
Shares repurchased (236,945) (2,247,777) -- --
--------- ----------- ---------- -----------
Net increase 287,872 $ 3,023,525 4,098,174 $42,188,144
========= =========== ========== ===========
</TABLE>
The Fund was formed with a taxable contribution of securities in-kind,
which had a market value of $620,625 on the date of contribution.
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Depreciation
--------- -------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Buys
11 Russell 2000 September 2000 $2,953,775 $(394)
=====
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
24
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 99.4%
AEROSPACE -- 1.1%
1,800 Lockheed Martin Corp 51,075
600 Northrop Grumman Corp 46,687
------------
97,762
------------
AUTOMOTIVE -- 4.5%
1,100 Autonation Inc* 7,150
900 Dana Corp 22,219
400 Eaton Corp 26,550
5,070 Ford Motor Co* 122,624
2,341 General Motors Corp 168,991
450 General Motors Corp, Class H* 14,906
600 Genuine Parts Co 12,337
800 Goodyear Tire & Rubber Co 18,700
301 Visteon Corp 4,722
------------
398,199
------------
BANKING AND FINANCIAL SERVICES -- 16.9%
1,200 Amsouth Bancorp 21,900
665 Bank of America Corp 35,619
900 Bear Stearns Cos Inc 60,356
1,800 Chase Manhattan Corp 100,575
8,400 Citigroup Inc 490,350
800 Countrywide Credit Industries Inc 30,300
2,200 Fannie Mae 118,250
2,136 Firstar Corp 50,997
1,300 Fleet Boston Financial Corp 55,494
1,200 Franklin Resources Inc 45,600
900 Freddie Mac 37,912
700 Golden West Financial Corp 33,337
300 J.P. Morgan & Co Inc 50,156
300 Lehman Brothers Holding Inc 43,500
2,300 MBNA Corp 81,219
700 Merrill Lynch 101,500
1,000 MGIC Investment Corp 58,812
400 Paine Webber Group Inc 28,600
200 State Street Corp 23,550
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
600 UnionBanCal Corp 14,887
------------
1,482,914
------------
CHEMICALS -- 1.4%
400 Air Products and Chemicals 14,525
200 Du Pont (E.I.) De Nemours 8,975
300 Eastman Chemical Co 12,937
400 PPG Industries Inc 16,200
1,100 Praxair Inc 48,675
800 Sherwin Williams Co 18,400
------------
119,712
------------
COMPUTER AND OFFICE EQUIPMENT -- 10.3%
2,900 Cisco Systems Inc* 198,650
800 Computer Associates International Inc 25,400
300 EMC Corp* 29,400
200 Hewlett Packard Co 24,150
4,800 Oracle Corp* 436,500
1,500 Sun Microsystems Inc* 190,406
------------
904,506
------------
CONSUMER GOODS -- 1.2%
600 Eastman Kodak Co 37,350
800 Fortune Brands Inc 20,400
200 Johnson Controls 10,687
1,100 Jones Apparel Group Inc* 26,950
200 Procter and Gamble Co 12,362
------------
107,749
------------
ELECTRONIC EQUIPMENT -- 7.1%
800 American Power Conversion Corp* 19,050
400 Analog Devices Inc* 40,200
400 Applied Micro Circuits Corp* 81,175
800 AVX Corp 23,950
200 Ciena Corp* 44,337
400 Conexant Systems Inc* 14,875
1,400 Emerson Electric Co 92,662
1,700 General Electric Co 99,769
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC EQUIPMENT -- CONTINUED
300 PMC-Sierra Inc* 70,800
1,500 Raytheon Co, Class B 41,719
500 Scientific Atlanta Inc 38,969
100 SDL Inc* 39,731
200 Texas Instruments Inc 13,387
------------
620,624
------------
FOOD AND BEVERAGE -- 1.7%
200 Anheuser Busch Cos Inc 15,762
3,192 Archer Daniels Midland Co 28,129
400 Coca Cola Co 21,050
700 Nabisco Group Holdings 19,644
1,000 Seagrams Co Ltd 60,187
100 Wrigley (William Jr) Co 7,406
------------
152,178
------------
HEALTH CARE -- 2.1%
200 Celera Genomics Group* 21,687
1,400 HCA - The Healthcare Company 48,300
500 Johnson & Johnson 45,969
1,500 Tenet Healthcare Corp 46,500
300 Wellpoint Health Network* 25,894
------------
188,350
------------
INSURANCE -- 6.2%
700 Aetna Inc 39,156
3,300 Allstate Corp 95,906
400 AMBAC Inc 25,850
300 American General Corp 21,844
300 AXA Financial Inc 15,525
400 Chubb Corp 30,625
500 Cigna Corp 48,625
500 CNA Financial Corp* 19,844
700 Hartford Financial Services Group Inc 46,637
600 Lincoln National Corp 32,400
200 Loews Corp 16,187
600 MBIA Inc 39,450
1,100 Saint Paul Cos Inc 52,387
500 UnitedHealth Group Inc 47,250
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
600 Unumprovident Corp 13,012
------------
544,698
------------
MACHINERY -- 1.4%
700 Applied Materials Inc* 60,419
300 Caterpillar Inc 11,025
500 Deere and Co 16,469
900 Grant Prideco Inc* 21,150
300 Parker-Hannifin Corp 10,444
------------
119,507
------------
MANUFACTURING -- 1.9%
400 Corning Inc 131,175
1,100 Leggett & Platt Inc 19,456
500 Rockwell International Corp 20,219
------------
170,850
------------
METALS AND MINING -- 0.3%
900 Alcan Aluminum Ltd 29,531
------------
OIL AND GAS -- 5.1%
400 Amerada Hess Corp 27,375
200 Apache Corp 12,600
3,280 BP Amoco PLC ADR 181,220
400 Burlington Resources Inc 15,725
200 Chevron Corp 16,900
300 Columbia Energy Group 21,056
800 Exxon Mobil Corp 65,300
100 Kerr-McGee Corp 6,319
900 Occidental Petroleum Corp 19,463
200 Phillips Petroleum Co 12,375
600 Texaco Inc 30,900
1,100 USX - Marathon Group 30,181
100 Vastar Resources Inc 8,275
------------
447,689
------------
PAPER AND ALLIED PRODUCTS -- 0.4%
541 International Paper Co 17,244
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
PAPER AND ALLIED PRODUCTS -- CONTINUED
300 Weyerhaeuser Co 13,894
------------
31,138
------------
PHARMACEUTICALS -- 6.2%
3,600 Abbott Laboratories 157,500
1,100 Amgen Inc* 83,394
1,800 Bristol Myers Squibb Co 95,400
100 Lilly (Eli) & Co 7,300
400 Merck & Co Inc 27,950
1,950 Pfizer Inc 84,338
200 Pharmacia Corp 11,713
1,900 Schering Plough Corp 76,238
------------
543,833
------------
PRINTING AND PUBLISHING -- 0.1%
200 Knight Ridder Inc 10,925
------------
REFINING -- 0.9%
900 Royal Dutch Petroleum Co 55,069
900 Tosco Corp 27,450
------------
82,519
------------
RETAIL TRADE -- 3.5%
1,400 Albertsons Inc 30,100
1,100 Autozone Inc* 24,750
1,400 Federated Department Stores Inc* 38,675
2,100 Kmart Corp* 14,700
1,600 May Department Stores Co 36,700
400 McDonald's Corp 11,950
1,200 Penney (JC) Co Inc 16,800
400 Safeway Inc* 19,725
2,000 Sears Roebuck & Co 62,375
1,800 Toys R Us Inc* 32,738
400 Wal Mart Stores Inc 18,975
------------
307,488
------------
SERVICES -- 0.0%
337 ANC Rental Corp* 2,359
------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 9.4%
1,100 BEA Systems Inc* 74,869
2,200 BMC Software Inc* 59,400
200 Brocade Communications Systems Inc* 45,163
2,400 Honeywell International Inc 92,550
3,200 Intel Corp 239,600
1,120 JDS Uniphase Corp* 139,580
200 Microsoft Corp* 13,963
200 Network Appliance Inc* 23,400
300 Siebel Systems Inc* 59,100
400 Veritas Software Corp* 48,225
700 Vignette Corp* 26,688
------------
822,538
------------
TELECOMMUNICATIONS -- 10.3%
5,400 AT & T Corp 170,100
1,600 AT & T Liberty Media Group* 34,200
500 Bellsouth Corp 18,656
600 Nextel Communications Inc, Class A* 33,263
3,200 Nortel Networks Corp 261,000
172 Qwest Communications International Inc* 8,880
3,126 SBC Communications Inc 130,511
400 Sprint Corp (PCS Group)* 20,075
100 Telephone and Data Systems Inc 11,600
200 United States Cellular Corp* 14,713
2,242 Verizon Communications 97,807
764 Viacom Inc, Class B* 51,427
1,500 WorldCom Inc* 54,750
------------
906,982
------------
TOBACCO -- 1.4%
4,000 Philip Morris Cos Inc 118,500
------------
TRANSPORTATION -- 2.4%
1,600 AMR Corp* 52,500
1,900 Burlington Northern Santa Fe Railroad Co 42,513
1,300 CSX Corp 31,038
600 Delta Air Lines Inc 29,700
1,500 Norfolk Southern Corp 24,094
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
800 Union Pacific Corp 31,800
------------
211,645
------------
UTILITIES -- 3.6%
200 AES Corp* 12,750
300 Ameren Corp 12,131
460 American Electric Power Inc 16,215
200 Cinergy Corp 5,875
300 Coastal Corp 20,663
500 Consolidated Edison Inc 15,656
400 Constellation Energy Group Inc 15,300
300 Dominion Resources Inc 15,900
700 DTE Energy Co 24,325
500 Edison International 10,344
1,300 Entergy Corp 39,569
600 Firstenergy Corp 14,850
200 FPL Group Inc 10,675
900 General Public Utilities Inc 27,563
192 Keyspan Corp 6,612
600 PG & E Corp 17,363
400 Public Service Enterprise Group Inc 14,500
100 Reliant Energy Inc 3,713
700 TXU Corp 24,456
310 Xcel Energy Inc 7,769
------------
316,229
------------
TOTAL COMMON STOCKS (COST $7,598,573) 8,738,425
------------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.6%
REPURCHASE AGREEMENT -- 0.6%
$ 57,326 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $57,335
and an effective yield of 5.73%, collateralized by a
U.S. Treasury Obligation with a rate of 9.25%, maturity
date of 2/15/16 and market value, including accrued
interest, of $64,947. 57,326
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $57,326) 57,326
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $7,655,899) 8,795,751
Other Assets and Liabilities (net) -- (0.0%) (3,136)
--------------
TOTAL NET ASSETS -- 100.0% $ 8,792,615
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
<TABLE>
<S> <C>
ADR - American Depositary Receipt
</TABLE>
* Non-income producing security.
8 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $7,655,899) (Note 1) $8,795,751
Dividends and interest receivable 14,386
Receivable for expenses waived or borne by Manager (Note
2) 3,880
----------
Total assets 8,814,017
----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 2,375
Shareholder service fee 1,079
Accrued expenses 17,948
----------
Total liabilities 21,402
----------
NET ASSETS $8,792,615
==========
NET ASSETS CONSIST OF:
Paid-in capital $6,067,901
Accumulated undistributed net investment income 16,625
Accumulated net realized gain 1,568,237
Net unrealized appreciation 1,139,852
----------
$8,792,615
==========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $8,792,615
==========
SHARES OUTSTANDING:
Class III 628,032
==========
NET ASSET VALUE PER SHARE:
Class III $ 14.00
==========
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $576) $ 82,971
Interest 3,490
---------
Total income 86,461
---------
EXPENSES:
Management fee (Note 2) 17,750
Audit fees 16,744
Custodian and transfer agent fees 4,416
Legal fees 276
Registration fees 92
Miscellaneous 461
Fees waived or borne by Manager (Note 2) (21,989)
---------
17,750
Shareholder service fee (Note 2)
Class III 8,068
---------
Net expenses 25,818
---------
Net investment income 60,643
---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 1,750,399
---------
Change in net unrealized appreciation (depreciation) on
investments (861,043)
---------
Net realized and unrealized gain 889,356
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 949,999
=========
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 60,643 $ 123,603
Net realized gain (loss) 1,750,399 (183,244)
Change in net unrealized appreciation (depreciation) (861,043) 2,070,332
----------- -----------
Net increase in net assets from operations 949,999 2,010,691
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (55,972) (122,085)
----------- -----------
Total distributions from net investment income (55,972) (122,085)
----------- -----------
Net share transactions: (Note 5)
Class III (5,376,507) 3,270,972
----------- -----------
Increase (decrease) in net assets resulting from net
share transactions (5,376,507) 3,270,972
----------- -----------
Total increase (decrease) in net assets (4,482,480) 5,159,578
NET ASSETS:
Beginning of period 13,275,095 8,115,517
----------- -----------
End of period (including accumulated undistributed
net investment income of $16,625 and $11,954,
respectively) $ 8,792,615 $13,275,095
=========== ===========
</TABLE>
See accompanying notes to the financial statements. 11
<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>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------
(UNAUDITED) 2000 1999*
---------------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.64 $ 10.67 $ 10.00
----------- ------- -----------
Income from investment operations:
Net investment income 0.07+ 0.13 0.09
Net realized and unrealized gain 1.36 1.97 0.65
----------- ------- -----------
Total from investment operations 1.43 2.10 0.74
----------- ------- -----------
Less distributions to shareholders:
From net investment income (0.07) (0.13) (0.07)
----------- ------- -----------
Total distributions (0.07) (0.13) (0.07)
----------- ------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.00 $ 12.64 $ 10.67
=========== ======= ===========
TOTAL RETURN(a) 11.37%++ 19.83% 7.48%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 8,793 $13,275 $ 8,116
Net expenses to average daily net assets 0.48%** 0.48% 0.48%**
Net investment income to average daily net
assets 1.13%** 1.11% 1.30%**
Portfolio turnover rate 68% 19% 33%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following per
share amounts: $ 0.03 $ 0.05 $ 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.
* Period from July 23, 1998 (commencement of operations) through February 28,
1999.
** Annualized
+ Computed using average shares outstanding throughout the period.
++ Not annualized
12 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high after-tax total return primarily through investment in
U.S. equity securities. The Fund's benchmark is the GMO S&P 500 (After
Tax).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
13
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. As of August 31, 2000, 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the relative performance of two different groups
or "baskets" of securities, adjusted by an interest rate payment. To the
extent that the relative performance of the two baskets of securities
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 in value, 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
14
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000,
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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.
At February 29, 2000 the Fund had a capital loss carryforward available to
offset future capital gains, if any, in the amount of $124,725, expiring
in 2008. The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
15
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 .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, 2000, the fund
received no purchase premiums. There is no premium for 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.
GMO has entered into a binding agreement effective until June 30, 2001 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 six months ended August 31, 2000 was $0. 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, 2000,
aggregated $7,670,521 and $7,098,384, respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$7,655,899 $1,721,290 $(581,438) $1,139,852
</TABLE>
16
<PAGE>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 97.4% 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.
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, 2000 February 29, 2000
--------------------- -------------------
Shares Amount Shares Amount
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Class III:
Shares sold -- $ -- 284,602 $3,214,362
Shares issued to shareholders
in reinvestment of distributions 938 12,530 4,942 56,610
Shares repurchased (423,023) (5,389,037) -- --
-------- ----------- ------- ----------
Net increase (decrease) (422,085) $(5,376,507) 289,544 $3,270,972
======== =========== ======= ==========
</TABLE>
17
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 103.0%
3,703 GMO REIT Fund 35,845
4,076 GMO Small Cap Value Fund 54,131
10,484 GMO U.S. Core Fund 181,160
---------
TOTAL MUTUAL FUNDS (COST $265,633) 271,136
---------
SHORT-TERM INVESTMENTS -- 0.9%
REPURCHASE AGREEMENT -- 0.9%
$ 2,248 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/2000, due 9/01/2000 with a maturity value of
$2,248 and an effective yield of 5.73%, collateralized
by a U.S. Treasury Obligation with a rate of 9.25%,
maturity date of 2/15/16 and market value, including
accrued interest, of $12,989. 2,248
---------
TOTAL SHORT-TERM INVESTMENTS (COST $2,248) 2,248
---------
TOTAL INVESTMENTS -- 103.9%
(Cost $267,881) 273,384
Other Assets and Liabilities (net) -- (3.9%) (10,181)
---------
TOTAL NET ASSETS -- 100.0% $ 263,203
=========
</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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $267,881) (Note 1) $273,384
Receivable for expenses waived or borne by Manager (Note 2) 69
--------
Total assets 273,453
--------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 84
Accrued expenses 10,166
--------
Total liabilities 10,250
--------
NET ASSETS $263,203
========
NET ASSETS CONSIST OF:
Paid-in capital $458,975
Distributions in excess of net investment income (34,102)
Accumulated net realized loss (167,173)
Net unrealized appreciation 5,503
--------
$263,203
========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $263,203
========
SHARES OUTSTANDING:
Class III 49,529
========
NET ASSET VALUE PER SHARE:
Class III $ 5.31
========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 19,144
Interest 237
--------
Total income 19,381
--------
EXPENSES:
Management fee (Note 2) 2,120
Audit fees 4,508
Custodian and transfer agent fees 736
Miscellaneous 182
Fees waived or borne by Manager (Note 2) (7,546)
--------
Net expenses --
--------
Net investment income 19,381
--------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (164,927)
Realized gain distributions from investment company
shares 109,209
--------
Net realized loss (55,718)
--------
Change in net unrealized appreciation (depreciation) on
investments 183,674
--------
Net realized and unrealized gain 127,956
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $147,337
========
</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, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 19,381 $ 259,544
Net realized gain (loss) (55,718) 1,072,292
Change in net unrealized appreciation (depreciation) 183,674 1,162,450
----------- ------------
Net increase in net assets from operations 147,337 2,494,286
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (53,483) (259,544)
----------- ------------
Total distributions from net investment income (53,483) (259,544)
----------- ------------
In excess of net investment income
Class III -- (429,148)
----------- ------------
Total distributions in excess of net investment
income -- (429,148)
----------- ------------
Net realized gains
Class III (16,013) (601,330)
----------- ------------
Total distributions from net realized gains (16,013) (601,330)
----------- ------------
(69,496) (1,290,022)
----------- ------------
Net share transactions: (Note 5)
Class III (1,417,130) (16,431,774)
----------- ------------
Decrease in net assets resulting from net share
transactions (1,417,130) (16,431,774)
----------- ------------
Total decrease in net assets (1,339,289) (15,227,510)
NET ASSETS:
Beginning of period 1,602,492 16,830,002
----------- ------------
End of period (including distributions in excess of
net investment income of $34,102 and $0,
respectively) $ 263,203 $ 1,602,492
=========== ============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -----------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.84 $ 4.63 $ 8.53 $ 13.03 $ 13.63 $ 11.06
------- ------- ------- ------- -------- --------
Income from investment operations:
Net investment income(a) 0.08+ 0.09+ 0.10+ 0.29+ 0.26 0.29
Net realized and unrealized gain 0.61 0.54 0.27 2.61 2.20 3.90
------- ------- ------- ------- -------- --------
Total from investment operations 0.69 0.63 0.37 2.90 2.46 4.19
------- ------- ------- ------- -------- --------
Less distributions to shareholders:
From net investment income (0.17) (0.09) (0.10) (0.40) (0.22) (0.29)
In excess of net investment income -- (0.14) (0.15) (0.01) -- --
From net realized gains (0.05) (0.19) (3.75) (6.99) (2.84) (1.33)
In excess of net realized gains -- -- (0.27) -- -- --
------- ------- ------- ------- -------- --------
Total distributions (0.22) (0.42) (4.27) (7.40) (3.06) (1.62)
------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 5.31 $ 4.84 $ 4.63 $ 8.53 $ 13.03 $ 13.63
======= ======= ======= ======= ======== ========
TOTAL RETURN(b) 14.45%** 13.35% 3.13% 29.61% 20.88% 38.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 263 $ 1,602 $16,830 $70,823 $226,711 $211,319
Net expenses to average daily net
assets(c) 0.00%* 0.00% 0.00% 0.27% 0.48% 0.48%
Net investment income to average
daily net assets(a) 3.02%* 1.85% 1.51% 2.53% 1.99% 2.27%
Portfolio turnover rate 20% 22% 16% 150% 104% 84%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.02 $ 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) 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.
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
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, 2000 (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 of shares 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 financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
7
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000, the Fund received $375 in purchase premiums and $2,625 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 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, 2001 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding shareholder service fees and the following expenses:
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses and
transfer taxes ("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, 2000, operating expenses (excluding shareholder service
fees and fund expenses) incurred indirectly by the Fund were .36% of the
Fund's average daily net assets.
8
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $0. 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, 2000,
aggregated $251,367 and $1,608,013, respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$267,881 $5,876 $(373) $5,503
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 100% 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 were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------- ------------------------
Shares Amount Shares Amount
Class III: -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 49,529 $ 250,000 -- $ --
Shares issued to shareholders
in reinvestment of distributions 13,844 69,496 184,352 932,337
Shares repurchased (344,772) (1,736,626) (3,489,575) (17,364,111)
-------- ----------- ---------- ------------
Net decrease (281,399) $(1,417,130) (3,305,223) $(16,431,774)
======== =========== ========== ============
</TABLE>
9
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 98.5%
AEROSPACE -- 0.1%
1,500 Northrop Grumman Corp 116,719
-------------
AUTOMOTIVE -- 0.7%
600 ArvinMeritor Inc 9,900
14,600 Autonation Inc* 94,900
13,000 General Motors Corp 938,437
5,850 Genuine Parts Co 120,291
2,900 Goodyear Tire & Rubber Co 67,787
-------------
1,231,315
-------------
BANKING AND FINANCIAL SERVICES -- 3.5%
4,686 Bear Stearns Cos Inc 314,255
3,500 Capital One Financial Corp 211,094
30,600 Charles Schwab & Co Inc 1,168,538
4,600 Countrywide Credit Industries Inc 174,225
2,700 Edwards (AG) Inc 140,400
26,200 Fannie Mae 1,408,250
7,350 Federated Investors Inc 172,266
7,900 Franklin Resources Inc 300,200
23,200 MBNA Corp 819,250
4,900 MGIC Investment Corp 288,181
7,600 Providian Financial Corp 873,525
14,850 Waddell and Reed Financial Inc, Class A 517,894
-------------
6,388,078
-------------
CHEMICALS -- 0.1%
3,100 PPG Industries Inc 125,550
300 Praxair Inc 13,275
5,400 Sherwin Williams Co 124,200
-------------
263,025
-------------
COMPUTER AND OFFICE EQUIPMENT -- 20.7%
2,800 Advanced Micro Devices Inc* 105,350
94,700 Cisco Systems Inc* 6,486,961
24,900 Computer Associates International Inc 790,575
63,600 EMC Corp* 6,232,800
2,400 Extreme Networks Inc* 223,350
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER AND OFFICE EQUIPMENT -- CONTINUED
22,200 Gateway Inc* 1,511,820
5,100 IBM Corp 673,200
16,900 Micron Technology Inc* 1,381,575
111,000 Oracle Corp* 10,094,062
2,200 Rational Software Corp* 283,112
75,800 Sun Microsystems Inc* 9,621,862
12,800 Symbol Technologies Inc 529,600
-------------
37,934,267
-------------
CONSTRUCTION -- 1.2%
45,450 Home Depot Inc 2,184,441
-------------
CONSUMER GOODS -- 0.4%
4,600 Eastman Kodak Co 286,350
9,300 Jones Apparel Group Inc* 227,850
2,200 Procurenet(a)* 0
6,700 VF Corp 153,262
1,300 Warnaco Group Inc, Class A 6,500
-------------
673,962
-------------
ELECTRONIC EQUIPMENT -- 13.1%
11,700 3 Com Corp* 194,512
32,700 ADC Telecommunications Inc* 1,338,656
16,600 Altera Corp* 1,075,887
49,900 American Power Conversion Corp* 1,188,244
1,900 Amphenol Corp, Class A* 121,600
18,500 Analog Devices Inc* 1,859,250
12,100 Applied Micro Circuits Corp* 2,455,544
900 Broadcom Corp, Class A* 225,000
4,400 Ciena Corp* 975,425
500 Cooper Industries Inc 17,656
1,900 Fairchild Semiconductor Corp, Class A* 75,525
80,100 General Electric Co 4,700,869
1,100 Juniper Networks Inc* 235,125
17,400 Linear Technology Corp 1,251,712
3,200 Maxim Integrated Products Inc* 280,600
50 Microchip Technology Inc* 3,403
200 National Semiconductor Corp* 8,900
7,000 PMC-Sierra Inc* 1,652,000
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC EQUIPMENT -- CONTINUED
4,500 Qualcomm Inc* 269,437
8,700 Raytheon Co, Class B 241,969
6,700 Sanmina Corp* 790,600
12,600 Scientific Atlanta Inc 982,012
5,300 SDL Inc* 2,105,756
15,000 Texas Instruments Inc 1,004,062
10,600 Xilinx Inc* 942,075
-------------
23,995,819
-------------
ENTERTAINMENT & LEISURE -- 0.2%
15,500 Fox Entertainment Group Inc, Class A* 448,531
-------------
FOOD AND BEVERAGE -- 0.8%
24,800 Coca Cola Co 1,305,100
5,900 IBP Inc 94,769
900 Pepsi Bottling Group Inc 28,575
300 Ralston-Purina Group 6,787
-------------
1,435,231
-------------
HEALTH CARE -- 2.2%
31,600 Boston Scientific Corp* 598,425
1,500 Cardinal Health Inc 122,719
7,200 Forest Laboratories Inc* 704,700
6,900 Foundation Health Systems Inc, Class A* 121,181
53,800 Health Management Associates Inc* 877,612
51,400 Healthsouth Corp* 314,825
2,500 Human Genome Sciences Inc* 417,344
2,700 Medimmune Inc* 227,137
8,800 Stryker Corp 394,350
5,700 Sybron International Corp* 129,675
6,000 Tenet Healthcare Corp 186,000
-------------
4,093,968
-------------
INSURANCE -- 1.0%
7,500 Aetna Inc 419,531
3,900 Allstate Corp 113,344
500 AMBAC Inc 32,312
2,300 CNA Financial Corp* 91,281
4,100 Conseco Inc 34,594
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
4,500 Loews Corp 364,219
3,200 MBIA Inc 210,400
12,000 Saint Paul Cos Inc 571,500
2,400 Torchmark Corp 67,350
-------------
1,904,531
-------------
MACHINERY -- 1.1%
24,400 Applied Materials Inc* 2,106,025
-------------
MANUFACTURING -- 4.0%
3,600 Blyth Industries Inc 84,375
19,900 Corning Inc 6,525,956
19,100 International Game Technology* 553,900
8,800 Owens Illinois Inc* 114,950
-------------
7,279,181
-------------
PHARMACEUTICALS -- 11.1%
40,308 Abbott Laboratories 1,763,475
6,700 Allergan Inc 489,937
2,000 Alza Corp* 151,250
30,600 Amgen Inc* 2,319,862
37,600 Bristol Myers Squibb Co 1,992,800
16,900 IMS Health Inc 318,987
31,900 Ivax Corp* 1,104,537
20,100 King Pharmaceuticals Inc* 645,712
15,000 Lilly (Eli) & Co 1,095,000
27,100 Merck & Co Inc 1,893,613
3,200 Millipore Corp 194,800
130,336 Pfizer Inc 5,637,032
9,400 Pharmacia Corp 550,488
56,400 Schering Plough Corp 2,263,050
-------------
20,420,543
-------------
PRIMARY MATERIALS -- 0.3%
7,300 Crown Cork & Seal Inc 94,444
10,100 Sealed Air Corp* 518,256
-------------
612,700
-------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL TRADE -- 4.3%
13,842 Albertsons Inc 297,603
5,400 Autozone Inc* 121,500
4,500 Best Buy Co Inc* 277,875
36,900 Dollar General Corp 758,756
4,700 Family Dollar Stores Inc 84,600
2,400 Federated Department Stores Inc* 66,300
38,300 Gap Inc 859,356
52,800 Intimate Brands Inc 851,400
4,700 Kmart Corp* 32,900
1,600 Kohls Corp* 89,600
2,000 May Department Stores Co 45,875
2,800 RadioShack Corp 165,200
19,626 Safeway Inc* 967,807
3,500 Sears Roebuck & Co 109,156
400 Tiffany & Co 16,650
26,500 TJX Cos Inc 498,531
18,500 Toys R Us Inc* 336,469
47,500 Wal Mart Stores Inc 2,253,281
4,200 Walgreen Co 138,075
-------------
7,970,934
-------------
SERVICES -- 3.3%
9,300 Catalina Marketing Corp* 396,994
22,100 Ceridian Corp* 534,544
5,700 Convergys Corp* 223,013
6,500 Devry Inc* 242,938
21,200 Equifax Inc 539,275
10,300 Millennium Pharmaceuticals Inc* 1,474,188
1,600 Omnicom Group 133,500
29,100 Paychex Inc 1,298,588
22,500 Robert Half International Inc* 715,781
3,600 Service Corp International 8,325
1,700 Time Warner Inc 145,350
2,235 VeriSign Inc* 444,486
-------------
6,156,982
-------------
TECHNOLOGY -- 21.1%
2,900 Adobe Systems Inc 377,000
2,364 Agilent Technologies Inc* 142,579
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
28,000 America Online Inc* 1,641,500
39,000 BEA Systems Inc* 2,654,438
52,100 BMC Software Inc* 1,406,700
9,300 Brocade Communications Systems Inc* 2,100,056
5,700 Citrix Systems Inc* 125,400
9,400 Compuware Corp* 99,288
1,600 Exodus Communications Inc* 109,500
22,300 Honeywell International Inc 859,944
10,500 i2 Technologies Inc* 1,776,469
16,300 Infospace Inc* 635,700
118,608 Intel Corp 8,880,774
34,888 JDS Uniphase Corp* 4,347,917
9,500 KLA Instruments Corp* 623,438
50,000 Microsoft Corp* 3,490,625
16,400 Network Appliance Inc* 1,918,800
5,700 Parametric Technology Corp* 76,238
800 PE Corp - PE Biosystems Group 78,700
1,700 Portal Software Inc* 93,925
10,000 Siebel Systems Inc* 1,970,000
9,100 Teradyne Inc* 589,794
21,300 Veritas Software Corp* 2,567,981
15,600 Vignette Corp* 594,750
12,600 Yahoo! Inc* 1,530,900
-------------
38,692,416
-------------
TELECOMMUNICATIONS -- 7.1%
65,000 AT & T Corp 2,047,500
21,200 Lucent Technologies Inc 886,425
20,900 Mastec Inc* 752,400
500 McLeodUSA Inc* 7,906
22,000 Nextel Communications Inc, Class A* 1,219,625
51,900 Nortel Networks Corp 4,233,094
7,900 Redback Networks Inc* 1,180,063
600 RF Micro Devices Inc* 26,775
31,300 SBC Communications Inc 1,306,775
16,600 Sprint Corp (PCS Group)* 833,113
10,672 Verizon Communications 465,566
-------------
12,959,242
-------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TOBACCO -- 1.5%
93,284 Philip Morris Cos Inc 2,763,539
-------------
TRANSPORTATION -- 0.2%
17,900 Burlington Northern Santa Fe Railroad Co 400,513
1,100 CSX Corp 26,263
-------------
426,776
-------------
UTILITIES -- 0.5%
9,200 Calpine Corp* 910,800
-------------
TOTAL COMMON STOCKS (COST $134,579,598) 180,969,025
-------------
SHORT-TERM INVESTMENTS -- 13.5%
CASH EQUIVALENTS -- 9.9%
$ 1,626,163 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(b) 1,626,163
$ 5,774,410 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(b) 5,774,410
1,784,948 Merrimac Cash Fund Premium Class(b) 1,784,948
$ 9,000,000 Prudential Securities Group, Inc. Master Note, 6.96%,
due 12/08/00(b) 9,000,000
-------------
18,185,521
-------------
U.S. GOVERNMENT -- 0.5%
$ 865,000 U.S. Treasury Bill, 5.94%, due 12/07/00 850,736
-------------
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.1%
$ 5,690,310 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of
$5,691,215 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a rate
of 9.25%, maturity date of 2/15/16 and market value,
including accrued interest, of $5,806,258. 5,690,310
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $24,726,986) 24,726,567
-------------
TOTAL INVESTMENTS -- 112.0%
(Cost $159,306,584) 205,695,592
Other Assets and Liabilities (net) -- (12.0%) (22,042,937)
-------------
TOTAL NET ASSETS -- 100.0% $ 183,652,655
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
* Non-income producing security.
(a) Valued by management (Note 1).
(b) Represents investments of security lending collateral (Note 1).
8 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $159,306,584) (Note 1) $205,695,592
Receivable for investments sold 2,039,211
Dividends and interest receivable 72,274
Receivable for variation margin on closed futures
contracts (Note 1) 31,587
Receivable for expenses waived or borne by Manager (Note
2) 11,198
------------
Total assets 207,849,862
------------
LIABILITIES:
Payable for investments purchased 5,861,694
Payable upon return of securities loaned (Note 1) 18,185,521
Payable for Fund shares repurchased 49,750
Payable to affiliate for (Note 2):
Management fee 48,716
Shareholder service fee 22,144
Accrued expenses 29,382
------------
Total liabilities 24,197,207
------------
NET ASSETS $183,652,655
============
NET ASSETS CONSIST OF:
Paid-in capital $ 90,437,014
Accumulated undistributed net investment income 27,251
Accumulated net realized gain 46,799,382
Net unrealized appreciation 46,389,008
------------
$183,652,655
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $183,652,655
============
SHARES OUTSTANDING:
Class III 36,046,249
============
NET ASSET VALUE PER SHARE:
Class III $ 5.09
============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $609) $ 532,271
Interest (including securities lending income of $24,604) 169,172
-----------
Total income 701,443
-----------
EXPENSES:
Management fee (Note 2) 305,660
Custodian and transfer agent fees 32,108
Audit fees 18,124
Legal fees 4,692
Trustees fees (Note 2) 1,288
Miscellaneous 1,564
Fees waived or borne by Manager (Note 2) (57,776)
-----------
305,660
Shareholder service fee (Note 2)
Class III 138,936
Net expenses 444,596
-----------
Net investment income 256,847
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 46,950,237
Closed futures contracts 112,989
-----------
Net realized gain 47,063,226
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (26,370,645)
Open futures contracts 24,396
-----------
Net unrealized loss (26,346,249)
-----------
Net realized and unrealized gain 20,716,977
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $20,973,824
===========
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 256,847 $ 876,153
Net realized gain 47,063,226 37,522,706
Change in net unrealized appreciation (depreciation) (26,346,249) 28,498,989
------------ ------------
Net increase in net assets from operations 20,973,824 66,897,848
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (289,063) (909,886)
------------ ------------
Total distributions from net investment income (289,063) (909,886)
------------ ------------
Net realized gains
Class III (14,555,331) (33,701,424)
------------ ------------
Total distributions from net realized gains (14,555,331) (33,701,424)
------------ ------------
(14,844,394) (34,611,310)
------------ ------------
Net share transactions: (Note 5)
Class III (27,138,571) 14,291,017
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (27,138,571) 14,291,017
------------ ------------
Total increase (decrease) in net assets (21,009,141) 46,577,555
NET ASSETS:
Beginning of period 204,661,796 158,084,241
------------ ------------
End of period (including accumulated undistributed
net investment income of $27,251 and $59,467,
respectively) $183,652,655 $204,661,796
============ ============
</TABLE>
See accompanying notes to the financial statements. 11
<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, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.95 $ 4.14 $ 4.38 $ 5.18 $ 5.65 $ 4.45
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.01 0.02 0.03 0.04 0.07 0.08
Net realized and unrealized gain 0.57 1.71 0.89 1.41 1.03 1.54
-------- -------- -------- -------- -------- --------
Total from investment operations 0.58 1.73 0.92 1.45 1.10 1.62
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.01) (0.02) (0.03) (0.06) (0.08) (0.07)
From net realized gains (0.43) (0.90) (1.13) (2.19) (1.49) (0.35)
-------- -------- -------- -------- -------- --------
Total distributions (0.44) (0.92) (1.16) (2.25) (1.57) (0.42)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 5.09 $ 4.95 $ 4.14 $ 4.38 $ 5.18 $ 5.65
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 12.44%** 45.24% 22.90% 36.37% 21.64% 37.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $183,653 $204,662 $158,084 $202,923 $244,183 $391,366
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 0.28%* 0.50% 0.64% 0.79% 1.21% 1.54%
Portfolio turnover rate 74% 48% 50% 60% 100% 76%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) --(b) $ 0.01 $ 0.01 $ 0.01 --(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.
** Not annualized.
12 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is the
Russell 1000 Growth Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
13
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. As of August 31, 2000, 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, 2000, the Fund loaned securities having a
market value of $17,773,017 collateralized by cash in the amount of
$18,185,521 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the
14
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
relative performance of two different groups or "baskets" of securities,
adjusted by an interest rate payment. To the extent that the relative
performance of the two baskets of securities exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make payment to the counterparty, respectively. Swaps are marked to
market daily based upon quotations from market makers and the change in
value, 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 as
of August 31, 2000.
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
15
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, 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
Effective April 7, 2000, the Fund no longer charges a premium on cash
purchases of Fund shares. Prior to April 7, 2000, the premium on cash
purchases of Fund shares was .14 % of the amount invested. For the period
March 1, 2000 through April 7, 2000 the Fund received $142 in purchase
premiums. There is no premium for 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.
GMO has entered into a binding agreement effective until June 30, 2001 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 six months ended August 31, 2000 was $1,288. 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, 2000,
aggregated $132,751,379 and $172,958,021, respectively.
16
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$159,306,584 $56,464,065 $(10,075,057) $46,389,008
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 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.
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, 2000 February 29, 2000
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 69,236 $ 347,620 411,884 $ 1,856,585
Shares issued to shareholders
in reinvestment of distributions 3,201,515 14,835,363 7,675,138 34,556,251
Shares repurchased (8,572,875) (42,321,554) (4,900,307) (22,121,819)
---------- ------------ ---------- ------------
Net increase (decrease) (5,302,124) $(27,138,571) 3,186,715 $ 14,291,017
========== ============ ========== ============
</TABLE>
17
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-----------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUND -- 100.0%
10,461,313 GMO Emerging Country Debt Fund (Cost $95,746,926) 98,754,794
-----------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 6,011 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $6,012
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $12,989. 6,011
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $6,011) 6,011
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $95,752,937) 98,760,805
Other Assets and Liabilities (net) -- (0.0%) (8,793)
-----------
TOTAL NET ASSETS -- 100.0% $98,752,012
===========
</TABLE>
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $95,752,937) (Note 1) $98,760,805
Receivable for expenses waived or borne by Manager (Note
2) 2,450
-----------
Total assets 98,763,255
-----------
LIABILITIES:
Accrued expenses 11,243
-----------
Total liabilities 11,243
-----------
NET ASSETS $98,752,012
===========
NET ASSETS CONSIST OF:
Paid-in capital $90,601,820
Accumulated undistributed net investment income 5,143,640
Accumulated net realized loss (1,316)
Net unrealized appreciation 3,007,868
-----------
$98,752,012
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $98,752,012
===========
SHARES OUTSTANDING:
Class III 9,918,037
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.96
===========
</TABLE>
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 5,143,390
Interest 250
-----------
Total income 5,143,640
-----------
EXPENSES:
Custodian and transfer agent fees 5,704
Audit fees 5,060
Legal fees 2,208
Trustees fees (Note 2) 552
Miscellaneous 644
Fees waived or borne by Manager (Note 2) (14,168)
-----------
Net expenses --
-----------
Net investment income 5,143,640
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments --
-----------
Change in net unrealized appreciation (depreciation) on
investments 7,328,296
-----------
Net realized and unrealized gain 7,328,296
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,471,936
===========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,143,640 $ 9,371,757
Net realized gain -- 1,061,474
Change in net unrealized appreciation (depreciation) 7,328,296 14,631,128
----------- ------------
Net increase in net assets from operations 12,471,936 25,064,359
----------- ------------
Distributions to shareholders from:
Net investment income
Class III -- (9,371,757)
----------- ------------
Total distributions from net investment income -- (9,371,757)
----------- ------------
In excess of net investment income
Class III -- (963,503)
----------- ------------
Total distributions in excess of net investment
income -- (963,503)
----------- ------------
Net realized gains
Class III -- (103,181)
----------- ------------
Total distributions from net realized gains -- (103,181)
----------- ------------
-- (10,438,441)
----------- ------------
Net share transactions: (Note 5)
Class III -- 30,438,441
----------- ------------
Increase in net assets resulting from net share
transactions -- 30,438,441
----------- ------------
Total increase in net assets 12,471,936 45,064,359
NET ASSETS:
Beginning of period 86,280,076 41,215,717
----------- ------------
End of period (including accumulated undistributed
net investment income of $5,143,640 and $0,
respectively) $98,752,012 $ 86,280,076
=========== ============
</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>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ----------------------
(UNAUDITED) 2000 1999*
---------------- ----------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.70 $ 6.84 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income(a) 0.52 1.10 0.03
Net realized and unrealized gain (loss) 0.74 1.97 (3.16)
------- ------- -------
Total from investment operations 1.26 3.07 (3.13)
------- ------- -------
Less distributions to shareholders:
From net investment income -- (1.09) (0.03)
In excess of net investment income -- (0.11) --
From net realized gains -- (0.01) --
------- ------- -------
Total distributions -- (1.21) (0.03)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.96 $ 8.70 $ 6.84
======= ======= =======
TOTAL RETURN(b) 14.48%+ 46.71% (31.32)%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $98,752 $86,280 $41,216
Net expenses to average daily net assets(c) 0.00%** 0.00% 0.00%**
Net investment income to average daily net
assets(a) 11.38%** 14.22% 0.64%**
Portfolio turnover rate 0% 0% 0%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following per
share amounts: --(d) --(d) --(d)
</TABLE>
(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 fund. See Note 1.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
+ Not annualized.
* Period from July 20, 1998 (commencement of operations) through February 28,
1999.
** Annualized.
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Emerging Country Debt Share Fund (the "Fund"), is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in the Class III
Shares of 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 benchmark is the J.P. Morgan Emerging
Markets Bond Index Global.
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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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).
7
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 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 directly 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,
2001 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, 2001 (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, 2000 was $552. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
8
<PAGE>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000,
aggregated $5,153,536 and $0 respectively.
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$95,752,937 $3,007,868 $ -- $3,007,868
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 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>
Six Months
Ended Year Ended
August 31, 2000 February 29, 2000
--------------------- -------------------------
Shares Amount Shares Amount
Class III: --------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 2,574,003 $20,000,000
Shares issued to shareholders
in reinvestment of distributions -- -- 1,319,651 10,438,441
Shares repurchased -- -- -- --
--------- ---------- --------- -----------
Net increase -- $ -- 3,893,654 $30,438,441
========= ========== ========= ===========
</TABLE>
6. OTHER
The miscellaneous receivable in ECDF includes potential recovery amounts
from pending litigation commenced by ECDF against a counterparty relating
to certain closed credit default swap transactions. The outcome of this
litigation is not predictable and the amount actually received by ECDF
could be more or less than the amount ECDF believes it is due, as valued
by the trustees or other persons acting at their direction.
9
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS -- 26.9%
U.S. GOVERNMENT -- 11.9%
$ 4,892,895 U.S. Treasury Inflation Indexed Note, 3.38%, due
01/15/07 4,715,528
------------
U.S. GOVERNMENT AGENCY -- 15.0%
291,667 Agency for International Development Floater (Support
of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%,
6.78%, due 10/01/12 283,190
1,875,375 Agency for International Development Floater (Support
of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%,
6.77%, due 10/01/12 1,820,872
1,917,822 Agency for International Development Floater (Support
of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%,
6.75%, due 10/01/11 1,850,698
83,864 Agency for International Development Floater (Support
of Peru), Series A, Variable Rate, 6 mo. U.S.
Treasury Bill + .35%, 6.67%, due 05/01/14 80,614
1,891,373 Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18%, 7.32%, due 08/25/18 1,894,210
------------
5,929,584
------------
TOTAL DEBT OBLIGATIONS (COST $10,782,101) 10,645,112
------------
<CAPTION>
<C> <S> <C>
MUTUAL FUND -- 72.0%
1,098,062 GMO Alpha LIBOR Fund 28,417,856
------------
TOTAL MUTUAL FUND (COST $27,610,115) 28,417,856
------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.5%
REPURCHASE AGREEMENT -- 0.5%
$ 186,509 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $186,539
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $194,841. 186,509
------------
TOTAL SHORT-TERM INVESTMENTS (COST $186,509) 186,509
------------
TOTAL INVESTMENTS -- 99.4%
(Cost $38,578,725) 39,249,477
Other Assets and Liabilities (net) -- 0.6% 237,228
------------
TOTAL NET ASSETS -- 100.0% $ 39,486,705
============
</TABLE>
Variable rates - The rates shown on variable rate notes are the current interest
rates at August 31, 2000, which are subject to change based on the terms of the
security.
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $38,578,725) (Note 1) $39,249,477
Receivable for investments sold 81,109
Interest receivable 174,916
Receivable for expenses waived or borne by Manager (Note
2) 2,913
-----------
Total assets 39,508,415
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 1,673
Shareholder service fee 5,020
Accrued expenses 15,017
-----------
Total liabilities 21,710
-----------
NET ASSETS $39,486,705
===========
NET ASSETS CONSIST OF:
Paid-in capital $38,473,189
Accumulated undistributed net investment income 384,104
Accumulated net realized loss (41,340)
Net unrealized appreciation 670,752
-----------
$39,486,705
===========
SHARES OUTSTANDING 4,004,526
===========
NET ASSET VALUE PER SHARE $ 9.86
===========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 404,258
Dividends from investment company shares 265,893
----------
Total income 670,151
----------
EXPENSES:
Management fee (Note 2) 10,529
Audit fees 12,512
Custodian and transfer agent fees 4,324
Legal fees 1,104
Trustees fees (Note 2) 276
Miscellaneous 644
Fees waived or borne by Manager (Note 2) (18,860)
----------
10,529
Shareholder service fee (Note 2) 31,587
----------
Net expenses 42,116
----------
Net investment income 628,035
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 298,468
----------
Change in net unrealized appreciation (depreciation) on
investments 445,021
----------
Net realized and unrealized gain 743,489
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,371,524
==========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 628,035 $ 2,442,431
Net realized gain (loss) 298,468 (313,585)
Change in net unrealized appreciation (depreciation) 445,021 528,627
------------ ------------
Net increase in net assets from operations 1,371,524 2,657,473
------------ ------------
Distributions to shareholders from:
Net investment income (352,020) (2,673,480)
------------ ------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 5,897,401 15,635,155
Net asset value of shares issued to shareholders in
payment of distributions declared 325,775 2,605,023
Cost of shares repurchased (11,247,138) (28,120,405)
------------ ------------
Net decrease in net assets resulting from Fund share
transactions (5,023,962) (9,880,227)
------------ ------------
Total decrease in net assets (4,004,458) (9,896,234)
NET ASSETS:
Beginning of period 43,491,163 53,387,397
------------ ------------
End of period (including accumulated undistributed
net investment income of $384,104 and $108,089,
respectively) $ 39,486,705 $ 43,491,163
============ ============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 9.63 $ 9.81 $ 9.78 $ 9.77 $ 9.56
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a) 0.15 0.46+ 0.57 0.55 0.47 0.57
Net realized and unrealized gain
(loss) 0.17 0.05 (0.16) 0.03 0.06 0.20
------- ------- ------- ------- ------- -------
Total from investment operations 0.32 0.51 0.41 0.58 0.53 0.77
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.08) (0.52) (0.59) (0.55) (0.52) (0.56)
------- ------- ------- ------- ------- -------
Total distributions (0.08) (0.52) (0.59) (0.55) (0.52) (0.56)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.86 $ 9.62 $ 9.63 $ 9.81 $ 9.78 $ 9.77
======= ======= ======= ======= ======= =======
TOTAL RETURN(b) 3.35%++ 5.42% 4.29% 6.10% 5.62% 8.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $39,487 $43,491 $53,387 $37,377 $40,937 $11,066
Net expenses to average daily net
assets 0.20%* 0.20% 0.20% 0.20% 0.20% 0.25%
Net investment income to average
daily net assets(a) 2.98%* 4.82% 5.50% 5.73% 5.88% 6.49%
Portfolio turnover rate 28% 178% 76% 50% 287% 139%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ --(c) $ 0.01 $ 0.03 $ 0.03 $ 0.03 $ 0.03
</TABLE>
(a) Net investment income for the six months ended August 31, 2000 and for the
year ended February 29, 2000 is affected by the timing of the declaration
of dividends by other Funds of the Trust in which the Fund invests.
(b) 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.
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 benchmark is the Salomon
Smith Barney 3 Month T-Bill Index.
At August 31, 2000, 72% of the Fund is invested in GMO Alpha LIBOR Fund, a
separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR Fund
are not publicly available for direct purchase. Alpha LIBOR Fund invests
primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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 quotations are not readily available are valued at
fair value as determined in good faith by the Trustees or other persons
acting at their direction.
7
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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.
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 and the
value of the collateral declines or if the seller enters insolvency
proceedings, realization of collateral by the Fund may be delayed or
limited.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even
8
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000, the Fund had capital loss carryforwards available to
offset future capital gains, if any, in the amounts of $4,067, $22,157 and
$41,210, expiring in 2002, 2007 and 2008, respectively. The value of the
capital loss carryforwards may be limited due to significant shareholder
activity.
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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions
for financial statement purposes are classified as distributions in excess
of net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts and amortization of premiums. Dividend income is recognized 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 the inflation adjusted principal. Additionally, any
increase in the principal or face amount of the securities is recorded as
interest income.
9
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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.
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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $276. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
---------- -----------
<S> <C> <C>
U.S. Government securities $4,623,914 $ 4,736,645
Investments (non-U.S. Government securities) 7,015,893 10,580,000
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$38,578,725 $809,090 $(138,338) $670,752
</TABLE>
10
<PAGE>
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 70.8% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder could have a
material effect.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
---------------- -----------------
<S> <C> <C>
Shares sold 605,973 1,627,899
Shares issued to shareholders
in reinvestment of distributions 33,538 273,049
Shares repurchased (1,155,648) (2,924,097)
----------- -----------
Net decrease (516,137) (1,023,149)
Fund shares:
Beginning of period 4,520,663 5,543,812
----------- -----------
End of period 4,004,526 4,520,663
=========== ===========
</TABLE>
11
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 104.5%
UNITED STATES -- 104.5%
ASSET BACKED SECURITIES -- 4.9%
USD 3,000,000 Oasis CBO Ltd, 144A,
Variable Rate, 6 mo. LIBOR + .38%, 7.44%, due
05/30/11 2,887,500
-----------
CORPORATE DEBT -- 1.8%
USD 1,200,000 JP Morgan and Co. Series A,
Variable Rate, CPI + 4.00%, 7.73%, due 02/15/12 1,034,520
-----------
U.S. GOVERNMENT -- 61.2%
USD 15,037,365 U.S. Treasury Inflation Indexed Bond, 3.88%, due
04/15/29 14,990,373
USD 1,331,363 U.S. Treasury Inflation Indexed Bond, 3.63%, due
04/15/28 1,268,955
USD 16,995,634 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(a) 16,804,433
USD 2,718,275 U.S. Treasury Inflation Indexed Note, 3.38%, due
01/15/07 2,619,737
-----------
35,683,498
-----------
U.S. GOVERNMENT AGENCY -- 36.6%
USD 8,625,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%, due 02/15/02 8,419,294
USD 14,135,030 Tennessee Valley Authority (Indexed Principal),
3.38%, due 01/15/07 12,967,370
-----------
21,386,664
-----------
TOTAL UNITED STATES 60,992,182
-----------
TOTAL DEBT OBLIGATIONS (COST $60,883,504) 60,992,182
-----------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUTUAL FUND -- 3.4%
76,551 GMO Alpha LIBOR Fund 1,981,131
-----------
TOTAL MUTUAL FUND (COST $1,962,944) 1,981,131
-----------
SHORT-TERM INVESTMENTS -- 0.1%
REPURCHASE AGREEMENT -- 0.1%
USD 33,771 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $33,776 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a
rate of 9.25%, maturity date of 2/15/16 and market
value, including accrued interest, of $38,968. 33,771
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $33,771) 33,771
-----------
TOTAL INVESTMENTS -- 108.0%
(Cost $62,880,219) 63,007,084
Other Assets and Liabilities (net) -- (8.0%) (4,658,024)
-----------
TOTAL NET ASSETS -- 100.0% $58,349,060
===========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
CPI - Consumer Price Index
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 2000, which are subject
to change based on the terms of the security.
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
USD - United States Dollar
</TABLE>
(a) All or a portion of this security has been segregated to cover collateral
requirements on reverse repurchase agreements (Note 6).
See accompanying notes to the financial statements. 3
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $62,880,219) (Note 1) $63,007,084
Interest receivable 488,069
Net receivable for open forward foreign currency
contracts (Notes 1 and 6) 15,940
Receivable for expenses waived or borne by Manager (Note
2) 4,756
-----------
Total assets 63,515,849
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 4,932
Shareholder service fee 7,296
Payable for open swap contracts (Notes 1 and 6) 58,134
Payable for reverse repurchase agreements (Notes 1 and 6) 5,054,262
Accrued expenses and other liabilities 42,165
-----------
Total liabilities 5,166,789
-----------
NET ASSETS $58,349,060
===========
NET ASSETS CONSIST OF:
Paid-in capital $56,819,327
Accumulated undistributed net investment income 2,273,487
Accumulated net realized loss (828,425)
Net unrealized appreciation 84,671
-----------
$58,349,060
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $58,349,060
===========
SHARES OUTSTANDING:
Class III 5,681,328
===========
NET ASSET VALUE PER SHARE:
Class III $ 10.27
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $2,471,631
Dividends from investment company shares 26,429
----------
Total income 2,498,060
----------
EXPENSES:
Management fee (Note 2) 28,696
Interest expense (Notes 1 and 6) 127,088
Audit fees 14,168
Custodian and transfer agent fees 10,212
Legal fees 1,472
Trustees fees (Note 2) 368
Registration fees 92
Miscellaneous 552
Fees waived or borne by Manager (Note 2) (26,864)
----------
155,784
Shareholder service fee (Note 2)
Class III 43,044
----------
Net expenses 198,828
----------
Net investment income 2,299,232
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (67,436)
Foreign currency, forward contracts and foreign
currency related transactions 35,992
----------
Net realized loss (31,444)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,260,475
Open swap contracts (58,134)
Foreign currency, forward contracts and foreign
currency related transactions (6,403)
----------
Net unrealized gain 1,195,938
----------
Net realized and unrealized gain 1,164,494
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,463,726
==========
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,299,232 $ 2,711,641
Net realized loss (31,444) (510,474)
Change in net unrealized appreciation (depreciation) 1,195,938 (867,389)
----------- -----------
Net increase in net assets from operations 3,463,726 1,333,778
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (433,148) (2,424,991)
----------- -----------
Total distributions from net investment income (433,148) (2,424,991)
----------- -----------
Net share transactions: (Note 5)
Class III 3,367,641 27,894,644
----------- -----------
Increase in net assets resulting from net share
transactions 3,367,641 27,894,644
----------- -----------
Total increase in net assets 6,398,219 26,803,431
NET ASSETS:
Beginning of period 51,950,841 25,147,410
----------- -----------
End of period (including accumulated undistributed
net investment income of $2,273,487 and $407,403,
respectively) $58,349,060 $51,950,841
=========== ===========
</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 28/29,
AUGUST 31, 2000 -----------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.72 $ 9.88 $ 10.04 $ 10.00
------- ------- ------- -------
Income from investment operations:
Net investment income 0.41+ 0.65+ 0.61 0.42+
Net realized and unrealized gain (loss) 0.22 (0.30) (0.18) (0.04)
------- ------- ------- -------
Total from investment operations 0.63 0.35 0.43 0.38
------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.08) (0.51) (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 (0.08) (0.51) (0.59) (0.34)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.27 $ 9.72 $ 9.88 $ 10.04
======= ======= ======= =======
TOTAL RETURN(b) 6.44%++ 3.57% 4.28% 3.77%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $58,349 $51,951 $25,147 $25,660
Net operating expenses to average daily
net assets 0.25%** 0.25% 0.25% 0.25%**
Interest expense to average daily net
assets 0.44%** 0.45% -- --
Total net expenses to average daily net
assets 0.69%(c)** 0.70%(c) 0.25% 0.25%**
Net investment income to average daily net
assets 8.01%** 6.49% 4.93% 4.48%**
Portfolio turnover rate 11% 112% 94% 9%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ 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.
++ Not Annualized.
(a) The per share distribution from net realized gains was $0.002.
(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) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
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, 2000 (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 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.
At August 31, 2000, 3.4% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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. Shares of other
8
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Funds of the Trust are valued at their net asset value as reported on each
business day. Securities for which quotations are not 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.
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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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 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
9
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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 interest rate, forward swap spread
lock and total return swap agreements to manage its exposure to interest
rates. 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. Forward swap spread lock swap
agreements involve commitments to pay or receive a settlement amount
calculated as the difference between the swap spread and a fixed spread,
multiplied by the notional amount times the duration of the swap rate. The
swap spread is the difference between the benchmark swap rate (market
rate) and the specific treasury rate. Total return swap agreements involve
commitments to pay interest in exchange for a market linked return, both
based on notional amounts. 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. Swaps are marked to market daily
based upon quotations from market makers and the change in value, 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 included as part
of 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 the open swap agreement as of
August 31, 2000.
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.
10
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in
the name of the counterparty 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 the Fund has sold may
decline below the contracted repurchase price under the agreement. At
August 31, 2000, the Fund had entered into a reverse repurchase agreement
having a market value of $5,054,262, collateralized by a security with a
market value of $5,176,000. See Note 6 for a summary of open reverse
repurchase agreements as of August 31, 2000.
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000 the Fund had capital loss carryforwards available to
offset future capital gains, if any, in the amounts of $108,055 and
$600,546, expiring in 2007 and 2008, respectively. The value of the
capital loss carryforwards may be limited due to significant shareholder
activity.
11
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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 the inflation adjusted principal. Additionally, any increase in
the principal or face amount of the securities 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
Effective March 15, 2000, the Fund no longer charges a premium on cash
purchases or a fee on redemptions of Fund shares. Prior to March 15, 2000,
the premium on cash purchases and fee on redemptions of Fund shares was
.10% of the amount invested or redeemed. These fees were reduced by 50%
with respect to any portion of a purchase or redemption that was offset by
a corresponding redemption or purchase, respectively, occurring on the
same day. In addition, the purchase premium or redemption fee for the Fund
was reduced by 50% if the purchaser made an in-kind purchase of Fund
shares or if the purchase or redemption was part of a transfer from or to
another Fund where the Manager was able to transfer securities among the
Funds to effect the transaction. For the period March 1, 2000 through
March 15, 2000, the Fund received $104 in purchase premiums and no
redemption fees.
12
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $368. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- ----------
<S> <C> <C>
U.S. Government securities $10,199,061 $3,978,975
Investments (non-U.S. Government securities) 4,091,429 2,612,568
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$62,880,219 $449,171 $(322,306) $126,865
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 12.7% of the outstanding shares of the Fund were held
by one shareholder, which is another fund of the GMO Trust.
13
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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
August 31, 2000 February 29, 2000
----------------------- -----------------------
Shares Amount Shares Amount
Class III: ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 1,278,702 $12,907,458 2,953,506 $29,494,235
Shares issued to shareholders
in reinvestment of distributions 31,496 320,001 168,614 1,618,872
Shares repurchased (973,448) (9,859,818) (321,584) (3,218,463)
---------- ----------- ---------- -----------
Net increase 336,750 $ 3,367,641 2,800,536 $27,894,644
========== =========== ========== ===========
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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
9/12/00 NZD 1,000,000 $428,216 $(25,844)
========
Sales
9/12/00 NZD 1,000,000 $428,216 $ 41,784
========
</TABLE>
14
<PAGE>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENT
<TABLE>
<CAPTION>
Face Value Description Market Value
---------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
$5,054,262 Barclays Bank, 6.47%, dated 8/02/00, to be repurchased on demand $5,054,262
==========
at face value plus accrued interest.
</TABLE>
<TABLE>
<S> <C>
Average balance outstanding $3,954,302
Average interest rate 6.24%
Maximum balance outstanding $5,556,801
Average shares outstanding 5,651,168
Average balance per share outstanding $ .70
</TABLE>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Depreciation
----------- ---------- -------------------------------------------------- ------------
<C> <C> <S> <C>
FORWARD SWAP SPREAD LOCK SWAP
$15,000,000 4/04/01 Agreement with Morgan Guaranty Trust Company dated $(58,134)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
--------
$(58,134)
========
</TABLE>
15
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS -- 102.1%
ASSET BACKED SECURITIES -- 87.3%
40,000,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 7.10%, due 05/15/24 39,957,813
7,000,000 American Express Credit Account Master Trust Series 00-2 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 6.78%, due 09/17/07 7,006,836
4,000,000 American Express Credit Account Master Trust Series 98-1 Class A,
Variable Rate, 1 mo. LIBOR + .09% , 6.71%, due 01/17/06 4,000,937
16,000,000 American Express Credit Account Master Trust Series 99-5 Class A,
Variable Rate, 1 mo. LIBOR + .24%, 6.86%, due 02/15/07 16,060,625
15,000,000 Americredit Automobile Receivables Trust Series 00-B Class A4,
Variable Rate, 1 mo. LIBOR + .20%, 6.82%, due 04/05/07 14,981,250
9,961,000 Anfield Road I Ltd. Class A,
Variable Rate, 6 mo. LIBOR + .25%, 7.14%, due 11/06/06 9,814,698
30,000,000 Augusta Funding Ltd. Series 10A Class F1, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 7.03%, due 06/30/17 29,268,750
13,500,000 BEA CBO Series 98-1A Class A2A, 144A, 6.72%, due 06/15/10 12,065,625
30,500,000 Big Flower Receivables Master Trust Series 96-2 Class A,
Variable Rate, LIBOR + .25%, 6.87%, due 04/25/03 30,073,000
11,860,000 Brazos Student Loan Finance Corp Series 96-B Class A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 6.83%, due 12/01/02 11,860,000
27,000,000 Chevy Chase Master Credit Card Trust Series 98-A Class A,
Variable Rate, 1 mo. LIBOR + .15%, 6.77%, due 10/16/06 27,000,000
15,000,000 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due 01/15/10 13,809,375
2,800,000 Cigna CBO Ltd Series 96-1 Class A2, 144A, 6.46%, due 11/15/08 2,793,000
42,143,000 Discover Card Master Trust I Series 00-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 6.79%, due 08/16/07(a) 42,184,155
5,000,000 Discover Card Master Trust I Series 00-3 Class A,
Variable Rate, 1 mo. LIBOR + .12%, 6.74%, due 09/16/05 5,004,102
10,000,000 Discover Card Master Trust I series 00-5 Class A,
Variable Rate, 1 mo. LIBOR + .18%, 6.80%, due 11/15/07 10,016,406
16,645,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 6.97%, due 10/16/04(a) 16,697,016
10,000,000 Discover Card Master Trust I Series 97-3 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 6.75%, due 04/16/07 9,970,703
6,000,000 EMAC Series 98-1 Class A2, 144A, 6.38%, due 04/15/07 5,730,000
5,000,000 First Deposit Master Trust Series 96-1 Class A,
Variable Rate, 1 mo. LIBOR +.17%, 6.79%, due 08/15/07 5,007,617
5,000,000 First USA Credit Card Master Trust Series 98-5 Class A,
Variable Rate, 1 mo. LIBOR + .10%, 6.72%, due 04/18/06 4,998,437
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES -- CONTINUED
3,500,000 Fleet Credit Card Master Trust II Series 00-A Class A,
Variable Rate, 1 mo. LIBOR + .13%, 6.75%, due 07/15/05 3,503,145
16,753,846 Great Point CBO Ltd. Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 6.81%, due 10/15/10 16,641,281
5,000,000 Honda Auto Lease Trust Series 99-A Class A4, 6.45%, due 09/16/02 4,971,875
1,950,000 Keycorp Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 7.35%, due 11/25/21 1,948,477
9,000,000 MBNA Master Credit Card Trust Series 00-C Class A,
Variable Rate, 1 mo. LIBOR + .16%, 6.78%, due 07/15/07 9,007,031
10,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 6.83%, due 10/15/02 10,024,609
7,000,000 MBNA Master Credit Card Trust Series 96-A Class A,
Variable Rate, 1 mo. LIBOR + .21%, 6.83%, due 07/15/05 7,021,328
7,000,000 MBNA Master Credit Card Trust Series 97-1 Class B,
Variable Rate, 1 mo. LIBOR + .31%, 6.93%, due 01/15/07 6,990,156
23,450,000 MBNA Master Credit Card Trust Series 97-J Class A,
Variable Rate, 1 mo. LIBOR + .12%, 6.74%, due 02/15/07 23,437,176
4,000,000 MBNA Master Credit Card Trust Series 98-C Class B,
Variable Rate, 1 mo. LIBOR + .25%, 6.87%, due 11/15/05 3,994,688
7,000,000 MBNA Master Credit Card Trust Series 98-D Class B,
Variable Rate, 1 mo. LIBOR + .25%, 6.87%, due 12/15/05 6,980,586
10,000,000 Meridian Fund Co LLC, 144A,
Variable Rate, 3 mo. LIBOR +.30%, 7.01%, due 08/10/10 10,000,000
5,000,000 Navistar Financial Dealer Note Master Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .15%, 6.77%, due 08/25/03 4,995,703
8,000,000 Neiman Marcus Group Credit Card Master Trust Series 00-1 Class A,
Variable Rate, 1 mo. LIBOR + .27%, 6.89%, due 04/15/08 8,000,000
2,500,000 Nomura CBO Ltd Series 97-2 Class A2, Step up, 6.26%, due 10/30/09 2,381,250
19,095,742 Northstar CBO Ltd. Series 97-2 Class A2, 144A,
Variable Rate, Step Up, 6.62%, due 07/15/09 18,021,607
14,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due 02/01/03 13,724,375
10,000,000 NPF XII, Inc. Series 00-1 Class A,
Variable Rate, 1 mo. LIBOR +.48% , 7.17%, due 03/01/03 9,971,875
25,000,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due 06/01/03 24,750,000
10,000,000 Pacific Life CBO Series 98-1A Class A2A, 144A,
Variable Rate, Step Up, 6.56%, due 02/15/10 9,362,500
28,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 09/15/09 26,810,000
29,057,712 SHYPPCO Finance Company Series 1I Class A-2B, 6.64%, due 06/15/10 27,052,730
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES -- CONTINUED
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 7.27%, due 04/25/25 4,932,000
5,966,000 SMS Student Loan Trust Series 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 7.32%, due 07/26/21 5,976,254
5,257,000 SMS Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 7.37%, due 10/25/23 5,275,892
2,694,168 SMS Student Loan Trust Series 94-B Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 6.92%, due 04/25/16 2,703,429
5,008,000 Society Student Loan Trust Series 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 7.37%, due 07/25/03 5,002,992
12,534,172 Starvest Emerging Markets CBO-I Series 1A, Class A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 7.08%, due 07/30/11 12,230,610
5,500,000 Student Loan Marketing Association Series 96-4 Class A2,
Variable Rate, 3 mo. U.S. Treasury Bill + .64%, 6.96%, due 07/25/09 5,415,781
14,463,000 Team Fleet Financing Corp Series 98-3A Class A, 144A, 6.13%, due 10/25/04 13,970,354
17,696,742 The Money Store Business Loan Backed Trust Series 99-1 Class AN,
Variable Rate, 1 mo. LIBOR +.50%, 7.12%, due 09/15/17 17,779,695
10,000,000 Volkswagen Credit Auto Master Trust Series 2000-1 Class A,
Variable Rate, 1 mo. LIBOR +.16%, 6.78%, due 08/20/07 10,000,000
-----------
651,177,744
-----------
CORPORATE DEBT -- 6.7%
11,250,000 Banco Santander, Series MBIA, 6.50%, due 11/01/05 10,673,438
9,719,383 Continental Airlines Series 99-1A, 6.55%, due 02/02/19 8,941,832
3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25%, 6.78%, due 10/03/01 3,001,500
24,650,000 Pemex Finance Ltd. Series 1A1 Class A2, 144A, 6.30%, due 05/15/10 22,648,420
5,000,000 Westralia Airports Corp, 144A, 6.48%, due 04/01/10 4,612,500
-----------
49,877,690
-----------
STRUCTURED NOTES -- 0.7%
6,183,333 Polaris Funding Company, Series EMTN,
Variable Rate, 1 mo. LIBOR + .45%, 7.07%, due 01/07/05 5,653,885
-----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($)/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY -- 7.4%
1,350,000 Agency for International Development Floater (Support of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 6.87%, due 01/01/14 1,317,094
5,209,375 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 6.77%, due 10/01/12 5,057,978
2,301,386 Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 6.75%, due 10/01/11 2,220,837
10,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 6.81%, due 02/01/27 9,800,000
15,000,000 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR + .15%, 6.96%, due 10/29/26 14,737,500
1,625,161 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 6.83%, due 11/15/14 1,581,484
3,058,004 Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 6.67%, due 05/01/14 2,939,507
100,000 Agency for International Development Floater (Support of Peru),
Variable Rate, 3 mo. U.S. Treasury Bill x 114%, 6.70%, due 02/01/02 99,563
1,916,667 Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 6.63%, due 01/01/12 1,842,396
1,000,000 Federal Farm Credit Bank,
Variable Rate, CPI + 3.00%, 6.76%, due 02/14/02 974,160
2,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%, due 02/15/02(b) 1,952,300
804,000 Ship Co 668, Series A, 8.50%, due 05/11/02 804,000
1,732,625 Small Business Administration Series 95-C, 6.88%, due 09/01/05 1,688,443
10,650,000 Tennessee Valley Authority Series B, 6.24%, due 07/15/45 10,591,532
-----------
55,606,794
-----------
TOTAL DEBT OBLIGATIONS (COST $760,897,963) 762,316,113
-----------
PUT OPTIONS PURCHASED -- 0.0%
OPTIONS ON FUTURES -- 0.0%
10,000,000 Eurodollar, Expires 9/18/00, Strike 93.25 50,000
-----------
TOTAL PUT OPTIONS PURCHASED (COST $241,750) 50,000
-----------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.4%
COMMERCIAL PAPER -- 0.4%
$ 2,600,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 2,600,000
------------
REPURCHASE AGREEMENT -- 0.0%
$ 80,120 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $80,133
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $90,926. 80,120
------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,680,120) 2,680,120
------------
TOTAL INVESTMENTS -- 102.5%
(Cost $763,819,833) 765,046,233
Other Assets and Liabilities (net) -- (2.5%) (18,639,123)
------------
TOTAL NET ASSETS -- 100.0% $746,407,110
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
<TABLE>
<S> <C>
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.
CBO - Collateralized Bond Obligation
CPI - Consumer Price Index
EMTN - Euromarket Medium Term Note
MBIA - Municipal Bond Insurance Association
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
</TABLE>
(a) All or a portion of this security has been segregated to cover collateral
requirements on reverse repurchase agreements (Note 6).
(b) 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. 5
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $763,819,833) (Note 1) $765,046,233
Interest receivable 6,317,856
Receivable for open swap contracts (Notes 1 and 6) 689,874
Receivable for expenses waived or borne by Manager (Note 2) 10,323
------------
Total assets 772,064,286
------------
LIABILITIES:
Payable for variation margin on open futures contracts (Notes 1 and 6) 549,403
Payable for reverse repurchase agreements (Notes 1 and 6) 24,783,612
Accrued expenses and other liabilities 324,161
------------
Total liabilities 25,657,176
------------
NET ASSETS $746,407,110
============
NET ASSETS CONSIST OF:
Paid-in capital $731,664,264
Accumulated undistributed net investment income 15,528,599
Accumulated net realized loss (2,332,916)
Net unrealized appreciation 1,547,163
------------
$746,407,110
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $746,407,110
============
SHARES OUTSTANDING:
Class III 28,841,501
============
NET ASSET VALUE PER SHARE:
Class III $ 25.88
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $16,221,582
-----------
Total income 16,221,582
-----------
EXPENSES:
Interest expense (Notes 1 and 6) 687,732
Custodian and transfer agent fees 25,208
Audit fees 21,896
Legal fees 9,568
Trustees fees (Note 2) 2,300
Miscellaneous 1,012
Fees waived or borne by Manager (Note 2) (59,984)
-----------
Net expenses 687,732
-----------
Net investment income 15,533,850
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments (419,746)
Closed futures contracts (2,107,682)
-----------
Net realized loss (2,527,428)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,114,626
Open futures contracts (137,631)
Open swap contracts 413,037
-----------
Net unrealized gain 1,390,032
-----------
Net realized and unrealized loss (1,137,396)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,396,454
===========
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 31, 1999
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2000 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 29, 2000
---------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 15,533,850 $ 3,505,641
Net realized gain (loss) (2,527,428) 194,512
Change in net unrealized appreciation (depreciation) 1,390,032 157,131
------------ ------------
Net increase in net assets from operations 14,396,454 3,857,284
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (3,510,892) --
------------ ------------
Total distributions from net investment income (3,510,892) --
------------ ------------
Net share transactions: (Note 5)
Class III 397,420,581 334,243,683
------------ ------------
Increase in net assets resulting from net share
transactions 397,420,581 334,243,683
------------ ------------
Total increase in net assets 408,306,143 338,100,967
NET ASSETS:
Beginning of period 338,100,967 --
------------ ------------
End of period (including accumulated undistributed
net investment income of $15,528,599 and
$3,505,641, respectively) $746,407,110 $338,100,967
============ ============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 31, 1999
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2000 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 29, 2000
---------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.29 $ 25.00
-------- --------
Income from investment operations:
Net investment income 0.91++ 0.26
Net realized and unrealized gain (loss) (0.09) 0.03
-------- --------
Total from investment operations 0.82 0.29
-------- --------
Less distributions to shareholders:
From net investment income (0.23) --
-------- --------
Total distributions (0.23) --
-------- --------
NET ASSET VALUE, END OF PERIOD $ 25.88 $ 25.29
======== ========
TOTAL RETURN(a) 3.26%+ 1.16%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $746,407 $338,101
Net operating expenses to average daily net assets 0.00%* 0.00%*
Interest expense to average daily net assets 0.31%* 0.40%*
Total net expenses to average daily net assets 0.31%*(c) 0.40%*(c)
Net investment income to average daily net assets 7.02%* 6.77%*
Portfolio turnover rate 16% 4%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share
amounts: --(b) --(b)
</TABLE>
(a) 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.
(c) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
* Annualized.
+ Not annualized.
++ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 9
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Alpha LIBOR Fund (the "Fund") , which commenced operations on
December 31, 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, 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 by investing primarily in relatively high
quality, low volatility fixed income instruments. The Fund's benchmark is
the 3 month London Inter-Bank Offer Rate ("LIBOR") Index.
Shares of Alpha LIBOR Fund are not publicly available for direct purchase.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not
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 a pricing source should it deem it
appropriate.
10
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
The Manager is informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and at its discretion
may override a price supplied by a source (by taking a price supplied by
another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
11
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000.
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 amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000 the Fund had
no written option contracts outstanding.
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
12
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
the current value of the option. Premiums paid for purchasing options
which expire are treated as realized losses. The risk associated with
purchasing put and call options is limited to the premium paid. Premiums
paid for purchasing options which are exercised or closed are added to the
amounts paid or offset against the proceeds on the underlying future,
security or currency transaction to determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the "lender") that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. 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, both based on notional
amounts. Forward swap spread lock swap agreements involve
13
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Commitments to pay or receive a settlement amount calculated as the
difference between the swap spread and a fixed spread, multiplied by the
notional amount times the duration of the swap rate. The swap spread is
the difference between the benchmark swap rate (market rate) and the
specific treasury rate. 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. 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. 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 included as part of 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, 2000.
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 in
the name of the counterparty equal in value to its obligations in respect
of reverse repurchase agreements. Reverse repurchase agreements
14
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
involve the risk that the market value of the securities the Fund has sold
may decline below the contractual repurchase price under the agreement. At
August 31, 2000, the Fund had entered into three reverse repurchase
agreements each having a market value of $9,877,000, 5,064,442 and
9,842,170, respectively, collateralized by securities with an aggregate
market value of $25,186,035. See Note 6 for a summary of open reverse
repurchase agreements as of August 31, 2000.
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
15
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 these
securities 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
Effective July 26, 2000, the Fund no longer charges a purchase premium.
Prior to July 26, 2000, the premium on cash purchases of Fund shares was
.05% of the amount invested. The premium was waived with respect to any
portion of a purchase that was offset by a corresponding redemption
occurring on the same day. In addition, the purchase premium for the Fund
was waived if the purchaser made an in-kind purchase of Fund shares. For
the period March 1, 2000 through July 26, 2000, the Fund received $63,174
in purchase premiums. There is no premium for redemptions or reinvested
distributions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO does not charge the Fund any management or service fees. In addition,
GMO has contractually agreed to reimburse all of the Fund's expenses
(excluding brokerage commissions and other investment-related costs,
hedging transaction fees, extraordinary, non-recurring and certain other
unusual expenses (including taxes), securities lending fees and expenses,
interest expense and transfer taxes) until June 30, 2001.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $2,300. 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, 2000,
aggregated $494,341,452 and $77,831,875, respectively.
16
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$763,819,833 $2,079,985 $(853,585) $1,226,400
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 100% of the outstanding shares of the Fund were held
by other Funds of the GMO Trust.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
December 31, 1999
(commencement of
Six Months Ended operations)
August 31, 2000 through February 29, 2000
-------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 20,473,533 $ 525,626,876 13,962,351 $349,243,683
Shares issued to shareholders in reinvestment
of distributions 137,037 3,510,892 -- --
Shares repurchased (5,136,387) (131,717,187) (595,033) (15,000,000)
----------- ------------- ----------- ------------
Net increase 15,474,183 $ 397,420,581 13,367,318 $334,243,683
=========== ============= =========== ============
</TABLE>
17
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Depreciation
--------------------------- --------------------------------------------- --------------- ----------- --------------
<C> <S> <C> <C> <C>
Sales
416 U.S. Treasury Note 10 Yr. December 2000 $41,632,500 $(102,892)
981 U.S. Treasury Note 5 Yr. December 2000 98,161,313 (266,219)
---------
$(369,111)
=========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
REVERSE REPURCHASE AGREEMENTS
<TABLE>
<CAPTION>
Face Value Description Market Value
---------- ------------------------------------------------------- ------------
<C> <S> <C>
$9,877,000 Barclays Bank, 6.86%, dated 6/6/00, to be repurchased
at $10,050,155 on 9/6/00. $ 9,877,000
5,064,442 Barclays Bank, 6.65%, dated 7/12/00, to be repurchased
at $5,225,351 on 12/31/00. 5,064,442
9,842,170 Barclays Bank, 6.98%, dated 8/3/00, to be repurchased
at $10,197,112 on 2/5/01. 9,842,170
-----------
$24,783,612
===========
</TABLE>
<TABLE>
<S> <C>
Average balance outstanding 20,583,642
Average interest rate 6.61%
Maximum balance outstanding 39,383,137
Average shares outstanding 17,196,544
Average balance per share outstanding 1.20
</TABLE>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
18
<PAGE>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
----------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
FORWARD SWAP SPREAD LOCK SWAPS
$10,000,000 4/04/01 Agreement with Morgan Guaranty Trust Company dated $(38,756)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
17,000,000 5/16/01 Agreement with UBS AG dated 5/12/00 to pay 93,185
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE SWAPS
30,000,000 1/12/07 Agreement with UBS AG dated 1/10/00 to pay the (395,626)
notional amount multiplied by 7.2175% and to
receive the notional amount multiplied by 3 month
LIBOR adjusted for a specific spread.
30,000,000 2/07/07 Agreement with Morgan Guaranty Trust Company dated 719,740
2/03/00 to receive the notional amount multiplied
by 7.395% and to pay the notional amount by
3 month LIBOR adjusted by a specific spread.
9,000,000 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 160,436
notional amount multiplied by 7.23% and to pay the
notional amount by 3 month LIBOR adjusted by a
specific spread.
5,000,000 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 150,895
notional amount multiplied by 7.406% and to pay
the notional amount by 3 month LIBOR adjusted by a
specific spread.
--------
$689,874
========
</TABLE>
19
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 95.1%
AEROSPACE -- 1.1%
67,500 Boeing Co 3,619,687
48,700 General Dynamics Corp 3,065,056
445,400 Lockheed Martin Corp 12,638,225
138,800 Northrop Grumman Corp 10,800,375
54,300 Textron Inc 3,044,194
90,000 TRW Inc 4,111,875
--------------
37,279,412
--------------
AUTOMOTIVE -- 3.7%
318,000 Autonation Inc* 2,067,000
179,100 Dana Corp 4,421,531
183,100 Delphi Automotive Systems 3,009,706
92,200 Eaton Corp 6,119,775
1,475,285 Ford Motor Co* 35,683,453
776,816 General Motors Corp 56,076,405
202,726 General Motors Corp, Class H* 6,715,299
147,000 Genuine Parts Co 3,022,687
331,600 Goodyear Tire & Rubber Co 7,751,154
--------------
124,867,010
--------------
BANKING AND FINANCIAL SERVICES -- 15.9%
235,700 Amsouth Bancorp 4,301,525
195,800 Associates First Capital Corp 5,506,875
290,509 Bank of America Corp 15,560,388
176,179 Bear Stearns Cos Inc 11,815,004
82,300 Charter One Financial Inc 1,954,625
575,200 Chase Manhattan Corp 32,139,300
3,156,647 Citigroup Inc 184,269,249
40,300 Comerica Inc 2,269,394
180,400 Countrywide Credit Industries Inc 6,832,650
75,600 Donaldson Lufkin & Jenrette 6,690,600
794,200 Fannie Mae 42,688,250
774,500 Firstar Corp 18,491,187
419,800 Fleet Boston Financial Corp 17,920,212
238,500 Franklin Resources Inc 9,063,000
490,000 Freddie Mac 20,641,250
241,800 Golden West Financial Corp 11,515,725
212,900 Household International Inc 10,219,200
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
118,000 J.P. Morgan & Co Inc 19,728,125
89,700 Lehman Brothers Holding Inc 13,006,500
2,900 M & T Bank Corp 1,405,594
614,300 MBNA Corp 21,692,469
287,200 Merrill Lynch 41,644,000
177,000 MGIC Investment Corp 10,409,812
36,245 Old Kent Financial Corp 1,062,432
167,300 Paine Webber Group Inc 11,961,950
77,200 State Street Corp 9,090,300
6,900 Summit Bancorp 191,044
79,300 UnionBanCal Corp 1,967,631
82,000 Washington Mutual Inc 2,870,000
60,800 Wells Fargo & Co 2,625,800
--------------
539,534,091
--------------
CHEMICALS -- 1.3%
208,800 Air Products and Chemicals 7,582,050
84,600 Du Pont (E.I.) De Nemours 3,796,425
75,600 Eastman Chemical Co 3,260,250
279,500 PPG Industries Inc 11,319,750
221,200 Praxair Inc 9,788,100
174,600 Sherwin Williams Co 4,015,800
138,500 Union Carbide Corp 5,548,656
--------------
45,311,031
--------------
COMPUTER AND OFFICE EQUIPMENT -- 11.1%
209,900 Advanced Micro Devices Inc* 7,897,487
89,600 Apple Computer Inc* 5,460,000
1,010,900 Cisco Systems Inc* 69,246,650
408,500 Computer Associates International Inc 12,969,875
424,200 EMC Corp* 41,571,600
142,900 Gateway Inc* 9,731,490
46,900 Hewlett Packard Co 5,663,175
71,200 IBM Corp 9,398,400
152,300 Micron Technology Inc* 12,450,525
1,504,800 Oracle Corp* 136,842,750
505,900 Sun Microsystems Inc* 64,217,681
--------------
375,449,633
--------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
CONSTRUCTION -- 0.4%
248,300 Georgia-Pacific Corp 6,642,025
118,850 Home Depot Inc 5,712,228
--------------
12,354,253
--------------
CONSUMER GOODS -- 1.4%
236,600 Eastman Kodak Co 14,728,350
139,100 Fortune Brands Inc 3,547,050
67,500 Johnson Controls 3,607,031
291,900 Jones Apparel Group Inc* 7,151,550
21,200 Newell Rubbermaid Inc 549,875
133,600 Nike Inc, Class B 5,285,550
116,200 Procter and Gamble Co 7,182,612
116,900 VF Corp 2,674,087
65,400 Whirlpool Corp 2,485,200
--------------
47,211,305
--------------
ELECTRONIC EQUIPMENT -- 5.7%
77,100 ADC Telecommunications Inc* 3,156,281
270,700 American Power Conversion Corp* 6,446,044
94,400 Analog Devices Inc* 9,487,200
90,200 Applied Micro Circuits Corp* 18,304,962
378,800 Atmel Corp* 7,576,000
213,100 AVX Corp 6,379,681
76,900 Ciena Corp* 17,047,769
131,200 Conexant Systems Inc* 4,879,000
73,200 Cypress Semiconductor Corp* 3,618,825
259,600 Emerson Electric Co 17,182,275
649,000 General Electric Co 38,088,187
155,200 National Semiconductor Corp* 6,906,400
65,200 PMC-Sierra Inc* 15,387,200
82,800 Qualcomm Inc* 4,957,650
274,900 Raytheon Co, Class B 7,645,656
9,800 Scientific Atlanta Inc 763,787
42,300 SDL Inc* 16,806,319
145,900 Texas Instruments Inc 9,766,181
--------------
194,399,417
--------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT & LEISURE -- 0.1%
140,900 Fox Entertainment Group Inc, Class A* 4,077,294
--------------
FOOD AND BEVERAGE -- 2.2%
55,600 Anheuser Busch Cos Inc 4,381,975
510,957 Archer Daniels Midland Co 4,502,810
33,100 Bestfoods 2,337,687
246,500 Coca Cola Co 12,972,062
398,400 ConAgra Inc 7,295,700
25,200 General Mills Co 809,550
28,200 Heinz (HJ) Co 1,075,125
415,700 Nabisco Group Holdings 11,665,581
62,200 Pepsico Inc 2,651,275
16,600 Ralston-Purina Group 375,575
93,900 Sara Lee Corp 1,748,887
282,000 Seagrams Co Ltd 16,972,875
36,300 Sysco Corp 1,535,944
80,700 Wrigley (William Jr) Co 5,976,844
--------------
74,301,890
--------------
HEALTH CARE -- 2.3%
12,900 Baxter International Inc 1,073,925
594,800 Boston Scientific Corp* 11,264,025
16,600 Cardinal Health Inc 1,358,087
72,500 Celera Genomics Group* 7,861,719
352,900 HCA - The Healthcare Company 12,175,050
233,100 Johnson & Johnson 21,430,631
25,800 Medtronic Inc 1,322,250
39,500 Stryker Corp 1,770,094
381,600 Tenet Healthcare Corp 11,829,600
98,900 Wellpoint Health Network* 8,536,306
--------------
78,621,687
--------------
INSURANCE -- 5.1%
233,500 Aetna Inc 13,061,406
734,000 Allstate Corp 21,331,875
83,600 AMBAC Inc 5,402,650
134,900 American General Corp 9,822,406
173,200 AXA Financial Inc 8,963,100
168,800 Chubb Corp 12,923,750
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
112,300 Cigna Corp 10,921,175
77,500 CNA Financial Corp* 3,075,781
368,836 Conseco Inc 3,112,054
244,400 Hartford Financial Services Group Inc 16,283,150
74,400 Jefferson Pilot Corp 4,924,350
142,200 Lincoln National Corp 7,678,800
135,600 Loews Corp 10,975,125
145,600 MBIA Inc 9,573,200
241,200 Saint Paul Cos Inc 11,487,150
120,000 Torchmark Corp 3,367,500
146,500 UnitedHealth Group Inc 13,844,250
235,100 Unumprovident Corp 5,098,731
--------------
171,846,453
--------------
MACHINERY -- 1.2%
226,100 Applied Materials Inc* 19,515,256
149,700 Caterpillar Inc 5,501,475
245,600 Deere and Co 8,089,450
93,300 Ingersoll Rand Co 4,250,981
89,000 Parker-Hannifin Corp 3,098,312
--------------
40,455,474
--------------
MANUFACTURING -- 1.6%
93,800 Corning Inc 30,760,537
59,800 Gillette Co 1,794,000
176,700 Leggett & Platt Inc 3,125,381
120,900 Minnesota Mining and Manufacturing Co 11,243,700
188,000 Owens Illinois Inc* 2,455,750
128,900 Rockwell International Corp 5,212,394
--------------
54,591,762
--------------
METALS AND MINING -- 0.5%
291,700 Alcan Aluminum Ltd 9,571,406
148,400 Phelps Dodge Corp 6,603,800
--------------
16,175,206
--------------
OIL AND GAS -- 3.2%
104,000 Amerada Hess Corp 7,117,500
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
OIL AND GAS -- CONTINUED
16,500 Anadarko Petroleum Corp 1,085,205
97,600 Apache Corp 6,148,800
206,000 Burlington Resources Inc 8,098,375
73,900 Chevron Corp 6,244,550
112,950 Columbia Energy Group 7,927,678
219,500 Diamond Offshore Drilling Inc 9,836,344
275,805 Exxon Mobil Corp 22,512,583
22,600 Kerr-McGee Corp 1,428,037
284,300 Occidental Petroleum Corp 6,147,987
120,700 Phillips Petroleum Co 7,468,312
248,400 Texaco Inc 12,792,600
39,400 Unocal Corp 1,314,975
291,900 USX - Marathon Group 8,009,006
24,200 Vastar Resources Inc 2,002,550
--------------
108,134,502
--------------
PAPER AND ALLIED PRODUCTS -- 0.8%
458,825 International Paper Co 14,625,047
55,000 Kimberly-Clark Corp 3,217,500
86,900 Mead Corp 2,330,006
122,700 Weyerhaeuser Co 5,682,544
--------------
25,855,097
--------------
PHARMACEUTICALS -- 5.5%
974,500 Abbott Laboratories 42,634,375
306,200 Amgen Inc* 23,213,788
620,700 Bristol Myers Squibb Co 32,897,100
63,600 Ivax Corp* 2,202,150
55,200 Lilly (Eli) & Co 4,029,600
147,900 McKesson HBOC Inc 3,688,256
251,600 Merck & Co Inc 17,580,550
562,100 Pfizer Inc 24,310,825
97,600 Pharmacia Corp 5,715,700
747,600 Schering Plough Corp 29,997,450
17,900 Watson Pharmaceutical Inc* 1,104,206
--------------
187,374,000
--------------
PRIMARY PROCESSING -- 0.2%
54,200 Dow Chemical Co 1,419,363
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
PRIMARY PROCESSING -- CONTINUED
165,500 Nucor Corp 6,082,125
--------------
7,501,488
--------------
PRINTING AND PUBLISHING -- 0.2%
87,900 Knight Ridder Inc 4,801,538
--------------
REFINING -- 0.8%
360,500 Royal Dutch Petroleum Co 22,058,094
198,100 Tosco Corp 6,042,050
--------------
28,100,144
--------------
RETAIL TRADE -- 3.2%
805,152 Albertsons Inc 17,310,768
224,400 Autozone Inc* 5,049,000
565,800 Federated Department Stores Inc* 15,630,225
1,118,500 Kmart Corp* 7,829,500
352,100 May Department Stores Co 8,076,294
99,900 McDonald's Corp 2,984,513
711,200 Office Depot Inc* 5,200,650
224,900 Penney (JC) Co Inc 3,148,600
138,000 Safeway Inc* 6,805,125
630,100 Sears Roebuck & Co 19,651,244
550,100 Toys R Us Inc* 10,004,944
151,700 Wal Mart Stores Inc 7,196,269
--------------
108,887,132
--------------
SERVICES -- 1.3%
196,100 Ceridian Corp* 4,743,169
119,000 Marriott International Inc, Class A 4,700,500
20,100 Millennium Pharmaceuticals Inc* 2,876,813
161,000 Paychex Inc 7,184,625
167,800 Robert Half International Inc* 5,338,138
194,600 The Walt Disney Co 7,577,238
664,400 Waste Management Inc 12,582,075
--------------
45,002,558
--------------
TECHNOLOGY -- 9.8%
20,200 Adobe Systems Inc 2,626,000
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
375,800 BEA Systems Inc* 25,577,888
698,700 BMC Software Inc* 18,864,900
86,800 Brocade Communications Systems Inc* 19,600,525
962,500 Honeywell International Inc 37,116,406
94,500 i2 Technologies Inc* 15,988,219
229,300 Infospace Inc* 8,942,700
1,311,300 Intel Corp 98,183,588
166,960 JDS Uniphase Corp* 20,807,390
102,000 KLA Instruments Corp* 6,693,750
160,700 Microsoft Corp* 11,218,869
96,300 Network Appliance Inc* 11,267,100
104,800 Siebel Systems Inc* 20,645,600
213,400 Veritas Software Corp* 25,728,038
243,900 Vignette Corp* 9,298,688
--------------
332,559,661
--------------
TELECOMMUNICATIONS -- 9.7%
2,037,082 AT & T Corp 64,168,083
737,300 AT & T Liberty Media Group* 15,759,788
261,900 Bellsouth Corp 9,772,144
170,700 McLeodUSA Inc* 2,699,194
194,600 Nextel Communications Inc, Class A* 10,788,138
776,600 Nortel Networks Corp 63,341,438
43,100 PanAmSat Corp* 1,398,056
103,461 Qwest Communications International Inc* 5,341,174
40,400 Redback Networks Inc* 6,034,750
1,078,266 SBC Communications Inc 45,017,606
289,800 Sprint Corp (PCS Group)* 14,544,338
57,100 Telephone and Data Systems Inc 6,623,600
41,900 United States Cellular Corp* 3,082,269
859,490 Verizon Communications 37,495,251
317,224 Viacom Inc, Class B* 21,353,141
604,827 WorldCom Inc* 22,076,186
--------------
329,495,156
--------------
TOBACCO -- 1.3%
1,443,200 Philip Morris Cos Inc 42,754,800
--------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- 1.9%
341,600 AMR Corp* 11,208,750
660,400 Burlington Northern Santa Fe Railroad Co 14,776,450
287,600 CSX Corp 6,866,450
194,700 Delta Air Lines Inc 9,637,650
306,600 Norfolk Southern Corp 4,924,763
133,300 UAL Corp 6,365,075
229,700 Union Pacific Corp 9,130,575
--------------
62,909,713
--------------
UTILITIES -- 3.6%
49,000 AES Corp* 3,123,750
97,300 Ameren Corp 3,934,569
140,200 American Electric Power Inc 4,942,050
64,600 Cinergy Corp 1,897,625
129,900 Coastal Corp 8,946,863
152,800 Consolidated Edison Inc 4,784,550
126,400 Constellation Energy Group Inc 4,834,800
52,700 Dominion Resources Inc 2,793,100
281,900 DTE Energy Co 9,796,025
179,200 Edison International 3,707,200
71,800 El Paso Energy Corp 4,182,350
509,500 Entergy Corp 15,507,906
218,000 Firstenergy Corp 5,395,500
100,700 FPL Group Inc 5,374,863
242,200 General Public Utilities Inc 7,417,375
103,100 Keyspan Corp 3,550,506
133,000 Niagara Mohawk Holdings Inc* 1,712,375
263,000 PG & E Corp 7,610,563
32,300 Pinnacle West Capital Corp 1,330,356
27,200 Potomac Electric Power Co 685,100
84,000 Public Service Enterprise Group Inc 3,045,000
58,500 Reliant Energy Inc 2,171,813
30,500 Teco Energy Inc 749,156
253,700 TXU Corp 8,863,644
182,495 Xcel Energy Inc 4,573,781
--------------
120,930,820
--------------
TOTAL COMMON STOCKS (COST $2,826,511,492) 3,220,782,527
--------------
</TABLE>
See accompanying notes to the financial statements.
9
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 12.7%
CASH EQUIVALENTS -- 7.5%
$ 12,459,210 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(a) 12,459,210
$ 82,730,823 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(a) 82,730,823
11,003,453 Merrimac Cash Fund Premium Class(a) 11,003,453
$ 148,000,000 Prudential Securities Group, Inc. Master Note, 6.96%,
due 12/08/00(a) 148,000,000
--------------
254,193,486
--------------
U.S. GOVERNMENT -- 0.4%
$ 14,500,000 U.S. Treasury Bill, 5.94%, due 12/07/00(b) 14,260,895
--------------
REPURCHASE AGREEMENT -- 4.8%
$ 160,549,567 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of
$160,575,122 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a rate
of 9.25%, maturity date of 2/15/16 and market value,
including accrued interest, of $163,770,242. 160,549,567
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $429,010,981) 429,003,948
--------------
TOTAL INVESTMENTS -- 107.8%
(Cost $3,255,522,473) 3,649,786,475
Other Assets and Liabilities (net) -- (7.8%) (262,784,624)
--------------
TOTAL NET ASSETS -- 100.0% $3,387,001,851
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
* 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 open financial futures contracts (Note 6).
10 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $3,255,522,473) (Note 1) $3,649,786,475
Receivable for investments sold 103,610,937
Dividends and interest receivable 4,871,820
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 816,752
Receivable for expenses waived or borne by Manager (Note
2) 67,288
--------------
Total assets 3,759,153,272
--------------
LIABILITIES:
Payable for investments purchased 114,892,428
Payable upon return of securities loaned (Note 1) 254,193,486
Payable for Fund shares repurchased 1,581,322
Payable to affiliate for (Note 2):
Management fee 914,729
Shareholder service fee 366,021
Accrued expenses 203,435
--------------
Total liabilities 372,151,421
--------------
NET ASSETS $3,387,001,851
==============
NET ASSETS CONSIST OF:
Paid-in capital $2,803,742,267
Accumulated undistributed net investment income 7,499,473
Accumulated net realized gain 178,619,624
Net unrealized appreciation 397,140,487
--------------
$3,387,001,851
==============
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 115,989,019
==============
Class III shares $1,745,409,001
==============
Class IV shares $1,525,603,831
==============
SHARES OUTSTANDING:
Class II 6,722,236
==============
Class III 101,025,147
==============
Class IV 88,370,508
==============
NET ASSET VALUE PER SHARE:
Class II $ 17.25
==============
Class III $ 17.28
==============
Class IV $ 17.26
==============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $154,973) $ 23,492,229
Interest (including securities lending income of
$400,473) 4,701,135
------------
Total income 28,193,364
------------
EXPENSES:
Management fee (Note 2) 5,351,329
Custodian and transfer agent fees 247,848
Legal fees 82,892
Audit fees 25,024
Trustees fees (Note 2) 20,240
Miscellaneous 20,148
Fees waived or borne by Manager (Note 2) (396,152)
------------
5,351,329
Shareholder service fee (Note 2)
Class II 113,356
Class III 1,271,850
Class IV 758,299
------------
Net expenses 7,494,834
------------
Net investment income 20,698,530
------------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 186,074,736
Closed futures contracts 4,525,890
------------
Net realized gain 190,600,626
------------
Change in net unrealized appreciation (depreciation) on:
Investments 208,251,019
Open futures contracts 3,448,600
------------
Net unrealized gain 211,699,619
------------
Net realized and unrealized gain 402,300,245
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $422,998,775
============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 20,698,530 $ 43,607,224
Net realized gain 190,600,626 818,467,480
Change in net unrealized appreciation (depreciation) 211,699,619 (425,892,647)
-------------- --------------
Net increase in net assets from operations 422,998,775 436,182,057
-------------- --------------
Distributions to shareholders from:
Net investment income
Class II (579,442) (1,009,817)
Class III (10,149,987) (21,707,190)
Class IV (8,835,493) (21,473,272)
-------------- --------------
Total distributions from net investment income (19,564,922) (44,190,279)
-------------- --------------
Net realized gains
Class II (8,499,345) (19,476,292)
Class III (137,001,208) (357,534,849)
Class IV (117,333,134) (322,165,035)
-------------- --------------
Total distributions from net realized gains (262,833,687) (699,176,176)
-------------- --------------
(282,398,609) (743,366,455)
-------------- --------------
Net share transactions: (Note 5)
Class II 16,413,885 64,741,476
Class III 47,476,659 1,301,568
Class IV 120,275,762 (61,972,966)
-------------- --------------
Increase in net assets resulting from net share
transactions 184,166,306 4,070,078
-------------- --------------
Total increase (decrease) in net assets 324,766,472 (303,114,320)
NET ASSETS:
Beginning of period 3,062,235,379 3,365,349,699
-------------- --------------
End of period (including accumulated undistributed
net investment income of $7,499,473 and $6,365,865,
respectively) $3,387,001,851 $3,062,235,379
============== ==============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -------------------------------------------------------------
(UNAUDITED) 2000 1999 1998(1) 1997(2) 1997(3)
---------------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 18.57 $ 19.98 $ 17.65 $ 20.10 $ 20.12
-------- ------- ------- ------- ----------- -------
Income from investment operations:
Net investment income 0.10+ 0.23+ 0.25+ 0.04+ 0.24+ 0.25
Net realized and unrealized gain 2.07 2.29 2.55 2.29 3.99 2.92
-------- ------- ------- ------- ----------- -------
Total from investment operations 2.17 2.52 2.80 2.33 4.23 3.17
-------- ------- ------- ------- ----------- -------
Less distributions to shareholders:
From net investment income (0.10) (0.24) (0.29) -- (0.22) (0.30)
From net realized gains (1.44) (4.23) (3.92) -- (3.90) (2.89)
-------- ------- ------- ------- ----------- -------
Total distributions (1.54) (4.47) (4.21) -- (4.12) (3.19)
-------- ------- ------- ------- ----------- -------
NET ASSET VALUE, END OF PERIOD $ 17.25 $ 16.62 $ 18.57 $ 19.98 $ 20.21 $ 20.10
======== ======= ======= ======= =========== =======
TOTAL RETURN(a) 13.89%++ 13.61% 14.99% 13.20%++ 23.00%++ 17.46%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $115,989 $95,041 $41,684 $16,958 $ 2,037 $64,763
Net expenses to average daily net
assets 0.55%* 0.55% 0.55% 0.55%* 0.55%* 0.55%*
Net investment income to average
daily net assets 1.19%* 1.21% 1.29% 1.53%* 1.66%* 1.63%*
Portfolio turnover rate 36% 90% 71% 60% 60% 107%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) --(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.
++ Not annualized.
* 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, 2000 --------------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.63 $ 18.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.11+ 0.24+ 0.26+ 0.35 0.36 0.41
Net realized and unrealized gain 2.09 2.28 2.55 5.89 3.58 5.49
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 2.20 2.52 2.81 6.24 3.94 5.90
---------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.11) (0.25) (0.29) (0.32) (0.39) (0.42)
From net realized gains (1.44) (4.23) (3.92) (6.05) (2.89) (1.47)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (1.55) (4.48) (4.21) (6.37) (3.28) (1.89)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.28 $ 16.63 $ 18.59 $ 19.99 $ 20.12 $ 19.46
========== ========== ========== ========== ========== ==========
TOTAL RETURN(a) 14.04%++ 13.66% 15.02% 36.69% 22.05% 39.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,745,409 $1,623,734 $1,780,011 $2,317,103 $3,051,344 $3,179,314
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 1.26%* 1.27% 1.36% 1.67% 1.78% 2.25%
Portfolio turnover rate 36% 90% 71% 60% 107% 77%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) --(b) $ 0.04 $ 0.05 $ 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.
+ Computed using average shares outstanding throughout the period.
++ Not annualized
* 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 EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ----------------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.62 $ 18.58 $ 19.99 $ 17.65
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.11+ 0.25+ 0.27+ 0.04+
Net realized and unrealized gain 2.08 2.28 2.55 2.30
---------- ---------- ---------- ----------
Total from investment operations 2.19 2.53 2.82 2.34
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.11) (0.26) (0.31) --
From net realized gains (1.44) (4.23) (3.92) --
---------- ---------- ---------- ----------
Total distributions (1.55) (4.49) (4.23) --
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.26 $ 16.62 $ 18.58 $ 19.99
========== ========== ========== ==========
TOTAL RETURN(a) 14.01%++ 13.74% 15.07% 13.26%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,525,604 $1,343,460 $1,543,655 $1,370,535
Net expenses to average daily net assets 0.44%** 0.44% 0.44% 0.44%**
Net investment income to average daily net
assets 1.30%** 1.32% 1.41% 1.67%**
Portfolio turnover rate 36% 90% 71% 60%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: --(b) --(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.
++ Not annualized.
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO U.S. Core Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in U.S. equity
securities. The Fund's benchmark is the S&P 500 index.
The Fund offers three classes of shares: Class II, Class III, and Class
IV. 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
17
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 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, 2000.
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, 2000, the Fund loaned securities having a
market value of $246,884,858, collateralized by cash in the amount of
$254,193,486, 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
18
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. 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. The Fund
also enters into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities 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 in value, 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, 2000 the Fund had 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded
by the Fund on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
19
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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,
net of applicable foreign withholding taxes, 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
Effective April 7, 2000, the Fund no longer charges a premium on cash
purchases of Fund shares. Prior to April 7, 2000, the premium on cash
purchases of Fund shares was .14% of the amount invested. All purchase
premiums were paid to and recorded by the Fund as paid-in capital. This
fee was allocated relative to each class' net assets on the share
transaction date. For the six months ended August 31, 2000, the Fund
received $34,551 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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
20
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $20,240. 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, 2000,
aggregated $1,106,302,898 and $1,204,494,989, respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$3,255,522,473 $655,912,370 $(261,648,368) $394,264,002
</TABLE>
4. PRINCIPLE SHAREHOLDER
At August 31, 2000, 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 were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------------- ----------------------------
Shares Amount Shares Amount
Class II: ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 588,978 $ 9,999,831 3,985,880 $ 74,957,732
Shares issued to shareholders
in reinvestment of distributions 551,099 8,744,572 1,158,453 20,008,247
Shares repurchased (137,984) (2,330,518) (1,668,281) (30,224,503)
------------ ------------- ------------- -------------
Net increase 1,002,093 $ 16,413,885 3,476,052 $ 64,741,476
============ ============= ============= =============
</TABLE>
21
<PAGE>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------------- ----------------------------
Shares Amount Shares Amount
Class III: ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 4,991,385 $ 88,142,561 11,331,748 $ 215,996,626
Shares issued to shareholders
in reinvestment of distributions 8,972,432 142,771,401 21,061,629 368,034,755
Shares repurchased (10,564,017) (183,437,303) (30,533,541) (582,729,813)
------------ ------------- ------------- -------------
Net increase 3,399,800 $ 47,476,659 1,859,836 $ 1,301,568
============ ============= ============= =============
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------------- ----------------------------
Shares Amount Shares Amount
Class IV: ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 877,609 $ 15,607,135 3,955,702 $ 79,266,480
Shares issued to shareholders
in reinvestment of distributions 7,929,296 126,168,627 19,531,086 342,781,629
Shares repurchased (1,265,728) (21,500,000) (25,740,318) (484,021,075)
------------ ------------- ------------- -------------
Net increase (decrease) 7,541,177 $ 120,275,762 (2,253,530) $ (61,972,966)
============ ============= ============= =============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- --------------------------------------------- ------------------ ------------- --------------
<C> <S> <C> <C> <C>
Buys
173 S & P 500 September 2000 $65,791,900 $2,876,485
==========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
22
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS -- 63.7%
FOREIGN GOVERNMENT OBLIGATIONS -- 6.7%
$ 25,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 5,543,893
20,000,000 Republic of Ecuador Discount Bond Series A Receipts,
Zero Coupon, due 02/28/25(a) 4,332,636
------------
9,876,529
------------
U.S. GOVERNMENT -- 0.4%
525,205 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(b) 519,296
------------
U.S. GOVERNMENT AGENCY -- 56.6%
10,000,000 Agency for International Development Floater (Support
of India),
Variable Rate, 3 mo. LIBOR + .10%, 6.81%, due
02/01/27 9,800,000
7,250,000 Agency for International Development Floater (Support
of Jamaica),
Variable Rate, 6 mo. LIBOR + .30%, 7.12%, due
12/01/14 7,204,688
5,974,234 Agency for International Development Floater (Support
of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%,
7.13%, due 03/30/19 5,936,895
20,000,000 Agency for International Development Floater (Support
of Morocco),
Variable Rate, 6 mo. LIBOR - .015%, 6.80%, due
02/01/25 19,200,000
25,000,000 Agency for International Development Floater (Support
of Portugal),
Variable Rate, 6 mo. LIBOR, 6.82%, due 01/01/21 24,968,750
8,340,000 Agency for International Development Floater (Support
of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20%, 7.02%, due
06/15/12 8,277,450
8,433,335 Agency for International Development Floater (Support
of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill
x 115%, 6.63%, due 01/01/12 8,106,543
------------
83,494,326
------------
TOTAL DEBT OBLIGATIONS (COST $93,445,983) 93,890,151
------------
<CAPTION>
<C> <S> <C>
MUTUAL FUND -- 28.7%
1,634,403 GMO Alpha LIBOR Fund 42,298,343
------------
TOTAL MUTUAL FUND (COST $41,991,102) 42,298,343
------------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS -- 5.3%
BANKING AND FINANCIAL SERVICES -- 5.3%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 7,775,910
------------
TOTAL PREFERRED STOCKS (COST $8,920,469) 7,775,910
------------
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.6%
COMMERCIAL PAPER -- 0.6%
$ 900,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 900,000
------------
REPURCHASE AGREEMENT -- 0.0%
$ 39,905 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $39,911
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $51,958. 39,905
------------
TOTAL SHORT-TERM INVESTMENTS (COST $939,905) 939,905
------------
TOTAL INVESTMENTS -- 98.3%
(Cost $145,297,459) 144,904,309
Other Assets and Liabilities (net) -- 1.7% 2,469,614
------------
TOTAL NET ASSETS -- 100.0% $147,373,923
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
144A - Securities exempt from registration under rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors.
Variable rates - The rates shown on variable rate notes are the current interest
rates at August 31, 2000, which are subject to change based on the terms of the
security.
(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).
2 See accompanying notes to the financial statements.
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $145,297,459) (Note 1) $144,904,309
Interest receivable 1,171,891
Receivable for open swap contracts (Notes 1 and 6) 1,446,755
Receivable for expenses waived or borne by Manager (Note
2) 6,864
------------
Total assets 147,529,819
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 12,568
Shareholder service fee 18,716
Payable for variation margin on open futures contracts
(Notes 1 and 6) 94,627
Accrued expenses 29,985
------------
Total liabilities 155,896
------------
NET ASSETS $147,373,923
============
NET ASSETS CONSIST OF:
Paid-in capital $150,480,217
Accumulated undistributed net investment income 1,588,433
Accumulated net realized loss (5,730,892)
Net unrealized appreciation 1,036,165
------------
$147,373,923
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $147,373,923
============
SHARES OUTSTANDING:
Class III 15,504,492
============
NET ASSET VALUE PER SHARE:
Class III $ 9.51
============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 5,074,146
Dividends 327,276
-----------
Total income 5,401,422
-----------
EXPENSES:
Management fee (Note 2) 81,822
Interest expense (Notes 1 and 6) 111,483
Audit fees 18,492
Custodian and transfer agent fees 14,996
Legal fees 4,508
Trustees fees (Note 2) 1,104
Miscellaneous 1,380
Fees waived or borne by Manager (Note 2) (40,480)
-----------
193,305
Shareholder service fee (Note 2)
Class III 122,733
-----------
Net expenses 316,038
-----------
Net investment income 5,085,384
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (2,105,965)
Closed futures contracts (1,133,649)
Closed swap contracts 3,421,456
-----------
Net realized gain 181,842
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 3,105,057
Open futures contracts 152,388
Open swap contracts 325,655
-----------
Net unrealized gain 3,583,100
-----------
Net realized and unrealized gain 3,764,942
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,850,326
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,085,384 $ 9,977,786
Net realized gain (loss) 181,842 (511,643)
Change in net unrealized appreciation (depreciation) 3,583,100 (6,297,378)
------------ ------------
Net increase in net assets from operations 8,850,326 3,168,765
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (4,392,212) (10,394,028)
------------ ------------
Total distributions from net investment income (4,392,212) (10,394,028)
------------ ------------
Net realized gains
Class III -- (318,238)
------------ ------------
Total distributions from net realized gains -- (318,238)
------------ ------------
In excess of net realized gains
Class III -- (8,745)
------------ ------------
Total distributions in excess of net realized
gains -- (8,745)
------------ ------------
(4,392,212) (10,721,011)
------------ ------------
Net share transactions: (Note 5)
Class III (21,541,422) (3,061,193)
------------ ------------
Decrease in net assets resulting from net share
transactions (21,541,422) (3,061,193)
------------ ------------
Total decrease in net assets (17,083,308) (10,613,439)
NET ASSETS:
Beginning of period 164,457,231 175,070,670
------------ ------------
End of period (including accumulated undistributed
net investment income of $1,588,433 and $895,261,
respectively) $147,373,923 $164,457,231
============ ============
</TABLE>
See accompanying notes to the financial statements. 5
<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, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.23 $ 9.65 $ 10.26 $ 10.18 $ 10.40 $ 10.13
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(e) 0.30 0.60 0.68 0.67 0.58 0.66
Net realized and unrealized gain
(loss) 0.23 (0.42) (0.15) 0.38 (0.09) 0.58
-------- -------- -------- -------- -------- --------
Total from investment operations 0.53 0.18 0.53 1.05 0.49 1.24
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.25) (0.58) (0.68) (0.70) (0.60) (0.60)
From net realized gains -- (0.02) (0.21) (0.27) (0.08) (0.37)
In excess of net realized gains -- --(c) (0.25) -- (0.03) --
-------- -------- -------- -------- -------- --------
Total distributions (0.25) (0.60) (1.14) (0.97) (0.71) (0.97)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.51 $ 9.23 $ 9.65 $ 10.26 $ 10.18 $ 10.40
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 5.81%** 2.03% 5.03% 10.71% 4.93% 12.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $147,374 $164,457 $175,071 $431,410 $570,862 $310,949
Net operating expenses to average
daily net assets 0.25%* 0.25% 0.25% 0.25% 0.25% 0.25%
Interest expense to average daily net
assets 0.14%* 0.19% 0.02% -- -- --
Total net expenses to average daily
net assets 0.39%(d)* 0.44%(d) 0.27%(d) 0.25% 0.25% 0.25%
Net investment income to average
daily net assets(e) 6.22%* 5.85% 6.21% 6.14% 6.15% 6.52%
Portfolio turnover rate 41% 20% 17% 59% 25% 70%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ --(b) $ --(b) $ 0.02 $ 0.02 $ 0.02 $ 0.01
</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.
(c) The per share distributions in excess of net realized gains was less than
$0.001.
(d) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
(e) Net investment income for the six months ended August 31, 2000 is affected
by the timing of the declaration of dividends by other Funds of the Trust
in which the Fund invests.
* Annualized.
** Not Annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in U.S. investment
grade securities. The Fund's benchmark is the Lehman Brothers Government
Bond Index.
At August 31, 2000, 28.7% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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. Shares of other
Funds of the Trust are valued at their net asset value as reported on each
business day. Securities for which quotations are not 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
7
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
pricing sources on an ongoing basis, and may change a pricing source
should it deem it appropriate. The Manager is informed of erratic or
unusual movements (including unusual inactivity) in the prices supplied
for a security and at its discretion may override a price supplied by a
source (by taking a price supplied by another source).
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 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.
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 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 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, 2000.
OPTIONS
The Fund may write call and put options on futures or 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 future or security transaction to
determine the realized gain or loss. If a written put option is
8
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 future or security 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, 2000, the Fund had no written option
contracts outstanding.
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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the
underlying future or security transaction to determine the realized gain
or loss. 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.
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
9
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in
the name of the counterparty 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 the Fund has sold may
decline below the contractual repurchase price under the agreement. During
the six months ended August 31, 2000, the Fund had entered into reverse
repurchase agreements with an average balance outstanding of $6,130,537
and an average interest rate of 6.48%. The maximum balance outstanding was
$9,344,100. The average shares outstanding were 17,562,199 and the average
balance per share outstanding was $0.35. Average balance outstanding was
calculated based on daily balances outstanding during the period the Fund
had entered into reverse repurchase agreements. At August 31, 2000, there
were no open reverse repurchase agreements.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SECURITY LENDING
The Fund may lend its securities to 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, 2000, there were 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 interest
10
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
rate, forward swap spread lock and total return swap agreements to manage
its exposure to interest rates. 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.
Forward swap spread lock swap agreements involve commitments to pay or
receive a settlement amount calculated as the difference between the swap
spread and a fixed spread, multiplied by the notional amount times the
duration of the swap rate. The swap spread is the difference between the
benchmark swap rate (market rate) and the specific treasury rate. Total
return swap agreements involve commitments to pay interest in exchange for
a market linked return, both based on notional amounts. 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.
Swaps are marked to market daily based upon quotations from market makers
and the change in value, 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 included as part of 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 the open swap
agreement as of August 31, 2000.
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000 the Fund had a capital loss carryforward available to
offset future capital gains, if any, in the amount of $3,335,828, expiring
in 2008. The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
11
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions
for financial statement purposes are classified as distributions in excess
of net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis. Interest income on
U.S. Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities adjusted for inflation is recorded as
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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $1,104. 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 31, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
U.S. Government securities $ 4,601,250 $ 4,601,250
Investments (non-U.S. Government securities) 60,143,121 80,133,135
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$145,297,459 $1,929,409 $(2,322,559) $(393,150)
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 58.6% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,283,141 $ 11,939,675 2,481,680 $ 23,173,404
Shares issued to shareholders
in reinvestment of distributions 383,718 3,566,638 870,554 8,051,201
Shares repurchased (3,988,085) (37,047,735) (3,677,351) (34,285,798)
---------- ------------ ---------- ------------
Net decrease (2,321,226) $(21,541,422) (325,117) $ (3,061,193)
========== ============ ========== ============
</TABLE>
13
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- --------------------------------------------- --------------- ---------- --------------
<C> <S> <C> <C> <C>
Sales
58 U.S. Long Bond December 2000 $5,825,375 $ 7,823
92 U.S. Treasury Note 10 Yr. December 2000 9,207,188 (23,092)
8 U.S. Treasury Note 5 Yr. December 2000 800,500 (2,171)
--------
$(17,440)
========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
14
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
----------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
FORWARD SWAP SPREAD LOCK SWAPS
$10,000,000 4/04/01 Agreement with Morgan Guaranty Trust Company dated $ (38,756)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
8,000,000 5/16/01 Agreement with UBS AG dated 5/12/00 to pay 43,852
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE SWAPS
9,000,000 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 160,437
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
5,000,000 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 150,895
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
</TABLE>
15
<PAGE>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<C> <C> <S> <C>
TOTAL RETURN SWAPS
25,000,000 11/13/00 Agreement with Morgan Guaranty Trust Company dated 42,200
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 Financing 1,088,127
Inc. dated 5/20/99 to receive (pay) the notional
amount multiplied by the return on the Lehman
Brothers U.S. Government Bond Index and to pay the
notional amount multiplied by 1 month LIBOR
adjusted by a specified spread.+
----------
$1,446,755
==========
</TABLE>
+ This swap agreement is valued by management (Note 1).
16
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
441,238 GMO Currency Hedged International Core Fund 4,606,528
2,027,433 GMO Domestic Bond Fund 19,280,888
275,680 GMO Emerging Country Debt Fund 2,602,417
533,684 GMO Emerging Markets Fund 5,475,597
499,082 GMO Evolving Countries Fund 5,050,711
25,310 GMO Growth Fund 128,828
722,666 GMO Inflation Indexed Bond Fund 7,421,779
265,682 GMO International Bond Fund 2,401,768
459,201 GMO International Core Fund 9,955,478
89,826 GMO International Small Companies Fund 1,026,710
848,094 GMO REIT Fund 8,209,547
805,670 GMO Small Cap Value Fund 10,699,292
2,793,831 GMO U.S. Bond/Global Alpha A Fund 27,658,923
1,187,370 GMO U.S. Core Fund 20,517,755
283,553 GMO Value Fund 2,600,182
-------------
TOTAL MUTUAL FUNDS (COST $131,337,434) 127,636,403
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 12,113 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $12,115
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $12,989. 12,113
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $12,113) 12,113
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $131,349,547) 127,648,516
Other Assets and Liabilities (net) -- (0.0%) (10,612)
-------------
TOTAL NET ASSETS -- 100.0% $ 127,637,904
=============
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $131,349,547) (Note 1) $127,648,516
Receivable for expenses waived or borne by Manager (Note
2) 3,689
------------
Total assets 127,652,205
------------
LIABILITIES:
Accrued expenses 14,301
------------
Total liabilities 14,301
------------
NET ASSETS $127,637,904
============
NET ASSETS CONSIST OF:
Paid-in capital $128,292,720
Accumulated undistributed net investment income 2,022,439
Accumulated net realized gain 1,023,776
Net unrealized depreciation (3,701,031)
------------
$127,637,904
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $127,637,904
============
SHARES OUTSTANDING:
Class III 11,179,672
============
NET ASSET VALUE PER SHARE:
Class III $ 11.42
============
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $2,025,357
Interest 303
----------
Total income 2,025,660
----------
EXPENSES:
Custodian and transfer agent fees 8,556
Audit fees 8,004
Legal fees 3,128
Trustees fees (Note 2) 736
Registration fees 368
Miscellaneous 920
Fees waived or borne by Manager (Note 2) (21,712)
----------
Net expenses --
----------
Net investment income 2,025,660
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 45,519
Realized gain distributions from investment company
shares 2,910,378
----------
Net realized gain 2,955,897
----------
Change in net unrealized appreciation (depreciation) on
investments 4,095,491
----------
Net realized and unrealized gain 7,051,388
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,077,048
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,025,660 $ 4,888,008
Net realized gain (loss) 2,955,897 (61,135)
Change in net unrealized appreciation (depreciation) 4,095,491 10,164,723
------------ ------------
Net increase in net assets from operations 9,077,048 14,991,596
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,385,582) (4,730,381)
------------ ------------
Total distributions from net investment income (1,385,582) (4,730,381)
------------ ------------
Net realized gains
Class III (292,887) (6,097,300)
------------ ------------
Total distributions from net realized gains (292,887) (6,097,300)
------------ ------------
In excess of net realized gains
Class III -- (7,803)
------------ ------------
Total distributions in excess of net realized
gains -- (7,803)
------------ ------------
(1,678,469) (10,835,484)
------------ ------------
Net share transactions: (Note 5)
Class III 1,164,736 (12,681,947)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 1,164,736 (12,681,947)
------------ ------------
Total increase (decrease) in net assets 8,563,315 (8,525,835)
NET ASSETS:
Beginning of period 119,074,589 127,600,424
------------ ------------
End of period (including accumulated undistributed
net investment income of $2,022,439 and $1,382,361,
respectively) $127,637,904 $119,074,589
============ ============
</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>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -----------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.78 $ 10.51 $ 11.87 $ 11.56
-------- -------- -------- --------
Income from investment operations:
Net investment income(b) 0.18 0.44 0.31 0.17+
Net realized and unrealized gain (loss) 0.61 0.91 (0.54) 1.30
-------- -------- -------- --------
Total from investment operations 0.79 1.35 (0.23) 1.47
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.12) (0.43) (0.28) (0.33)
In excess of net investment income -- -- (0.29) --(c)
From net realized gains (0.03) (0.65) (0.56) (0.83)
In excess of net realized gains -- --(f) -- --
-------- -------- -------- --------
Total distributions (0.15) (1.08) (1.13) (1.16)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.42 $ 10.78 $ 10.51 $ 11.87
======== ======== ======== ========
TOTAL RETURN(A) 7.35%++ 12.77% (2.27)% 13.31%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $127,638 $119,075 $127,600 $115,280
Net expenses to average daily net
assets(d) 0.00%** 0.00% 0.00% 0.00%**
Net investment income to average daily net
assets(b) 3.25%** 4.18% 2.50% 1.91%**
Portfolio turnover rate 9% 26% 10% 18%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: --(e) --(e) $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
(c) The per share distribution in excess of net investment income was $0.001.
(d) Net expenses excludes 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 in excess of net realized gains was $0.001.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
* Period from June 2, 1997 (commencement of operations) to February 28, 1998.
** 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, 2000 (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 financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
7
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 .12% 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, 2000 the Fund received $5,366 in purchase premiums and $9,834
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, 2001 (excluding brokerage commissions, certain
other transaction costs (including transfer taxes), shareholder service
fees and extraordinary expenses).
8
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 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, 2000
aggregated $11,226,546 and $13,665,711, respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$131,349,547 $2,432,184 $(6,133,215) $(3,701,031)
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 36.3% 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
August 31, 2000 February 29, 2000
--------------------- ------------------------
Shares Amount Shares Amount
Class III: -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 777,591 $ 8,388,976 1,463,905 $ 16,122,366
Shares issued to shareholders
in reinvestment of distributions 134,797 1,508,373 937,011 10,247,908
Shares repurchased (783,669) (8,732,613) (3,494,064) (39,052,221)
-------- ----------- ---------- ------------
Net increase (decrease) 128,719 $ 1,164,736 (1,093,148) $(12,681,947)
======== =========== ========== ============
</TABLE>
9
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
284,252 GMO Emerging Country Debt Fund 2,683,336
802,142 GMO Emerging Markets Fund 8,229,975
1,029,833 GMO Evolving Countries Fund 10,421,913
291,358 GMO Inflation Indexed Bond Fund 2,992,248
199,035 GMO International Bond Fund 1,799,274
2,213,988 GMO International Core Fund 47,999,268
263,757 GMO International Small Companies Fund 3,014,739
132,393 GMO U.S. Bond/Global Alpha A Fund 1,310,688
-------------
TOTAL MUTUAL FUNDS (COST $72,870,595) 78,451,441
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 14,283 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $14,285
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $25,979. 14,283
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $14,283) 14,283
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $72,884,878) 78,465,724
Other Assets and Liabilities (net) -- (0.0%) (14,497)
-------------
TOTAL NET ASSETS -- 100.0% $ 78,451,227
=============
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $72,884,878) (Note 1) $78,465,724
Receivable for investments sold 61,000
Receivable for Fund shares sold 84
Receivable for expenses waived or borne by Manager (Note
2) 2,852
-----------
Total assets 78,529,660
-----------
LIABILITIES:
Payable for Fund shares repurchased 65,085
Accrued expenses 13,348
-----------
Total liabilities 78,433
-----------
NET ASSETS $78,451,227
===========
NET ASSETS CONSIST OF:
Paid-in capital $78,295,231
Accumulated undistributed net investment income 295,921
Accumulated net realized loss (5,720,771)
Net unrealized appreciation 5,580,846
-----------
$78,451,227
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $78,451,227
===========
SHARES OUTSTANDING:
Class III 8,026,781
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.77
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 301,362
Interest 882
----------
Total income 302,244
----------
EXPENSES:
Audit fees 8,924
Custodian and transfer agent fees 5,704
Legal fees 2,024
Trustees fees (Note 2) 460
Registration fees 368
Miscellaneous 828
Fees waived or borne by Manager (Note 2) (18,308)
----------
Net expenses --
----------
Net investment income 302,244
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 219,229
Realized gain distributions from investment company
shares 1,277,502
----------
Net realized gain 1,496,731
----------
Change in net unrealized appreciation (depreciation) on
investments (325,019)
----------
Net realized and unrealized gain 1,171,712
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,473,956
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 302,244 $ 1,902,518
Net realized gain (loss) 1,496,731 (4,394,784)
Change in net unrealized appreciation (depreciation) (325,019) 22,936,622
----------- ------------
Net increase in net assets from operations 1,473,956 20,444,356
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (2,346,059) (624,175)
----------- ------------
Total distributions from net investment income (2,346,059) (624,175)
----------- ------------
Net realized gains
Class III -- (2,308,096)
----------- ------------
Total distributions from net realized gains -- (2,308,096)
----------- ------------
(2,346,059) (2,932,271)
----------- ------------
Net share transactions: (Note 5)
Class III 3,276,482 (31,626,405)
----------- ------------
Increase (decrease) in net assets resulting from net
share transactions 3,276,482 (31,626,405)
----------- ------------
Total increase (decrease) in net assets 2,404,379 (14,114,320)
NET ASSETS:
Beginning of period 76,046,848 90,161,168
----------- ------------
End of period (including accumulated undistributed
net investment income of $295,921 and $2,339,736,
respectively) $78,451,227 $ 76,046,848
=========== ============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $ 8.28 $ 10.18 $ 10.41 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a) 0.04+ 0.22+ 0.19+ 0.33+ 0.10
Net realized and unrealized gain
(loss) 0.16 1.73 (1.01) 0.31 0.41
------- ------- ------- ------- -------
Total from investment operations 0.20 1.95 (0.82) 0.64 0.51
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.30) (0.08) (0.19) (0.29) (0.07)
In excess of net investment income -- -- (0.31) --(b) --
From net realized gains -- (0.28) (0.58) (0.58) (0.03)
------- ------- ------- ------- -------
Total distributions (0.30) (0.36) (1.08) (0.87) (0.10)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.87 $ 8.28 $ 10.18 $ 10.41
======= ======= ======= ======= =======
TOTAL RETURN(c) 1.91%++ 23.58% (8.77)% 6.73% 5.11%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $78,451 $76,047 $90,161 $85,876 $30,459
Net expenses to average daily net
assets(d) 0.00%** 0.00% 0.00% 0.00% 0.01%**
Net investment income to average
daily net assets(a) 0.76%** 2.24% 2.06% 3.13% 3.60%**
Portfolio turnover rate 4% 8% 36% 16% 0%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(e) --(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.
++ Not annualized.
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, 2000 (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 financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000, the Fund had a capital loss carryforward available
to offset future capital gains, if any, of $4,407,565, expiring in 2008.
The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
7
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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. 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, 2000, the Fund received $24,000 in purchase premiums and $2,201
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.
8
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
GMO has contractually agreed to reimburse all expenses directly incurred
by the Fund until June 30, 2001 (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, 2000 was $460. 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, 2000,
aggregated $5,336,412 and $2,765,747 respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$72,884,878 $6,264,906 $(684,060) $5,580,846
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 56.6% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------- ------------------------
Shares Amount Shares Amount
Class III: -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 299,337 $ 3,000,000 78,119 $ 788,869
Shares issued to shareholders
in reinvestment of distributions 226,831 2,275,120 286,054 2,864,228
Shares repurchased (203,042) (1,998,638) (3,552,188) (35,279,502)
-------- ----------- ---------- ------------
Net increase (decrease) 323,126 $ 3,276,482 (3,188,015) $(31,626,405)
======== =========== ========== ============
</TABLE>
9
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 98.6%
AEROSPACE -- 1.6%
4,500 Boeing Co 241,312
1,200 Goodrich (BF) Co 48,975
8,100 Lockheed Martin Corp 229,837
2,000 Northrop Grumman Corp 155,625
500 Textron Inc 28,031
600 TRW Inc 27,412
-------------
731,192
-------------
AUTOMOTIVE -- 6.7%
8,600 Autonation Inc* 55,900
3,600 Dana Corp 88,875
1,000 Delphi Automotive Systems 16,437
500 Eaton Corp 33,187
44,054 Ford Motor Co* 1,065,556
19,282 General Motors Corp 1,391,919
6,060 General Motors Corp, Class H* 200,737
4,300 Genuine Parts Co 88,419
4,000 Goodyear Tire & Rubber Co 93,500
700 Lear Corp* 15,094
2,400 Paccar Inc 101,850
-------------
3,151,474
-------------
BANKING AND FINANCIAL SERVICES -- 22.0%
700 American Express Co 41,387
1,700 Associates First Capital Corp 47,812
22,600 Bank of America Corp 1,210,512
20,500 Bank One Corp 722,625
4,080 Bear Stearns Cos Inc 273,615
3,000 Charter One Financial Inc 71,250
11,650 Chase Manhattan Corp 650,944
14,400 Citigroup Inc 840,600
1,300 Comerica Inc 73,206
1,500 Compass Bankshares Inc 27,375
4,400 Countrywide Credit Industries Inc 166,650
1,800 Dime Bancorp Inc 33,075
3,200 Edwards (AG) Inc 166,400
9,100 Fannie Mae 489,125
1,400 First Security Corp 21,350
</TABLE>
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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
15,100 First Union Corp 436,956
9,500 Fleet Boston Financial Corp 405,531
5,700 Franklin Resources Inc 216,600
2,300 Freddie Mac 96,887
4,400 Golden West Financial Corp 209,550
2,700 Greenpoint Financial Corp 70,537
800 Heller Financial Inc 19,900
1,600 Household International Inc 76,800
4,500 J.P. Morgan & Co Inc 752,344
8,100 Key Corp 163,519
3,800 Lehman Brothers Holding Inc 551,000
2,800 Merrill Lynch 406,000
3,000 MGIC Investment Corp 176,437
1,600 Morgan Stanley Dean Witter & Co 172,100
4,500 National City Corp 94,219
1,600 Pacific Century Financial Corp 22,400
1,900 Paine Webber Group Inc 135,850
1,750 PMI Group Inc 108,500
1,000 PNC Bank Corp 58,937
800 Popular Inc 16,500
3,700 Regions Financial Corp 80,475
1,900 Southtrust Corp 53,556
7,300 Sovereign Bancorp Inc 62,050
1,100 Summit Bancorp 30,456
1,400 Suntrust Banks Inc 69,125
4,600 T. Rowe Price Associates Inc. 208,150
800 U.S. Bancorp 17,400
1,900 Union Planters Corp 57,594
3,300 UnionBanCal Corp 81,881
12,900 Washington Mutual Inc 451,500
5,200 Wells Fargo & Co 224,575
100 Wesco Financial Corp 24,000
-------------
10,387,255
-------------
CHEMICALS -- 1.5%
2,800 Air Products and Chemicals 101,675
1,800 Eastman Chemical Co 77,625
3,900 Engelhard Corp 73,125
3,300 IMC Global Inc 48,469
3,100 PPG Industries Inc 125,550
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS -- CONTINUED
3,600 Praxair Inc 159,300
700 Rohm & Haas Co 20,256
4,300 Sherwin Williams Co 98,900
-------------
704,900
-------------
COMPUTER AND OFFICE EQUIPMENT -- 2.2%
4,800 Advanced Micro Devices Inc* 180,600
600 Gateway Inc* 40,860
8,400 Oracle Corp* 763,875
2,100 Reynolds & Reynolds Inc, Class A 38,062
-------------
1,023,397
-------------
CONSTRUCTION -- 0.2%
2,600 Georgia-Pacific Corp 69,550
-------------
CONSUMER GOODS -- 1.8%
3,800 Eastman Kodak Co 236,550
1,800 Fastenal Co 114,975
3,200 Fortune Brands Inc 81,600
900 Hasbro Inc 11,081
1,100 Hon Industries Inc 29,631
1,400 Johnson Controls 74,812
5,800 Jones Apparel Group Inc* 142,100
1,500 Liz Claiborne Inc 65,906
1,000 Steelcase Inc 16,562
3,300 VF Corp 75,487
-------------
848,704
-------------
ELECTRONIC EQUIPMENT -- 1.9%
7,000 American Power Conversion Corp* 166,687
500 Arrow Electronics Inc* 18,187
1,100 Cooper Industries Inc 38,844
6,800 Emerson Electric Co 450,075
1,100 Harris Corp 33,069
300 Hubbell Inc, Class B 7,762
1,100 Litton Industries * 60,844
5,000 Raytheon Co, Class B 139,062
-------------
914,530
-------------
</TABLE>
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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT & LEISURE -- 0.1%
900 Harrahs Entertainment Inc* 25,537
600 Mandalay Resort Group* 16,687
600 Six Flags Inc* 8,962
-------------
51,186
-------------
FOOD AND BEVERAGE -- 2.8%
12,616 Archer Daniels Midland Co 111,176
2,200 ConAgra Inc 40,287
4,300 IBP Inc 69,069
10,300 Nabisco Group Holdings 289,044
1,000 Nabisco Holdings Corp, Class A 53,437
1,700 Ralston-Purina Group 38,462
1,000 RJ Reynolds Tobacco Holdings 35,875
10,300 Seagrams Co Ltd 619,932
3,600 Tyson Food Inc, Class A 33,075
400 Wrigley (William Jr) Co 29,625
-------------
1,319,982
-------------
HEALTH CARE -- 2.2%
1,950 BioMet Inc 65,934
500 Dentsply International Inc 16,687
4,900 Foundation Health Systems Inc, Class A* 86,056
8,600 HCA - The Healthcare Company 296,700
18,800 Healthsouth Corp* 115,150
500 Hillenbrand Industries Inc 17,406
2,100 Johnson & Johnson 193,069
7,300 Tenet Healthcare Corp 226,300
400 Wellpoint Health Network* 34,525
-------------
1,051,827
-------------
INSURANCE -- 8.9%
4,800 Aetna Inc 268,500
1,100 Allmerica Financial Corp 66,962
20,000 Allstate Corp 581,250
1,700 AMBAC Inc 109,862
900 American Financial Group Inc 22,331
2,600 American General Corp 189,312
700 American National Insurance Co 43,050
1,700 AXA Financial Inc 87,975
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
3,700 Chubb Corp 283,281
2,900 Cigna Corp 282,025
3,700 Cincinnati Financial Corp 143,837
2,200 CNA Financial Corp* 87,312
13,900 Conseco Inc 117,281
500 Erie Indemnity Co, Class A 15,469
300 Everest Re Group Ltd 12,075
4,200 Hartford Financial Services Group Inc 279,825
3,100 Lincoln National Corp 167,400
3,100 Loews Corp 250,906
2,700 MBIA Inc 177,525
200 Mercury General Corp 5,487
1,200 Nationwide Financial Service, Class A 47,850
3,600 Old Republic International Corp 86,175
1,400 ReliaStar Financial Corp 75,337
4,900 Safeco Corp 128,931
5,900 Saint Paul Cos Inc 280,987
3,900 Torchmark Corp 109,444
300 Transatlantic Holding Inc 26,156
1,700 UnitedHealth Group Inc 160,650
1,200 Unitrin Inc 36,525
2,100 Unumprovident Corp 45,544
-------------
4,189,264
-------------
MACHINERY -- 0.9%
1,800 Baker Hughes Inc 65,812
1,800 Caterpillar Inc 66,150
5,600 Deere and Co 184,450
1,100 FMC Corp* 74,594
700 Ingersoll Rand Co 31,894
600 Parker-Hannifin Corp 20,887
-------------
443,787
-------------
MANUFACTURING -- 1.4%
400 Blyth Industries Inc 9,375
2,200 Crane Co 55,275
400 Illinois Tool Works Inc 22,425
1,000 International Game Technology* 29,000
600 Lafarge Corp 14,625
</TABLE>
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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- CONTINUED
3,500 Leggett & Platt Inc 61,906
2,600 Minnesota Mining and Manufacturing Co 241,800
7,100 Owens Illinois Inc* 92,744
2,400 Rockwell International Corp 97,050
1,300 Temple Inland Inc 55,169
-------------
679,369
-------------
METALS AND MINING -- 0.8%
5,000 Alcan Aluminum Ltd 164,063
2,100 Allegheny Technologies Inc 45,675
2,549 Phelps Dodge Corp 113,431
3,800 USX-US Steel Group Inc 66,025
-------------
389,194
-------------
OIL AND GAS -- 4.1%
3,000 Amerada Hess Corp 205,313
1,600 Apache Corp 100,800
2,800 Burlington Resources Inc 110,075
2,700 Chevron Corp 228,150
600 Columbia Energy Group 42,113
1,600 Diamond Offshore Drilling Inc 71,700
300 Exxon Mobil Corp 24,488
800 Kinder Morgan Inc 29,450
5,300 Occidental Petroleum Corp 114,613
2,000 Phillips Petroleum Co 123,750
7,600 Texaco Inc 391,400
600 Tidewater Inc 24,225
4,200 Transocean Sedco Forex Inc 250,950
7,400 USX - Marathon Group 203,038
-------------
1,920,065
-------------
PAPER AND ALLIED PRODUCTS -- 1.3%
300 Bowater Inc 15,413
10,014 International Paper Co 319,196
3,300 Mead Corp 88,481
2,300 Westvaco Corp 62,963
1,300 Weyerhaeuser Co 60,206
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
PAPER AND ALLIED PRODUCTS -- CONTINUED
1,300 Willamette Industries Inc 39,650
-------------
585,909
-------------
PHARMACEUTICALS -- 4.0%
17,500 Abbott Laboratories 765,625
2,800 Amgen Inc* 212,275
13,000 Bristol Myers Squibb Co 689,000
1,900 Mylan Laboratories Inc 50,469
3,200 Schering Plough Corp 128,400
900 Sigma Aldrich Corp 26,156
-------------
1,871,925
-------------
PRIMARY MATERIALS -- 0.1%
4,300 Crown Cork & Seal Inc 55,631
-------------
PRIMARY PROCESSING -- 0.4%
3,404 Alcoa Inc 113,183
2,500 Nucor Corp 91,875
-------------
205,058
-------------
PRINTING AND PUBLISHING -- 0.1%
300 Gannett Co Inc 16,988
1,200 R.R. Donnelley and Sons 30,900
-------------
47,888
-------------
REAL ESTATE -- 0.7%
700 AMB Property Corp, REIT 16,931
500 Archstone Communities Trust, REIT 12,313
1,200 Avalonbay Communities Inc, REIT 53,625
1,700 CarrAmerica Realty Corp, REIT 49,406
1,400 Crescent Real Estate Equities, REIT 30,975
4,900 Equity Office Properties Trust, REIT 141,488
1,200 Mack-Cali Realty Corp, REIT 31,425
500 Public Storage Inc, REIT 12,188
-------------
348,351
-------------
REFINING -- 2.1%
2,300 Ashland Inc 81,075
</TABLE>
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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REFINING -- CONTINUED
12,000 Royal Dutch Petroleum Co 734,250
1,900 Sunoco Inc 51,656
2,900 Tosco Corp 88,450
1,000 Ultramar Diamond Shamrock Corp 23,438
-------------
978,869
-------------
RETAIL TRADE -- 3.2%
7,489 Albertsons Inc 161,014
5,500 Autozone Inc* 123,750
9,500 Bed, Bath & Beyond Inc* 166,844
1,400 Delhaize America Inc 21,088
5,500 Federated Department Stores Inc* 151,938
13,300 Kmart Corp* 93,100
5,200 May Department Stores Co 119,275
5,400 Office Depot Inc* 39,488
1,100 Outback Steakhouse Inc* 25,231
4,000 Penney (JC) Co Inc 56,000
8,900 Rite Aid Corp 35,600
3,600 Ross Stores Inc 54,450
1,900 Saks Inc* 19,000
8,200 Sears Roebuck & Co 255,738
9,100 Toys R Us Inc* 165,506
2,000 Venator Group Inc* 28,000
-------------
1,516,022
-------------
SERVICES -- 1.5%
100 BHC Communications Inc, Class A 15,300
4,600 Cendant Corp* 60,663
1,800 Ceridian Corp* 43,538
412 Chris Craft Industries Inc* 32,239
2,200 Fluor Corp 65,863
700 Hertz Corp 21,438
3,100 Ingram Micro Inc* 46,500
2,800 Marriott International Inc, Class A 110,600
2,500 Supervalu Inc 37,344
6,800 The Walt Disney Co 264,775
-------------
698,260
-------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 1.9%
700 Avnet Inc 41,913
5,600 BMC Software Inc* 151,200
500 Grainger (WW) Inc 14,438
10,300 Honeywell International Inc 397,194
1,000 Parametric Technology Corp* 13,375
1,400 Seagate Technology Corp* 83,125
3,000 Synopsys Inc* 111,188
3,100 Thermo Electron Corp* 72,075
-------------
884,508
-------------
TELECOMMUNICATIONS -- 10.6%
43,155 AT & T Corp 1,359,383
34,400 AT & T Liberty Media Group* 735,300
1,400 Bellsouth Corp 52,238
5,300 Citizens Communications Co* 86,456
500 Comcast Corp* 18,625
1,400 Cox Communications, Class A* 49,788
400 Infinity Broadasting Corp, Class A* 15,150
2,400 PanAmSat Corp* 77,850
200 Qwest Communications International Inc* 10,325
13,653 SBC Communications Inc 570,013
1,200 Telephone and Data Systems Inc 139,200
200 United States Cellular Corp* 14,713
900 USA Networks Inc* 21,656
12,352 Verizon Communications 538,856
10,019 Viacom Inc, Class B* 674,404
17,900 WorldCom Inc* 653,350
-------------
5,017,307
-------------
TOBACCO -- 1.5%
23,700 Philip Morris Cos Inc 702,113
-------------
TRANSPORTATION -- 2.6%
3,700 AMR Corp* 121,406
1,800 Brunswick Corp 33,750
12,700 Burlington Northern Santa Fe Railroad Co 284,163
1,700 Continental Airlines Inc, Class B* 81,813
4,600 CSX Corp 109,825
2,200 Delta Air Lines Inc 108,900
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
1,700 Galileo International Inc 31,663
5,300 Norfolk Southern Corp 85,131
2,800 UAL Corp 133,700
6,100 Union Pacific Corp 242,475
-------------
1,232,826
-------------
UTILITIES -- 9.5%
500 Allegheny Energy Inc 17,938
700 Alliant Energy Corp 20,475
2,300 Ameren Corp 93,006
4,600 American Electric Power Inc 162,150
800 Cinergy Corp 23,500
1,800 CMS Energy Corp 47,025
3,800 Coastal Corp 261,725
4,200 Consolidated Edison Inc 131,513
2,800 Constellation Energy Group Inc 107,100
500 CP&L Energy Inc 18,500
5,700 Dominion Resources Inc 302,100
2,700 DTE Energy Co 93,825
1,000 Duke Power Co 74,813
6,200 Edison International 128,263
2,900 El Paso Energy Corp 168,925
800 Energy East Corp 18,150
6,100 Entergy Corp 185,669
5,100 Firstenergy Corp 126,225
500 Florida Progress Corp 25,938
2,900 FPL Group Inc 154,788
3,900 General Public Utilities Inc 119,438
2,800 Keyspan Corp 96,425
400 Kinder Morgan Energy Partners 16,875
6,700 Niagara Mohawk Holdings Inc* 86,263
2,800 Northeast Utilities 63,700
11,000 PG & E Corp 318,313
1,600 Pinnacle West Capital Corp 65,900
2,300 Potomac Electric Power Co 57,931
3,800 Public Service Enterprise Group Inc 137,750
5,500 Reliant Energy Inc 204,188
1,500 SCANA Corp 41,063
1,600 Sempra Energy 31,200
13,600 Southern Co 407,150
700 Teco Energy Inc 17,194
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
8,400 TXU Corp 293,475
4,900 Unicom Corp 223,869
2,500 Wisconsin Energy Corp 53,125
3,395 Xcel Energy Inc 85,087
-------------
4,480,574
-------------
TOTAL COMMON STOCKS (COST $45,431,547) 46,500,917
-------------
SHORT-TERM INVESTMENTS -- 6.7%
CASH EQUIVALENTS -- 5.2%
$ 1,071,444 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(a) 1,071,444
$ 550,927 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(a) 550,927
816,589 Merrimac Cash Fund Premium Class(a) 816,589
-------------
2,438,960
-------------
U.S. GOVERNMENT -- 0.5%
$ 225,000 U.S. Treasury Bill, 5.94%, due 12/07/00 221,289
-------------
REPURCHASE AGREEMENT -- 1.0%
$ 488,625 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $488,703
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $506,586. 488,625
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,148,984) 3,148,874
-------------
TOTAL INVESTMENTS -- 105.3%
(Cost $48,580,531) 49,649,791
Other Assets and Liabilities (net) -- (5.3%) (2,480,377)
-------------
TOTAL NET ASSETS -- 100.0% $ 47,169,414
=============
</TABLE>
<TABLE>
<S> <C>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
</TABLE>
* Non-income producing security.
(a) Represents investments of security lending collateral (Note 1).
See accompanying notes to the financial statements. 11
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $48,580,531) (Note 1) $49,649,791
Receivable for investments sold 615,266
Dividends and interest receivable 135,711
Receivable for expenses waived or borne by Manager (Note
2) 6,076
-----------
Total assets 50,406,844
-----------
LIABILITIES:
Payable for investments purchased 755,802
Payable upon return of securities loaned (Note 1) 2,438,960
Payable to affiliate for (Note 2):
Management fee 12,983
Shareholder service fee 5,901
Accrued expenses 23,784
-----------
Total liabilities 3,237,430
-----------
NET ASSETS $47,169,414
===========
NET ASSETS CONSIST OF:
Paid-in capital $47,461,454
Accumulated undistributed net investment income 173,047
Accumulated net realized loss (1,534,347)
Net unrealized appreciation 1,069,260
-----------
$47,169,414
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $47,169,414
===========
SHARES OUTSTANDING:
Class III 4,650,578
===========
NET ASSET VALUE PER SHARE:
Class III $ 10.14
===========
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $3,892) $ 552,831
Interest (including securities lending income of $5,405) 38,933
----------
Total income 591,764
----------
EXPENSES:
Management fee (Note 2) 73,848
Audit fees 19,228
Custodian and transfer agent fees 13,524
Legal fees 1,196
Registration fees 644
Trustees fees (Note 2) 276
Miscellaneous 644
Fees waived or borne by Manager (Note 2) (35,512)
----------
73,848
Shareholder service fee (Note 2)
Class III 33,567
----------
Net expenses 107,415
----------
Net investment income 484,349
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,742,683)
Closed futures contracts 244,613
----------
Net realized loss (1,498,070)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 7,717,216
Open futures contracts 25,841
----------
Net unrealized gain 7,743,057
----------
Net realized and unrealized gain 6,244,987
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,729,336
==========
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD FROM AUGUST 2, 1999
AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) THROUGH FEBRUARY 29, 2000
---------------- ----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 484,349 $ 447,986
Net realized gain (loss) (1,498,070) 273,877
Change in net unrealized appreciation (depreciation) 7,743,057 (5,506,385)
----------- -----------
Net increase (decrease) in net assets from
operations 6,729,336 (4,784,522)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (419,660) (335,842)
----------- -----------
Total distributions from net investment income (419,660) (335,842)
----------- -----------
Net realized gains
Class III (313,940) --
----------- -----------
Total distributions from net realized gains (313,940) --
----------- -----------
(733,600) (335,842)
----------- -----------
Net share transactions: (Note 5)
Class III 2,523,790 43,770,252
----------- -----------
Increase in net assets resulting from net share
transactions 2,523,790 43,770,252
----------- -----------
Total increase in net assets 8,519,526 38,649,888
NET ASSETS:
Beginning of period 38,649,888 --
----------- -----------
End of period (including accumulated undistributed
net investment income of $173,047 and $108,358,
respectively) $47,169,414 $38,649,888
=========== ===========
</TABLE>
14 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)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1999
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2000 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 29, 2000
---------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.79 $ 10.00
------- -------
Income from investment operations:
Net investment income 0.11 0.11+
Net realized and unrealized gain (loss) 1.40 (1.24)
------- -------
Total from investment operations 1.51 (1.13)
------- -------
Less distributions to shareholders:
From net investment income (0.09) (0.08)
From net realized gains (0.07) --
------- -------
Total distributions (0.16) (0.08)
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 8.79
======= =======
TOTAL RETURN(a) 17.30%++ (11.36)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $47,169 $38,650
Net expenses to average daily net assets 0.48%* 0.48%*
Net investment income to average daily net assets 2.16%* 1.94%*
Portfolio turnover rate 43% 26%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share
amounts: $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
See accompanying notes to the financial statements. 15
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks long-term capital growth through investment in equity
securities. The Fund's benchmark is the Russell 1000 Value Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
16
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 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, 2000 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, 2000, the Fund loaned securities having a
market value of $2,374,258 collateralized by cash in the amount of
$2,438,960 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the
17
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
relative performance of two different groups or "baskets" of securities,
adjusted by an interest rate payment. To the extent that the relative
performance of the two baskets of securities 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 in
value, 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, 2000 the Fund had no
open swap contracts.
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions
for financial statement purposes are classified as distributions in excess
of net investment income or accumulated net realized gains.
18
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, 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, 2000, the Fund
received $3,223 in purchase premiums. There is no premium for 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.
GMO has entered into a binding agreement effective until June 30, 2001 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 six months ended August 31, 2000 was $276. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2000,
aggregated $21,544,328 and $18,212,658 respectively.
19
<PAGE>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$48,580,531 $5,704,457 $(4,635,197) $1,069,260
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 97.1% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Funds
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>
Period from August 2, 1999
(commencement of
Six Months Ended operations)
August 31, 2000 through February 29, 2000
---------------------- ---------------------------
Shares Amount Shares Amount
Class III: ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 230,350 $2,301,999 4,395,372 $43,761,197
Shares issued to shareholders
in reinvestment of distributions 34,457 326,963 958 9,055
Shares repurchased (10,559) (105,172) -- --
---------- ---------- ---------- -----------
Net increase 254,248 $2,523,790 4,396,330 $43,770,252
========== ========== ========== ===========
</TABLE>
20
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
7,238 GMO Currency Hedged International Core Fund 75,568
52,422 GMO Emerging Country Debt Fund 494,865
91,318 GMO Emerging Markets Fund 936,927
106,301 GMO Evolving Countries Fund 1,075,769
8,903 GMO Growth Fund 45,318
58,227 GMO Inflation Indexed Bond Fund 597,991
21,572 GMO International Bond Fund 195,009
164,574 GMO International Core Fund 3,567,964
18,889 GMO International Small Companies Fund 215,896
68,233 GMO REIT Fund 660,491
72,941 GMO Small Cap Value Fund 968,653
26,265 GMO U.S. Bond/Global Alpha A Fund 260,024
104,407 GMO U.S. Core Fund 1,804,155
29,883 GMO Value Fund 274,023
-------------
TOTAL MUTUAL FUNDS (COST $10,898,311) 11,172,653
-------------
SHORT-TERM INVESTMENTS -- 0.1%
REPURCHASE AGREEMENT -- 0.1%
$ 9,840 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $9,842
and an effective yield of 5.73%, collaterized by a U.S.
Treasury Obligation with a rate of 9.25%, maturity date
of 2/15/16 and market value, including accrued
interest, of $12,989. 9,840
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $9,840) 9,840
-------------
TOTAL INVESTMENTS -- 100.1%
(Cost $10,908,151) 11,182,493
Other Assets and Liabilities (net) -- (0.1%) (7,542)
-------------
TOTAL NET ASSETS -- 100.0% $ 11,174,951
=============
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $10,908,151) (Note 1) $11,182,493
Receivable for expenses waived or borne by Manager (Note
2) 1,829
-----------
Total assets 11,184,322
-----------
LIABILITIES:
Accrued expenses 9,371
-----------
Total liabilities 9,371
-----------
NET ASSETS $11,174,951
===========
NET ASSETS CONSIST OF:
Paid-in capital $16,110,351
Accumulated undistributed net investment income 98,761
Accumulated net realized loss (5,308,503)
Net unrealized appreciation 274,342
-----------
$11,174,951
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $11,174,951
===========
SHARES OUTSTANDING:
Class III 1,225,592
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.12
===========
</TABLE>
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 98,666
Interest 328
--------
Total income 98,994
--------
EXPENSES:
Audit fees 8,188
Custodian and transfer agent fees 1,288
Legal fees 276
Registration fees 276
Trustees fees (Note 2) 92
Miscellaneous 276
Fees waived or borne by Manager (Note 2) (10,396)
--------
Net expenses --
--------
Net investment income 98,994
--------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 154,502
Realized gain distributions from investment company
shares 314,932
--------
Net realized gain 469,434
--------
Change in net unrealized appreciation (depreciation) on
investments 55,721
--------
Net realized and unrealized gain 525,155
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $624,149
========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 98,994 $ 272,589
Net realized gain (loss) 469,434 (5,068,655)
Change in net unrealized appreciation (depreciation) 55,721 7,580,313
----------- ------------
Net increase in net assets from operations 624,149 2,784,247
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (432,872) --
----------- ------------
Total distributions from net investment income (432,872) --
----------- ------------
Net realized gains
Class III -- (1,505,715)
----------- ------------
Total distributions from net realized gains -- (1,505,715)
----------- ------------
(432,872) (1,505,715)
----------- ------------
Net share transactions: (Note 5)
Class III 149,545 (20,026,209)
----------- ------------
Increase (decrease) in net assets resulting from net
share transactions 149,545 (20,026,209)
----------- ------------
Total increase (decrease) in net assets 340,822 (18,747,677)
NET ASSETS:
Beginning of period 10,834,129 29,581,806
----------- ------------
End of period (including accumulated undistributed
net investment income of $98,761 and $432,639,
respectively) $11,174,951 $ 10,834,129
=========== ============
</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>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 8.52 $ 10.39 $ 10.52 $ 10.07
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a) 0.08 0.20+ 0.18+ 0.29+ 0.11
Net realized and unrealized gain
(loss) 0.44 1.69 (0.82) 1.03 0.63
------- ------- ------- ------- -------
Total from investment operations 0.52 1.89 (0.64) 1.32 0.74
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.36) -- (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 (0.36) (1.45) (1.23) (1.45) (0.29)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.12 $ 8.96 $ 8.52 $ 10.39 $ 10.52
======= ======= ======= ======= =======
TOTAL RETURN(C) 5.79%++ 22.45% (6.67)% 13.56% 7.51%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $11,175 $10,834 $29,582 $50,952 $36,746
Net expenses to average daily net
assets(d) 0.00%** 0.00% 0.00% 0.00% 0.00%**
Net investment income to average
daily net assets(a) 1.77%** 2.24% 1.91% 2.65% 0.91%**
Portfolio turnover rate 7% 12% 17% 49% 31%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.01 $ 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.
++ Not annualized.
* 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, 2000 (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 financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000, the Fund had a capital loss carryforward available
to offset future capital gains, if any, of $5,383,357, expiring in 2008.
The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
7
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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. 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, 2000, the Fund did not have any purchase or redemption
premiums. 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.
8
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
GMO has contractually agreed to reimburse all expenses directly incurred
by the Fund until June 30, 2001 (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, 2000 was $92. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2000,
aggregated $925,381 and $795,782, respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$10,908,151 $584,213 $(309,871) $274,342
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 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.
9
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000 February 29, 2000
---------------- ------------------------
Shares Amount Shares Amount
Class III: ------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 61,132 $ 565,696
Shares issued to shareholders
in reinvestment of distributions 16,452 149,545 170,716 1,505,715
Shares repurchased -- -- (2,495,019) (22,097,620)
------ -------- ---------- ------------
Net increase (decrease) 16,452 $149,545 (2,263,171) $(20,026,209)
====== ======== ========== ============
</TABLE>
10
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO GLOBAL (U.S.) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
44,534 GMO Currency Hedged International Core Fund 464,930
154,888 GMO Emerging Country Debt Fund 1,462,148
253,998 GMO Emerging Markets Fund 2,606,023
243,293 GMO Evolving Countries Fund 2,462,128
33,141 GMO Growth Fund 168,688
212,234 GMO Inflation Indexed Bond Fund 2,179,640
265,312 GMO International Core Fund 5,751,961
37,051 GMO International Small Companies Fund 423,488
406,793 GMO REIT Fund 3,937,760
433,748 GMO Small Cap Value Fund 5,760,175
173,389 GMO U.S. Bond/Global Alpha A Fund 1,716,552
886,846 GMO U.S. Core Fund 15,324,703
179,508 GMO Value Fund 1,646,090
-------------
TOTAL MUTUAL FUNDS (COST $45,677,988) 43,904,286
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 10,023 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of $10,025
and an effective yield of 5.73%, collateralized by a
U.S. Treasury Obligation with a rate of 9.25%, maturity
date of 2/15/16 and market value, including accrued
interest, of $12,989. 10,023
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,023) 10,023
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $45,688,011) 43,914,309
Other Assets and Liabilities (net) -- (0.0%) (8,310)
-------------
TOTAL NET ASSETS -- 100.0% $ 43,905,999
=============
</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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $45,688,011) (Note 1) $43,914,309
Receivable for expenses waived or borne by Manager (Note
2) 2,418
-----------
Total assets 43,916,727
-----------
LIABILITIES:
Accrued expenses 10,728
-----------
Total liabilities 10,728
-----------
NET ASSETS $43,905,999
===========
NET ASSETS CONSIST OF:
Paid-in capital $44,389,349
Accumulated undistributed net investment income 474,572
Accumulated net realized gain 815,780
Net unrealized depreciation (1,773,702)
-----------
$43,905,999
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $43,905,999
===========
SHARES OUTSTANDING:
Class III 4,395,602
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.99
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 473,486
Interest 1,086
----------
Total income 474,572
----------
EXPENSES:
Audit fees 8,004
Custodian and transfer agent fees 3,312
Legal fees 1,012
Registration fees 276
Trustees fees (Note 2) 276
Miscellaneous 460
Fees waived or borne by Manager (Note 2) (13,340)
----------
Net expenses --
----------
Net investment income 474,572
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 267,288
Realized gain distributions from investment company
shares 1,732,373
----------
Net realized gain 1,999,661
----------
Change in net unrealized appreciation (depreciation) on
investments 996,990
----------
Net realized and unrealized gain 2,996,651
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,471,223
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 474,572 $ 938,823
Net realized gain 1,999,661 2,677,867
Change in net unrealized appreciation (depreciation) 996,990 2,595,656
----------- -----------
Net increase in net assets from operations 3,471,223 6,212,346
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (938,823)
----------- -----------
Total distributions from net investment income -- (938,823)
----------- -----------
In excess of net investment income
Class III -- (709,581)
----------- -----------
Total distributions in excess of net investment
income -- (709,581)
----------- -----------
Net realized gains
Class III (1,584,273) (2,295,053)
----------- -----------
Total distributions from net realized gains (1,584,273) (2,295,053)
----------- -----------
(1,584,273) (3,943,457)
----------- -----------
Net share transactions: (Note 5)
Class III 5,350,205 1,926,347
----------- -----------
Increase in net assets resulting from net share
transactions 5,350,205 1,926,347
----------- -----------
Total increase in net assets 7,237,155 4,195,236
NET ASSETS:
Beginning of period 36,668,844 32,473,608
----------- -----------
End of period (including accumulated undistributed
net investment income of $474,572 and $0,
respectively) $43,905,999 $36,668,844
=========== ===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.49 $ 8.85 $ 10.48 $ 10.30 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a) 0.11 0.25 0.16+ 0.26+ 0.12
Net realized and unrealized gain
(loss) 0.76 1.45 (0.40) 1.83 0.38
------- ------- ------- ------- -------
Total from investment operations 0.87 1.70 (0.24) 2.09 0.50
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.24) (0.16) (0.26) (0.12)
In excess of net investment income -- (0.19) (0.40) --(c) --
From net realized gains (0.37) (0.63) (0.83) (1.65) (0.08)
------- ------- ------- ------- -------
Total distributions (0.37) (1.06) (1.39) (1.91) (0.20)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.49 $ 8.85 $ 10.48 $ 10.30
======= ======= ======= ======= =======
TOTAL RETURN(b) 9.30%++ 19.14% (2.84)% 21.86% 5.09%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $43,906 $36,669 $32,474 $45,101 $30,787
Net expenses to average daily net
assets(d) 0.00%** 0.00% 0.00% 0.00% 0.00%**
Net investment income to average
daily net assets(a) 2.31%** 2.63% 1.64% 2.39% 3.21%**
Portfolio turnover rate 9% 18% 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 $ 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.
++ Not annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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
6
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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.
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
7
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000, the Fund received $24,271 in purchase premiums and $2,100 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, 2001 (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, 2000 was $276. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
8
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000,
aggregated $9,440,236 and $3,471,378 respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$45,688,011 $1,507,730 $(3,281,432) $(1,773,702)
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 86.5% 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:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
--------------------- ---------------------
Shares Amount Shares Amount
Class III: -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold 513,206 $ 5,164,061 346,147 $ 3,382,445
Shares issued to shareholders
in reinvestment of distributions 162,991 1,584,273 71,629 699,986
Shares repurchased (143,987) (1,398,129) (224,862) (2,156,084)
-------- ----------- -------- -----------
Net increase 532,210 $ 5,350,205 192,914 $ 1,926,347
======== =========== ======== ===========
</TABLE>
9
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 97.8%
AEROSPACE -- 0.1%
7,300 Gencorp Inc 53,381
------------
AUTOMOTIVE -- 0.2%
700 ArvinMeritor Inc 11,550
3,900 Copart Inc* 66,056
------------
77,606
------------
BANKING AND FINANCIAL SERVICES -- 4.0%
1,700 BlackRock Inc* 69,700
2,400 CompuCredit Corp* 95,100
2,000 Eaton Vance Corp 96,875
7,050 Federated Investors Inc 165,234
1,500 Greater Bay Bancorp 93,000
8,049 Metris Companies Inc 289,261
1,700 Pioneer Group* 74,162
3,050 Queens County Bancorp Inc 80,444
5,500 Silicon Valley Bancshares* 316,937
7,200 Waddell and Reed Financial Inc, Class A 251,100
------------
1,531,813
------------
CHEMICALS -- 0.2%
2,700 Georgia Gulf Corp 35,100
6,500 W.R. Grace & Co* 51,594
------------
86,694
------------
COMMUNICATIONS -- 0.4%
3,500 Powerwave Technologies Inc* 168,437
------------
COMPUTER AND OFFICE EQUIPMENT -- 3.5%
1,900 Black Box Corp* 113,050
4,800 Computer Network Technology Corp* 96,000
3,500 Emulex Corp* 366,406
600 Extreme Networks Inc* 55,837
3,100 InFocus Corp* 149,962
8,600 Maxtor Corp* 67,457
3,000 Sandisk Corp* 250,500
3,800 Telxon Corp* 75,050
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER AND OFFICE EQUIPMENT -- CONTINUED
3,400 Zebra Technologies Corp* 183,600
------------
1,357,862
------------
CONSTRUCTION -- 0.3%
3,400 Insituform Technologies Inc, Class A* 104,337
------------
CONSUMER GOODS -- 2.6%
5,700 Church & Dwight Co Inc 102,244
2,600 Cytyc Corp* 121,225
2,550 Direct Focus Inc* 76,341
3,700 Genesco Inc* 59,894
13,600 HA-LO Industries Inc* 68,000
2,600 Insight Enterprises Inc* 130,650
4,700 Oakley Inc* 79,606
1,800 Osh Kosh B Gosh, Class A 25,650
3,900 SCP Pool Corp* 114,319
2,400 Timberland Co* 97,800
5,700 Tupperware Corp 115,069
------------
990,798
------------
ELECTRONIC EQUIPMENT -- 20.8%
1,700 Actel Corp* 74,800
3,300 Alliance Semiconductor Corp* 86,831
1,800 American Superconductor Corp* 76,387
3,700 Amphenol Corp, Class A* 236,800
3,800 ANADIGICS Inc* 136,800
700 Applied Micro Circuits Corp* 142,056
4,000 Atmel Corp* 80,000
2,300 Atmi Inc* 61,633
3,900 AVX Corp 116,756
2,900 C&D Technology Inc 160,225
2,000 Conexant Systems Inc* 74,375
2,900 CTS Corp 148,806
1,600 Cypress Semiconductor Corp* 79,100
4,800 Dallas Semiconductor Corp 198,600
4,900 DMC Stratex Networks Inc* 125,256
3,100 Electro Scientific Industries* 127,681
3,000 Exar Corp* 361,875
14,300 Glenayre Technologies Inc* 155,512
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC EQUIPMENT -- CONTINUED
2,359 Harmonic Lightwaves Inc* 79,026
2,800 Integrated Device Technology Inc* 245,700
3,100 International Rectifier Corp* 195,106
12,900 Kemet Corp* 387,000
7,800 Kopin Corp* 260,812
500 Lattice Semiconductor Corp* 38,875
2,600 Littelfuse Inc* 94,412
4,700 National Semiconductor Corp* 209,150
2,200 Natural MicroSystems Corp* 164,037
6,200 Oak Technology Inc* 180,575
11,600 P-Com Inc* 72,500
3,900 PLX Technology Inc* 122,119
2,000 PMC-Sierra Inc* 472,000
1,250 Power-One Inc* 198,047
1,700 Powertel Inc* 132,600
2,500 Sawtek Inc* 126,094
5,600 Scientific Atlanta Inc 436,450
1,900 SDL Inc* 754,894
1,800 Semtech Corp* 213,187
1,500 Technitrol Inc 191,250
810 Texas Instruments Inc 54,219
4,000 Titan Corp* 98,500
1,800 Trimble Navigation Ltd* 74,812
3,000 TriQuint Semiconductor Inc* 165,937
5,600 Varian Semiconductor Equipment Associates Inc* 319,900
2,800 Vicor Corp* 122,150
7,100 WESCO International Inc* 63,456
5,000 Westell Technologies Inc* 80,000
------------
7,996,301
------------
ENTERTAINMENT & LEISURE -- 0.1%
2,400 Radio One Inc, Class A* 50,550
------------
FOOD AND BEVERAGE -- 0.3%
2,400 Dreyers Grand Ice Cream Inc 49,837
10,000 Topp Inc (The)* 78,750
------------
128,587
------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- 5.4%
2,500 Celera Genomics Group* 271,094
2,700 Enzo Biochem Inc* 162,000
2,600 Gliatech Inc* 20,800
8,800 Hooper Holmes Inc 102,850
1,800 Human Genome Sciences Inc* 300,487
2,000 Incyte Genomics Inc* 165,875
2,400 LaserSight Inc* 8,400
6,400 Lifepoint Hospital Inc* 192,800
2,600 Medquist Inc* 50,375
1,600 Novoste Corp* 86,400
4,900 Orthodontic Centers of America* 160,475
2,200 Patterson Dental Company* 52,250
400 Quest Diagnostics Inc* 49,500
3,400 ResMed Inc* 125,162
6,900 Sunrise Technologies International Inc* 45,281
1,800 Techne Corp* 171,900
2,500 Transkaryotic Therapies Inc* 108,437
------------
2,074,086
------------
INSURANCE -- 1.2%
2,700 E. W. Blanch Holdings Inc 59,231
3,400 Gallagher (Arthur J) and Co 166,600
7,800 Oxford Health Plans Inc* 237,900
------------
463,731
------------
MACHINERY -- 2.4%
3,700 Asyst Technologies Inc* 96,894
1,700 Columbus McKinnon Corp 24,862
3,600 Donaldson Co Inc 76,050
4,575 Dycom Industries Inc* 242,475
3,600 GaSonics International Corp* 86,400
1,700 Graco Inc 60,244
3,200 Helix Technology Corp 121,200
2,700 Kulicke & Soffa Industries* 48,937
600 Lam Research Corp* 18,075
5,700 Presstek Inc* 96,544
2,900 Scott Technologies Inc* 54,919
------------
926,600
------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- 1.7%
1,500 Alliant Techsystems Inc* 115,594
2,300 Cymer Inc* 105,656
6,200 Dal Tile International Inc* 69,750
3,000 Greif Brothers Corp 86,625
4,300 Maverick Tube Corp* 120,669
1,300 PRI Automation Inc* 67,112
4,800 Zomax Inc* 93,300
------------
658,706
------------
METALS AND MINING -- 0.2%
3,900 CONSOL Energy Inc 81,169
------------
OIL AND GAS -- 4.5%
2,800 Barrett Resources Corp* 96,950
4,500 Berry Petroleum Co, Class A 85,500
6,400 Cross Timbers Oil Co 169,200
30,000 Grey Wolf Inc* 165,000
24,100 Key Energy Services Inc* 250,037
6,000 Marine Drilling Co Inc* 163,125
7,200 Meridian Resource Corp* 45,450
3,600 Newfield Exploration Co* 155,700
5,800 Patterson Energy Inc* 181,975
2,800 Plains Resource Inc* 49,700
4,700 Pogo Producing Co 126,312
1,000 St. Mary Land & Exploration Co 41,375
2,000 Stone Energy Corp* 119,625
2,200 UTI Energy Corp* 81,950
------------
1,731,899
------------
PHARMACEUTICALS -- 6.7%
4,600 Abgenix Inc* 345,791
2,500 Anesta Corp* 59,531
2,700 Biomatrix Inc* 57,375
200 Emisphere Technologies Inc* 6,550
700 IDEC Pharmaceuticals Corp* 97,737
1,900 Imclone Systems Inc* 183,112
3,300 Ivax Corp* 114,262
7,600 Jones Pharma Inc 271,700
8,050 King Pharmaceuticals Inc* 258,606
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS -- CONTINUED
3,400 Millipore Corp 206,975
16,200 NBTY Inc* 114,412
4,500 NeoRx Corp* 85,500
2,800 Noven Pharmaceuticals Inc* 117,600
3,800 PathoGenesis Corp* 145,350
1,900 Pharmacyclics Inc* 95,238
1,100 Priority Healthcare Corp, Class B* 63,525
3,900 Sangstat Medical Corp* 78,975
3,000 SuperGen Inc* 59,063
2,200 Syncor International Corp* 88,000
8,300 Triangle Pharmaceuticals Inc* 74,700
2,100 Vical Inc* 51,450
------------
2,575,452
------------
PRIMARY PROCESSING -- 0.7%
2,700 Commscope Inc* 67,331
3,900 Lone Star Technologies Inc* 195,975
------------
263,306
------------
PRINTING AND PUBLISHING -- 0.2%
1,800 Information Holdings Inc* 57,825
------------
REAL ESTATE -- 0.4%
3,400 Pinnacle Holdings Inc, REIT* 136,850
------------
RETAIL TRADE -- 2.9%
4,300 BJ's Wholesale Club Inc* 145,663
2,850 CEC Entertainment Inc* 82,294
2,600 Chicos Fas Inc* 101,400
3,300 Children's Place Retail Stores Inc* 97,350
1,500 Duane Reade Inc* 33,188
2,800 Factory 2-U Stores Inc* 96,775
3,300 Guitar Center Inc* 49,500
900 PC Connection Inc* 58,275
4,600 Tiffany & Co 191,475
4,200 Tweeter Home Entertainment Group Inc* 150,938
3,900 Valuevision International Inc, Class A* 114,319
------------
1,121,177
------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
SERVICES -- 9.2%
1,900 Administaff Inc* 154,850
2,800 Career Education Corp* 111,825
4,300 Celgene Corp* 318,200
3,200 Cephalon Inc* 161,000
4,800 COR Therapeutics Inc* 270,000
1,500 Corinthian Colleges Inc* 81,000
300 Critical Path Inc* 23,138
3,600 Diamond Technology Partners Inc* 229,725
1,800 Forrester Research Inc* 110,025
3,600 Heidrick & Struggles International Inc* 209,250
10,800 kforce.com Inc* 49,275
2,300 Korn/Ferry International* 70,006
1,900 Learning Tree International Inc* 130,031
2,000 Macrovision Corp* 213,250
2,800 Millennium Pharmaceuticals Inc* 400,750
1,400 Myriad Genetics Inc* 195,825
2,500 Neurogen Corp* 95,469
2,100 Pre-Paid Legal Services Inc* 68,906
800 Professional Detailing Inc* 38,500
4,300 Profit Recovery Group International Inc* 38,835
15,200 Sitel Corp* 87,400
3,100 Sonic Corp* 101,138
1,300 StarTek Inc* 50,944
6,000 Station Casinos Inc* 86,250
15,400 Technology Solutions Co* 47,645
600 VeriSign Inc* 119,325
1,700 Wind River Systems Inc* 69,275
------------
3,531,837
------------
TECHNOLOGY -- 20.3%
2,700 About.com Inc* 117,788
1,700 Actuate Corp* 44,094
6,700 Advanced Digital Information Corp* 113,900
4,100 Allaire Corp* 139,144
5,600 Aspen Technologies Inc* 257,250
6,700 AXENT Technologies Inc* 159,125
1,600 BARRA Inc* 92,200
8,800 BEA Systems Inc* 598,950
5,600 BindView Development Corp* 54,950
1,800 Bottomline Technologies Inc* 57,038
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
400 Cadence Design Systems Inc* 8,500
2,600 Cognex Corp* 104,000
1,700 Com21 Inc* 28,263
4,000 Credence Systems Corp* 234,250
1,900 CSG Systems International Inc* 85,856
3,500 Cylink Corp* 50,094
4,400 Dendrite International Inc* 116,875
7,500 Digital River Inc* 51,563
2,900 Documentum Inc* 207,531
900 Echelon Corp* 42,356
3,600 Exchange Applications Inc* 88,425
8,900 FileNet Corp* 171,325
4,100 HNC Software Inc* 223,066
1,925 i2 Technologies Inc* 325,686
1,400 iBasis Inc* 29,050
3,400 Infospace Inc* 132,600
4,100 Interact Commerce Corp* 42,538
4,000 Intraware Inc* 42,000
8,900 J.D. Edwards & Co.* 220,831
6,300 JDA Software Group Inc* 81,506
6,600 Juno Online Services Inc* 41,250
2,000 Kronos Inc* 74,750
3,200 Manugistics Group Inc* 280,800
2,400 Marimba Inc* 40,500
1,800 Mercury Interactive Corp* 219,938
5,100 MicroStrategy Inc* 142,163
1,500 MKS Instruments Inc* 52,688
5,100 Multex.com Inc* 110,925
3,100 National Computer System Inc 225,138
4,400 Net Perceptions Inc* 62,425
4,000 Network Appliance Inc* 468,000
6,500 Network Associates Inc* 168,188
4,300 Network Peripherals Inc* 61,813
2,300 Nvidia Corp* 182,563
4,600 ONYX Software Corp* 104,363
3,900 Peregrine Systems Inc* 124,556
4,800 Prodigy Communications Corp, Class A* 36,150
3,600 Remedy Corp* 84,150
6,300 Robotic Vision Systems Inc* 80,325
2,600 RSA Security Inc* 153,563
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
8,600 Saga Systems Inc* 108,575
5,400 Sagent Technology Inc* 57,375
2,200 SERENA Software Inc* 96,800
11,300 Sybase Inc* 310,044
2,100 Tanning Technology Corp* 34,256
7,300 Varian Inc* 355,875
500 VerticalNet Inc* 26,625
4,400 Vignette Corp* 167,750
------------
7,792,302
------------
TELECOMMUNICATIONS -- 5.5%
5,800 Adaptive Broadband Corp* 181,250
3,600 Adtran Inc* 192,825
7,100 Aspect Communications Corp* 160,194
10,400 Brightpoint Inc* 65,650
2,300 Carrier Access Corp* 110,113
8,700 Covad Communications Group Inc* 141,919
8,100 Cumulus Media Inc* 59,738
2,400 Electric Lightwave Inc, Class A* 31,200
1,300 Entercom Communications Corp* 53,706
3,400 Leap Wireless International Inc* 269,875
1,900 Liberty Digital Inc, Class A* 47,025
3,050 Mastec Inc* 109,800
2,300 Metricom Inc* 93,581
5,100 Motient Corp* 61,838
3,000 Mpower Communications Corp* 55,313
1,600 Northeast Optic Network Inc* 71,100
4,600 Price Communications Corp* 94,300
1,200 Tut Systems Inc* 120,750
10,600 WebLink Wireless Inc* 105,007
2,200 Young Broadcasting Inc, Class A* 77,825
------------
2,103,009
------------
TEXTILES -- 0.2%
3,400 Delta & Pine Land Co 83,088
------------
TRANSPORTATION -- 1.2%
4,900 C.H. Robinson Worldwide Inc 290,019
2,000 Forward Air Corp* 91,750
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
2,100 Newport News Shipbuilding Inc 89,250
------------
471,019
------------
UTILITIES -- 2.6%
6,000 Calpine Corp* 594,169
8,576 Dynegy Inc 385,920
------------
980,089
------------
TOTAL COMMON STOCKS (COST $31,776,143) 37,598,511
------------
RIGHTS AND WARRANTS -- 0.0%
PHARMACEUTICALS -- 0.0%
2,800 Endo Pharmaceutical Warrants, Expires 12/31/02* 6,650
------------
TOTAL RIGHTS AND WARRANTS (COST $10,500) 6,650
------------
SHORT-TERM INVESTMENTS -- 15.8%
CASH EQUIVALENTS -- 12.3%
$ 1,478,661 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(a) 1,478,661
$ 1,820,218 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(a) 1,820,218
1,418,964 Merrimac Cash Fund Premium Class(a) 1,418,964
------------
4,717,843
------------
U.S. GOVERNMENT -- 0.9%
$ 360,000 U.S. Treasury Bill, 5.94%, due 12/07/00 354,063
------------
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 2.6%
$ 1,000,925 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/01/00, with a maturity value of
$1,001,084 and an effective yield of 5.73%,
collateralized by a U.S. Treasury Obligation with a
rate of 9.25%, maturity date of 2/15/16 and market
value, including accrued interest, of $1,026,162. 1,000,925
------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,072,966) 6,072,831
------------
TOTAL INVESTMENTS -- 113.6%
(Cost $37,859,609) 43,677,992
Other Assets and Liabilities (net) -- (13.6%) (5,226,837)
------------
TOTAL NET ASSETS -- 100.0% $ 38,451,155
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Represents investments of security lending collateral (Note 1).
See accompanying notes to the financial statements. 11
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $37,859,609) (Note 1) $43,677,992
Receivable for investments sold 1,370,317
Receivable for Fund shares sold 765
Dividends and interest receivable 7,282
Receivable for variation margin on closed futures
contracts (Note 1) 3,904
Receivable for expenses waived or borne by Manager (Note
2) 9,299
-----------
Total assets 45,069,559
-----------
LIABILITIES:
Payable for investments purchased 1,685,048
Payable upon return of securities loaned (Note 1) 4,717,843
Payable for Fund shares repurchased 153,765
Payable to affiliate for (Note 2):
Management fee 9,886
Shareholder service fee 4,500
Accrued expenses 47,362
-----------
Total liabilities 6,618,404
-----------
NET ASSETS $38,451,155
===========
NET ASSETS CONSIST OF:
Paid-in capital $(4,231,110)
Net investment loss (38,721)
Accumulated net realized gain 36,902,603
Net unrealized appreciation 5,818,383
-----------
$38,451,155
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $38,451,155
===========
SHARES OUTSTANDING:
Class III 3,057,102
===========
NET ASSET VALUE PER SHARE:
Class III $ 12.58
===========
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $17,515) $ 71,431
Dividends 37,394
-----------
Total income 108,825
-----------
EXPENSES:
Management fee (Note 2) 101,438
Custodian and transfer agent fees 45,264
Audit fees 16,652
Legal fees 1,840
Trustees fees (Note 2) 552
Miscellaneous 1,288
Fees waived or borne by Manager (Note 2) (65,596)
-----------
101,438
Shareholder service fee (Note 2)
Class III 46,108
-----------
Net expenses 147,546
-----------
Net investment loss (38,721)
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 36,844,827
Closed futures contracts 1,220,680
-----------
Net realized gain 38,065,507
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (45,562,267)
Open futures contracts (300,385)
-----------
Net unrealized loss (45,862,652)
-----------
Net realized and unrealized loss (7,797,145)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(7,835,866)
===========
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) $ (38,721) $ 117,725
Net realized gain 38,065,507 17,894,394
Change in net unrealized appreciation (depreciation) (45,862,652) 46,843,826
------------ ------------
Net increase (decrease) in net assets from
operations (7,835,866) 64,855,945
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (266,924)
------------ ------------
Total distributions from net investment income -- (266,924)
------------ ------------
Net realized gains
Class III (8,624,304) (9,060,286)
------------ ------------
Total distributions from net realized gains (8,624,304) (9,060,286)
------------ ------------
(8,624,304) (9,327,210)
------------ ------------
Net share transactions: (Note 5)
Class III (82,378,484) (48,222,297)
------------ ------------
Decrease in net assets resulting from net share
transactions (82,378,484) (48,222,297)
------------ ------------
Total increase (decrease) in net assets (98,838,654) 7,306,438
NET ASSETS:
Beginning of period 137,289,809 129,983,371
------------ ------------
End of period (including net investment loss of
$38,721 and $0, respectively) $ 38,451,155 $137,289,809
============ ============
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.87 $ 10.88 $ 12.28 $ 9.82 $ 10.00
------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss) (0.01) 0.01 0.03 0.05 0.01
Net realized and unrealized gain
(loss) (0.94) 7.02 (0.98) 3.43 (0.19)
------- -------- -------- -------- --------
Total from investment operations (0.95) 7.03 (0.95) 3.48 (0.18)
------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.03) (0.02) (0.06) --
In excess of net investment income -- -- -- (0.01) --
From net realized gains (3.34) (1.01) (0.43) (0.95) --
------- -------- -------- -------- --------
Total distributions (3.34) (1.04) (0.45) (1.02) --
------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.58 $ 16.87 $ 10.88 $ 12.28 $ 9.82
======= ======== ======== ======== ========
TOTAL RETURN(a) (3.74)%+ 67.27% (8.20)% 36.66% (1.80)%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $38,451 $137,290 $129,983 $399,613 $159,898
Net expenses to average daily net
assets 0.48%** 0.48% 0.48% 0.48% 0.48%**
Net investment income to average
daily net assets (0.13)%** 0.09% 0.21% 0.47% 0.70%**
Portfolio turnover rate 75% 122% 113% 132% 13%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.02 $ 0.01 $ 0.03 $ 0.03 $ 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.
+ Not annualized.
See accompanying notes to the financial statements. 15
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is the
Russell 2500 Growth Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
16
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. The Fund had no open futures contracts as of August 31, 2000.
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, 2000, the Fund loaned securities having a
market value of $4,526,611, collateralized by cash in the amount of
$4,717,843, 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the
17
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
relative performance of two different groups or "baskets" of securities,
adjusted by an interest rate payment. To the extent that the relative
performance of the two baskets of securities 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 in
value, 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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions
for financial statement purposes are classified as distributions in excess
of net investment income or accumulated net realized gains.
18
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, 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, 2000, the Fund received $213 in
purchase premiums and $455,227 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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $552. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
19
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000,
aggregated $45,530,794 and $134,918,506, respectively.
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$37,859,609 $8,902,414 $(3,084,031) $5,818,383
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 68.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Funds
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
August 31, 2000 February 29, 2000
------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 3,389 $ 42,555 565,817 $ 6,993,580
Shares issued to shareholders
in reinvestment of distributions 751,239 8,624,304 692,802 9,146,296
Shares repurchased (5,835,774) (91,045,343) (5,062,220) (64,362,173)
----------- ------------ ----------- ------------
Net decrease (5,081,146) $(82,378,484) (3,803,601) $(48,222,297)
=========== ============ =========== ============
</TABLE>
20
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENTS -- 98.4%
COMMON STOCKS -- 10.4%
DIVERSIFIED -- 2.1%
62,500 Catellus Development Corp* 1,117,187
50,000 St. Joe Co 1,465,625
-----------
2,582,812
-----------
LODGING -- 4.6%
157,500 Starwood Hotels and Resorts Worldwide Inc 5,040,000
350,000 Wyndham International Inc, Class A* 743,750
-----------
5,783,750
-----------
OFFICE -- 3.7%
35,000 Brookfield Properties Corp 560,000
255,000 Trizec Hahn Corporation 4,032,187
-----------
4,592,187
-----------
TECHNOLOGY -- 0.0%
5,000 VelocityHSI Inc* 17,500
-----------
TOTAL COMMON STOCKS (COST $21,562,637) 12,976,249
-----------
REAL ESTATE INVESTMENT TRUSTS -- 88.0%
APARTMENTS -- 13.6%
75,000 Apartment Investment & Management Co, Class A 3,365,625
25,000 BRE Properties Inc 729,687
80,000 Cornerstone Realty Income Trust 840,000
137,500 Equity Residential Properties Trust 6,600,024
25,000 Gables Residential Trust 693,750
20,000 Mid America Apartment Community 483,750
25,000 Smith (Charles E) Residential 1,028,125
52,500 Summit Properties Inc 1,220,625
200,000 United Dominion Realty Trust Inc 2,162,500
-----------
17,124,086
-----------
DIVERSIFIED -- 15.5%
75,000 Colonial Properties Trust 2,006,250
347,500 Crescent Real Estate Equities 7,688,437
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED -- CONTINUED
65,000 Glenborough Realty Trust Inc 1,210,625
50,000 Meditrust Corp 115,625
65,000 The Rouse Co 1,568,125
185,000 Vornado Realty Trust 6,845,000
-----------
19,434,062
-----------
FACTORY OUTLET -- 0.5%
20,000 Chelsea GCA Realty Inc 671,250
17,500 Prime Retail Inc 12,031
-----------
683,281
-----------
INDUSTRIAL -- 7.7%
50,000 AMB Property Corp 1,209,375
55,000 Eastgroup Properties Inc 1,203,125
80,000 First Industrial Realty Trust 2,375,000
80,000 Liberty Property Trust 2,090,000
122,500 Prologis Trust 2,802,187
-----------
9,679,687
-----------
LODGING -- 5.5%
80,000 Felcor Lodging Trust Inc 1,780,000
34,000 Hospitalities Properties Trust 790,500
400,000 Host Marriott Corp 4,275,000
-----------
6,845,500
-----------
MANUFACTURED HOUSING -- 0.6%
29,000 Chateau Communities Inc 754,000
-----------
OFFICE -- 34.5%
12,500 Alexandria Real Estate Equity Inc 437,500
40,000 Arden Realty Group Inc 1,020,000
62,500 Bedford Property Investors 1,214,844
17,500 Boston Properties Inc 707,656
200,000 Brandywine Realty Trust 4,100,000
25,000 CarrAmerica Realty Corp 726,562
240,000 Duke Realty Investments 5,700,000
205,000 Equity Office Properties Trust 5,919,375
162,500 Highwood Properties Inc 3,910,156
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------
<C> <S> <C>
OFFICE -- CONTINUED
50,000 Kilroy Realty Corp 1,243,750
62,800 Koger Equity Inc 1,075,450
250,000 Mack-Cali Realty Corp 6,546,875
65,000 Parkway Properties Inc 2,063,750
100,000 Prentiss Properties Trust 2,431,250
5,000 Prime Group Realty Trust 76,875
3,500 PS Business Parks Inc 92,750
65,000 Reckson Associates Realty Corp 1,580,313
24,000 Reckson Associates Realty Corp, Class B 613,500
25,000 SL Green Realty Corp 670,313
60,000 Spieker Properties Inc 3,277,500
-----------
43,408,419
-----------
REGIONAL MALLS -- 6.9%
29,800 CBL & Associates Properties Inc 711,475
60,000 General Growth Properties 1,927,500
50,000 JP Realty Inc 887,500
52,500 Macerich Co 1,099,219
74,500 Mills Corp 1,350,313
42,500 Simon Property Group Inc 969,531
50,000 Urban Shopping Centers Inc 1,746,875
-----------
8,692,413
-----------
SELF STORAGE -- 0.4%
5,200 Public Storage Inc 126,750
15,000 Shurgard Storage Centers Inc 357,188
-----------
483,938
-----------
SHOPPING/POWER CENTER -- 2.3%
100,000 Developers Diversified Realty Corp 1,450,000
49,000 JDN Realty Corp 505,313
70,000 New Plan Excel Realty Trust 966,875
-----------
2,922,188
-----------
TELECOMMUNICATIONS -- 0.1%
2,500 Pinnacle Holdings Inc* 100,625
-----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<C> <S> <C>
TRIPLE NET LEASING -- 0.4%
25,000 iStar Financial Inc 523,438
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $117,907,064) 110,651,637
-------------
TOTAL REAL ESTATE INVESTMENTS (COST $139,469,701) 123,627,886
-------------
SHORT-TERM INVESTMENTS -- 5.9%
CASH EQUIVALENTS -- 4.2%
$ 1,754,618 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(a) 1,754,618
$ 1,605,701 Harris Trust & Savings Bank Time Deposit, 6.50%, due
9/05/00(a) 1,605,701
1,973,681 Merrimac Cash Fund Premium Class(a) 1,973,681
-------------
5,334,000
-------------
REPURCHASE AGREEMENT -- 1.7%
$ 2,105,626 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/01/00, with a maturity value of
$2,105,961 and an effective yield of 5.73%,
collateralized by a U.S. Treasury Obligation with a
rate of 9.25%, maturity date of 2/15/16 and market
value, including accrued interest, of $2,156,239. 2,105,626
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $7,439,626) 7,439,626
-------------
TOTAL INVESTMENTS -- 104.3%
(Cost $146,909,327) 131,067,512
Other Assets and Liabilities (net) -- (4.3%) (5,376,856)
-------------
TOTAL NET ASSETS -- 100.0% $ 125,690,656
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
* 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $146,909,327) (Note 1) $131,067,512
Receivable for Fund shares sold 260
Dividends and interest receivable 108,127
Receivable for expenses waived or borne by Manager (Note
2) 5,890
------------
Total assets 131,181,789
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 5,334,000
Payable for Fund shares repurchased 52,260
Payable to affiliate for (Note 2):
Management fee 59,279
Shareholder service fee 16,472
Accrued expenses 29,122
------------
Total liabilities 5,491,133
------------
NET ASSETS $125,690,656
============
NET ASSETS CONSIST OF:
Paid-in capital $167,195,924
Accumulated undistributed net investment income 4,438,701
Accumulated net realized loss (30,102,154)
Net unrealized depreciation (15,841,815)
------------
$125,690,656
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $125,690,656
============
SHARES OUTSTANDING:
Class III 12,983,702
============
NET ASSET VALUE PER SHARE:
Class III $ 9.68
============
</TABLE>
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $11,892) $ 4,823,091
Interest (including securities lending income of $2,135) 97,531
-----------
Total income 4,920,622
-----------
EXPENSES:
Management fee (Note 2) 366,114
Audit fees 19,412
Custodian and transfer agent fees 10,672
Legal fees 3,588
Trustees fees (Note 2) 828
Miscellaneous 1,196
Fees waived or borne by Manager (Note 2) (35,696)
-----------
366,114
Shareholder service fee (Note 2)
Class III 101,698
-----------
Net expenses 467,812
-----------
Net investment income 4,452,810
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on investments (5,054,876)
-----------
Change in net unrealized appreciation (depreciation) on
investments 28,303,470
-----------
Net realized and unrealized gain 23,248,594
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $27,701,404
===========
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,452,810 $ 7,373,324
Net realized loss (5,054,876) (9,292,667)
Change in net unrealized appreciation (depreciation) 28,303,470 (2,861,315)
------------ ------------
Net increase (decrease) in net assets from
operations 27,701,404 (4,780,658)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (6,731,698) (7,382,589)
------------ ------------
Total distributions from net investment income (6,731,698) (7,382,589)
------------ ------------
Net share transactions: (Note 5)
Class III (15,786,632) (10,458,232)
------------ ------------
Decrease in net assets resulting from net share
transactions (15,786,632) (10,458,232)
------------ ------------
Total increase (decrease) in net assets 5,183,074 (22,621,479)
NET ASSETS:
Beginning of period 120,507,582 143,129,061
------------ ------------
End of period (including accumulated undistributed
net investment income of $4,438,701 and $6,717,589,
respectively) $125,690,656 $120,507,582
============ ============
</TABLE>
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)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.26 $ 9.13 $ 12.92 $ 12.62 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.31+ 0.51+ 0.51+ 0.53 0.24
Net realized and unrealized gain
(loss) 1.58 (0.87) (3.36) 1.26 2.60
-------- -------- -------- -------- --------
Total from investment operations 1.89 (0.36) (2.85) 1.79 2.84
-------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.47) (0.51) (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 (0.47) (0.51) (0.94) (1.49) (0.22)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.68 $ 8.26 $ 9.13 $ 12.92 $ 12.62
======== ======== ======== ======== ========
TOTAL RETURN(a) 22.87%++ (4.69)% (23.27)% 14.29% 28.49%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $125,691 $120,508 $143,129 $374,774 $260,929
Net expenses to average daily net
assets 0.69%** 0.69% 0.69% 0.69% 0.69%**
Net investment income to average
daily net assets 6.57%** 5.64% 4.60% 4.10% 4.72%**
Portfolio turnover rate 5% 13% 59% 86% 21%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) $ 0.01 $ 0.03 $ 0.03 $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(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.
++ Not annualized.
* 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, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in or exposure to real
estate investment trusts ("REIT"), which are managed vehicles that invest
in real estate or real estate-related assets. The Fund's benchmark is the
Morgan Stanley REIT Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
9
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. As of August 31, 2000, 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, 2000, the Fund loaned securities having a
market value of $5,195,625, collateralized by cash in the amount of
$5,334,000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
10
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At February 29, 2000, the Fund had capital loss carryforwards available to
offset future capital gains, if any, of $8,368,927 and $15,979,464,
expiring in 2007 and 2008, respectively. The value of the capital loss
carryforwards may be limited due to significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable foreign withholding taxes, 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.
11
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000, the Fund received $37,774 in
purchase premiums and $139,809 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.
GMO has entered into a binding agreement effective until June 30, 2001 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 six months ended August 31, 2000 was $828. 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, 2000,
aggregated $6,145,431 and $22,453,033, respectively.
12
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$146,909,327 $7,054,601 $(22,896,416) $(15,841,815)
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 15.0% 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, 2000 February 29, 2000
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 862,376 $ 7,554,704 3,881,568 $ 33,381,589
Shares issued to shareholders
in reinvestment of distributions 480,290 4,620,387 483,941 4,594,949
Shares repurchased (2,940,894) (27,961,723) (5,462,918) (48,434,770)
---------- ------------ ---------- ------------
Net decrease (1,598,228) $(15,786,632) (1,097,409) $(10,458,232)
========== ============ ========== ============
</TABLE>
13
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 96.1%
ADVERTISING -- 0.2%
24,100 24/7 Media Inc* 347,944
7,000 Getty Images Inc* 294,000
-------------
641,944
-------------
AEROSPACE -- 0.4%
10,000 Curtiss Wright Corp 454,375
21,400 Kaman Corp, Class A 280,875
16,600 Teleflex Inc 591,375
-------------
1,326,625
-------------
AUTOMOTIVE -- 1.4%
43,650 ArvinMeritor Inc 720,225
18,900 Autoliv Inc 435,881
11,900 Bandag Inc 387,494
14,500 Borg Warner Automotive Inc 498,437
41,100 Cooper Tire & Rubber Co 495,769
12,300 Lear Corp* 265,219
19,600 Modine Manufacturing Co 551,250
15,250 Smith (AO) Corp, Class B 240,187
15,300 Superior Industries International Inc 496,294
19,600 Wabash National Corp 218,050
-------------
4,308,806
-------------
BANKING AND FINANCIAL SERVICES -- 8.2%
22,000 Advanta Corp, Class A 286,000
4,100 Affiliated Managers Group Inc* 228,575
23,100 Associated Banc Corp 580,027
13,100 Astoria Financial Corp 460,137
19,100 Baldwin and Lyons Inc, Class B 371,256
33,900 Bancwest Corp 599,606
7,500 Bank United Corp 337,500
27,500 Banknorth Group Inc 450,312
19,928 BOK Financial Corporation* 356,213
19,800 Capitol Federal Financial 287,100
13,600 Comdisco Inc 326,400
6,900 Commerce Bancshares Inc 248,400
28,200 Commercial Federal Corp 509,362
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
32,600 Compass Bankshares Inc 594,950
10,500 Corus Bancshares Inc 346,500
7,500 Dain Rauscher Corp 603,281
17,700 Dime Bancorp Inc 325,237
18,516 Downey Financial Corp 620,286
40,600 Edwards (AG) Inc 2,111,200
14,100 First Bancorp Puerto Rico 274,950
5,600 First Citizens Bancshares, Class A 368,550
18,400 First Federal Financial Corp* 331,200
21,100 First Security Corp 321,775
12,300 Greenpoint Financial Corp 321,337
23,100 Heller Financial Inc 574,612
33,500 Hibernia Corporation, Class A 420,844
16,300 Independence Community Bank Corp 221,069
17,000 IndyMac Bancorp Inc 286,875
15,000 Jefferies Group Inc 456,562
24,100 Leucadia National Corp 629,612
24,100 Liberty Financial Cos 569,362
22,225 Morgan Keegan Inc 445,889
11,200 Neuberger Berman Inc 662,900
33,200 Pacific Century Financial Corp 464,800
41,550 PMI Group Inc 2,576,100
32,075 Raymond James Financial Corp 914,137
14,200 Richmond County Financial Corp 285,775
35,400 Riggs National Corp 422,587
71,100 Roslyn Bancorp Inc 1,408,669
18,600 Silicon Valley Bancshares* 1,071,825
102,696 Sovereign Bancorp Inc 872,916
8,000 Student Loan Group 381,500
13,000 TCF Financial Corp 426,562
9,001 UMB Financial Corp 324,599
9,400 Value Line Inc 337,225
28,264 Washington Federal Inc 586,478
1,200 Wesco Financial Corp 288,000
6,800 Whitney Holding Corp 241,825
-------------
26,130,877
-------------
CHEMICALS -- 2.3%
21,900 Albemarle Corp 543,394
25,300 Cytec Industries Inc* 844,387
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS -- CONTINUED
6,800 Dexter Corp 402,050
52,800 Engelhard Corp 990,000
12,850 Ferro Corp 265,031
8,800 Great Lakes Chemical Corp 297,000
35,400 Hanna (MA) Co 294,262
50,500 IMC Global Inc 741,719
50,000 Kaiser Aluminum Corp* 284,375
18,000 Lubrizol Corp 390,375
33,400 Millenium Chemicals Inc 551,100
28,600 Mississippi Chemical Corp 117,975
25,400 Olin Corp 419,100
48,400 RPM Inc 462,825
15,900 Stepan Co 331,912
29,400 Wellman Inc 354,637
-------------
7,290,142
-------------
COMPUTER AND OFFICE EQUIPMENT -- 1.0%
56,800 Advanced Micro Devices Inc* 2,137,100
9,900 Everex Systems Inc(a)* 0
39,300 Reynolds & Reynolds Inc, Class A 712,312
7,600 Safeguard Scientifics Inc* 217,075
-------------
3,066,487
-------------
CONSTRUCTION -- 1.9%
41,700 Centex Corp 1,204,087
28,700 Horton (DR) Inc 563,237
31,000 Kaufman & Broad Home Corp 769,187
50,000 Pulte Corp 1,646,875
8,100 Quanta Services Inc* 378,675
13,900 Texas Industries Inc 474,337
29,900 Toll Brothers Inc* 975,487
-------------
6,011,885
-------------
CONSUMER GOODS -- 3.6%
10,341 Block Drug Co Inc, Class A 418,810
17,400 Brown Shoe Co Inc 187,050
31,300 Callaway Golf Co 451,894
16,100 Columbia Sportswear Co* 658,087
13,300 Footstar Inc* 395,675
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER GOODS -- CONTINUED
19,400 Furniture Brands International Inc* 312,825
35,100 HA-LO Industries Inc* 175,500
29,800 Hon Industries Inc 802,737
13,100 Kellwood Co 209,600
23,600 Kimball International, Class B 401,200
18,215 Lancaster Colony Corp 420,083
23,000 Liz Claiborne Inc 1,010,562
24,600 Mohawk Industries Inc* 584,250
19,700 National Service Industries 392,769
5,600 Nautica Enterprises Inc* 66,150
27,100 Oakley Inc* 459,006
20,500 Pittston Brinks Group 319,031
21,000 Polo Ralph Lauren Corp* 406,875
24,200 Reebok International Ltd* 464,337
20,500 Russell Corp 390,781
27,600 Steelcase Inc 457,125
73,232 Sunbeam Corp* 141,887
18,500 Tech Data Corp* 955,062
28,700 Unifi Inc* 324,669
41,620 US Industries Inc 530,655
44,500 Wolverine World Wide Inc 486,719
-------------
11,423,339
-------------
ELECTRONIC EQUIPMENT -- 7.8%
12,500 Adaptec Inc* 306,250
30,100 American Power Conversion Corp* 716,756
14,800 Andrew Corp* 438,450
12,000 APW Ltd* 528,000
50,900 Arrow Electronics Inc* 1,851,487
52,600 Atmel Corp* 1,052,000
35,000 AVX Corp 1,047,812
29,550 Cable Design Technologies Corp* 797,850
21,900 Cypress Semiconductor Corp* 1,082,681
24,700 Diebold Inc 697,775
82,800 Glenayre Technologies Inc* 900,450
7,500 Harman International Industries 575,625
19,800 Harris Corp 595,237
13,200 Hubbell Inc, Class B 341,550
13,700 Imation Corp* 304,825
17,500 Integrated Device Technology Inc* 1,535,625
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC EQUIPMENT -- CONTINUED
21,100 International Rectifier Corp* 1,327,981
42,600 Kemet Corp* 1,278,000
20,200 Lincoln Electric Holdings Inc 295,425
17,300 Litton Industries * 956,906
24,700 MEMC Electronic Materials Inc* 444,600
9,400 Methode Electronics, Class A 565,175
37,400 National Semiconductor Corp* 1,664,300
31,600 Pioneer Standard Electronics Inc 432,525
800 SDL Inc* 317,850
29,400 Sensormatic Electronics Corp* 488,775
49,600 Silicon Valley Group Inc* 1,382,600
9,600 Siliconix Inc* 536,400
15,400 Thomas & Betts Corp 288,750
18,700 Valmont Industries Inc 354,131
42,455 Vishay Intertechnology Inc* 1,711,467
54,728 Zilog Inc(b)* 136,393
-------------
24,953,651
-------------
ENTERTAINMENT & LEISURE -- 1.8%
7,500 Anchor Gaming* 549,375
44,600 Harrahs Entertainment Inc* 1,265,525
38,700 Mandalay Resort Group* 1,076,344
40,100 Metro Goldwyn Mayer Inc* 1,027,562
105,500 Park Place Entertainment Corp* 1,549,531
8,000 Six Flags Inc* 119,500
-------------
5,587,837
-------------
FOOD AND BEVERAGE -- 3.2%
8,300 Agribrands International Inc* 329,925
50,400 Bob Evans Farms Inc 856,800
20,600 Corn Product International Inc 517,575
6,000 Dean Foods Co 187,500
2,700 Farmer Brothers Co 465,244
78,100 IBP Inc 1,254,481
12,600 International Multifoods Corp 205,537
22,200 Interstate Bakeries Corp 398,212
12,900 Keebler Food Co 590,981
26,500 Luby's Cafeterias Inc 145,750
13,300 Michael Foods Inc 315,875
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
FOOD AND BEVERAGE -- CONTINUED
30,100 Pepsi Bottling Group Inc 955,675
41,200 RJ Reynolds Tobacco Holdings 1,478,050
860 Seaboard Corp 167,700
15,700 Smithfield Foods Inc* 417,031
15,700 Suiza Foods Corp* 785,000
16,300 Universal Corp 421,762
25,350 Universal Foods Corp 519,675
24,900 Whitman Corp 328,369
-------------
10,341,142
-------------
HEALTH CARE -- 4.9%
19,400 Arrow International Inc 691,125
140,200 Beverly Enterprises Inc* 727,287
9,100 Celera Genomics Group* 986,781
12,400 Chiron Corp* 670,375
11,400 Cooper (The) Companies Inc 374,775
43,200 Coventry Health Care Inc* 691,200
25,900 Dentsply International Inc 864,412
60,210 Foundation Health Systems Inc, Class A* 1,057,438
54,600 Health Management Associates Inc* 890,662
25,500 Hillenbrand Industries Inc 887,719
21,400 Invacare Corp 576,462
5,330 Laboratory Corp of America Holdings* 630,606
23,100 Mallinckrodt Inc 1,040,944
60,700 Manor Care Inc* 811,862
41,600 Mid Atlantic Medical Services Inc* 670,800
13,100 Ocular Sciences Inc* 140,825
13,000 Quest Diagnostics Inc* 1,608,750
40,300 Quorum Health Group Inc* 518,862
18,900 Trigon Healthcare Inc* 975,712
8,900 Universal Health Services, Class B* 629,675
-------------
15,446,272
-------------
INSURANCE -- 6.3%
9,000 21st Century Insurance Group 142,312
1,792 Alleghany Corp* 312,616
20,600 Allmerica Financial Corp 1,254,025
22,600 American Financial Group Inc 560,762
8,200 American National Insurance Co 504,300
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
15,700 Amerus Life Holdings Inc 387,594
21,700 Argonaut Group Inc 358,050
17,000 Berkley (WR) Corp 450,500
21,100 Commerce Group Inc 548,600
12,699 Delphi Financial Group Inc* 525,421
8,100 Erie Indemnity Co, Class A 250,594
24,870 Fidelity National Financial Inc 495,846
38,750 First American Financial Corp 639,375
50,330 Fremont General Corp 160,427
21,300 Harleysville Group Inc 410,025
34,900 HCC Insurance Holdings Inc 737,262
13,400 Horace Mann Educators Corp 204,350
59,200 Humana Inc* 506,900
19,600 Kansas City Life Insurance Co 654,150
5,300 Liberty Corp 204,050
23,700 Mercury General Corp 650,269
18,300 Mony Group Inc 691,969
38,600 Ohio Casualty Corp 284,675
54,000 Old Republic International Corp 1,292,625
3,700 Pacificare Health Systems Inc* 199,569
23,100 Presidential Life Corp 349,387
12,500 Protective Life Corp 359,375
26,600 Radian Group Inc 1,652,525
291,300 Reliance Group Holdings Inc 63,736
16,600 ReliaStar Financial Corp 893,287
10,343 RLI Corp 398,205
24,600 Selective Insurance Group 441,262
1,000 StanCorp Financial Group Inc 40,000
21,500 Torchmark Corp 603,344
20,500 Transatlantic Holding Inc 1,787,344
10,850 Trenwick Group Inc 205,472
37,400 UICI* 247,775
13,500 Unitrin Inc 410,906
1,900 White Mountains Insurance Group Inc 309,700
-------------
20,188,584
-------------
LODGING -- 0.3%
10,300 MGM Grand Inc 354,062
43,900 Prime Hospitality Corp* 455,462
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
LODGING -- CONTINUED
119,300 Wyndham International Inc, Class A* 253,512
-------------
1,063,036
-------------
MACHINERY -- 3.3%
43,400 Agco Corp 455,700
10,900 Cooper Cameron Corp* 848,156
23,300 Cummins Engine Inc 827,150
20,700 Detroit Diesel Corp 472,219
25,000 Donaldson Co Inc 528,125
16,000 Flowserve Corp 296,000
17,400 FMC Corp* 1,179,937
6,900 Ionics Inc* 205,706
13,700 Kaydon Corp 302,256
19,900 Kennametal Inc 509,937
7,200 Kulicke & Soffa Industries* 130,950
20,600 Lam Research Corp* 620,575
55,500 Milacron Inc 856,781
6,700 Nordson Corp 433,825
3,100 Smith International Inc* 246,450
21,200 SpeedFam-IPEC Inc* 394,850
16,500 Stanley Works 441,375
10,300 Tecumseh Products Co 409,425
9,000 Tecumseh Products Co, Class B 348,750
11,100 Toro Co 335,775
14,800 Ultratech Stepper Inc* 266,400
22,100 York International Corp 549,737
-------------
10,660,079
-------------
MANUFACTURING -- 2.6%
25,200 American Greetings Corp 469,350
12,000 Applied Power Inc, Class A 59,250
12,400 Barnes Group Inc 241,025
72,512 Clayton Homes Inc 706,992
32,650 Crane Co 820,331
6,100 CSS Industries Inc* 125,050
63,000 General Cable Corp 527,625
9,300 Greif Brothers Corp 268,537
17,600 Harsco Corp 489,500
20,700 International Game Technology* 600,300
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- CONTINUED
27,000 Lafarge Corp 658,125
18,000 Mine Safety Appliances 369,000
28,600 Omnicare Inc 391,462
5,800 Sequa Corp, Class A* 268,250
24,400 Snap-On Inc 751,825
13,200 Standex International Corp 245,025
8,400 Temple Inland Inc 356,475
20,600 Tower Automotive Inc* 234,325
23,100 Trinity Industries Inc 447,562
18,800 Watts Industries Inc, Class A 211,500
-------------
8,241,509
-------------
METALS AND MINING -- 2.0%
11,300 Allegheny Technologies Inc 245,775
33,700 Arch Coal Inc 252,750
74,600 Bethlehem Steel Corp* 261,100
30,900 Cleveland Cliffs Inc 776,362
12,000 Commercial Metals Co 335,250
19,100 Nacco Industries Inc, Class A 895,313
38,700 Phelps Dodge Corp 1,722,150
14,300 Southern Peru Copper Corp 199,306
33,600 Timken Co 548,100
56,300 USX-US Steel Group Inc 978,213
-------------
6,214,319
-------------
OIL AND GAS -- 6.6%
16,800 AGL Resources Inc 318,150
12,100 BJ Services Co* 810,700
10,386 Devon Energy Corp 608,230
24,100 Ensco International Inc 960,988
5,300 EOG Resources Inc 202,725
6,100 Equitable Resources Inc 343,506
13,600 Global Marine Inc* 439,450
15,900 Gulf Island Fabrication Inc* 294,150
21,800 Helmerich & Payne Inc 805,238
59,700 Key Energy Services Inc* 619,388
47,300 Kinder Morgan Inc 1,741,231
6,300 Louis Dreyfus Natural Gas* 218,925
15,100 Marine Drilling Co Inc* 410,531
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
OIL AND GAS -- CONTINUED
16,600 Nabors Industries Inc* 789,538
6,100 National Fuel Natural Gas Co 319,869
30,100 National-Oilwell Inc* 1,044,094
12,100 Noble Drilling Corp* 586,850
52,100 Ocean Energy Inc* 791,269
151,700 Parker Drilling Co* 1,090,344
14,400 Patterson Energy Inc* 451,800
9,800 Peoples Energy Corp 318,500
29,900 Pioneer Natural Resources Co* 414,863
33,600 Pride International Inc* 827,400
34,900 Questar Corp 756,894
56,200 R&B Falcon Corp* 1,601,700
6,300 Rowan Cos Inc* 195,300
14,700 Seacor Smit Inc* 669,769
18,300 Superior Energy Services Inc* 201,300
21,700 Tidewater Inc 876,138
35,861 Varco International Inc* 723,944
24,700 Veritas DGC Inc* 659,181
38,900 Vintage Petroleum Inc 816,900
-------------
20,908,865
-------------
PAPER AND ALLIED PRODUCTS -- 1.5%
10,400 Boise Cascade Corp 310,700
6,900 Bowater Inc 354,488
7,600 Caraustar Industries Inc 117,325
19,400 Graphic Packaging International Corp* 38,800
24,600 Louisiana Pacific Corp 259,838
26,600 Mail-Well Inc* 192,850
17,400 Mead Corp 466,538
19,200 Pentair Inc 624,000
23,900 Rock-Tenn Co, Class A 246,469
45,000 Sonoco Products Co 869,063
16,800 United Stationers Inc* 544,950
36,100 Wausau-Mosinee Paper Corp 320,388
17,500 Westvaco Corp 479,063
-------------
4,824,472
-------------
PHARMACEUTICALS -- 1.3%
37,900 Axys Pharmaceuticals Inc* 293,725
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS -- CONTINUED
20,100 ICN Pharmaceuticals Inc 569,081
31,675 Mark IV Industries Inc 708,728
41,300 Mylan Laboratories Inc 1,097,031
21,200 NBTY Inc* 149,725
39,300 Nu Skin Enterprises Inc* 257,906
11,400 Protein Design Labs Inc* 866,400
6,600 Sigma Aldrich Corp 191,813
7,400 West Pharmaceutical Services Inc 154,013
-------------
4,288,422
-------------
PRIMARY MATERIALS -- 0.3%
18,200 A. Schulman Inc 219,538
11,300 Carlisle Cos Inc 517,681
9,700 Florida Rock Industries 372,844
-------------
1,110,063
-------------
PRIMARY PROCESSING -- 1.3%
28,900 AK Steel Holding Corp 314,288
17,700 Belden Inc 462,413
15,700 Carpenter Technology Corp 510,250
125,700 LTV Corp 227,831
9,700 Mueller Industries Inc* 306,156
45,200 National Steel Corp, Class B 183,625
8,800 NCH Corp 328,350
11,300 Precision Castparts Corp 858,800
15,500 Quanex Corp 289,656
24,313 Superior TeleCom Inc 205,141
11,400 Valspar Corp 336,300
-------------
4,022,810
-------------
PRINTING AND PUBLISHING -- 0.4%
38,000 AH Belo Corp 726,750
28,200 Hollinger International Inc 461,775
17,100 Ziff Davis Inc 188,100
-------------
1,376,625
-------------
REAL ESTATE -- 8.2%
18,635 AMB Property Corp, REIT 450,734
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- CONTINUED
17,204 Apartment Investment & Management Co, Class A, REIT 772,030
23,543 Archstone Communities Trust, REIT 579,746
18,744 Arden Realty Group Inc, REIT 477,972
16,970 Avalonbay Communities Inc, REIT 758,347
12,869 Boston Properties Inc, REIT 520,390
15,238 Bradley Real Estate Inc, REIT 333,331
17,743 Cabot Industrial Trust, REIT 348,206
14,740 Camden Property Trust, REIT 441,279
16,823 CarrAmerica Realty Corp, REIT 488,918
17,203 CBL & Associates Properties Inc, REIT 410,722
4,920 Chelsea GCA Realty Inc, REIT 165,128
14,186 Colonial Properties Trust, REIT 379,476
24,808 Crescent Real Estate Equities, REIT 548,877
22,523 Developers Diversified Realty Corp, REIT 326,584
32,994 Duke Realty Investments, REIT 783,608
14,515 Federal Realty Investment Trust 290,300
25,564 Felcor Lodging Trust Inc, REIT 568,799
12,871 First Industrial Realty Trust, REIT 382,108
12,427 Franchise Finance Corp of America, REIT 279,608
14,980 Gables Residential Trust, REIT 415,695
15,995 General Growth Properties, REIT 513,839
12,873 Glenborough Realty Trust Inc, REIT 239,760
20,303 Glimcher Realty Trust, REIT 312,159
7,800 Health Care Property Investors Inc, REIT 205,238
24,300 Health Care REIT Inc 438,919
14,300 Healthcare Realty Trust Inc, REIT 282,425
19,362 Highwood Properties Inc, REIT 465,898
12,487 Home Properties of NY Inc, REIT 370,708
15,201 Hospitalities Properties Trust, REIT 353,423
49,800 Host Marriott Corp, REIT 532,238
23,625 iStar Financial Inc, REIT 494,648
12,009 Kimco Realty Corp, REIT 487,866
17,700 Lennar Corp 488,963
20,971 Liberty Property Trust, REIT 547,867
17,000 LNR Property Corp 361,250
16,006 Mack-Cali Realty Corp, REIT 419,157
15,911 Meristar Hospitality Corp, REIT 352,031
27,789 New Plan Excel Realty Trust, REIT 383,836
8,000 Pinnacle Holdings Inc, REIT* 322,000
15,800 Plum Creek Timber Co Inc, REIT 383,150
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- CONTINUED
12,109 Post Properties Inc, REIT 512,362
14,956 Prentiss Properties Trust, REIT 363,618
120,777 Prison Realty Trust Inc, REIT 286,845
24,382 Prologis Trust, REIT 557,738
13,792 PS Business Parks Inc, REIT 365,488
21,489 Public Storage Inc, REIT 523,794
10,441 Realty Income Corp, REIT 237,533
15,516 Reckson Associates Realty Corp, REIT 377,233
20,525 Rouse Co, REIT 495,166
33,400 Security Capital Group Inc, Class B, REIT* 567,800
4,000 Senior Housing Properties Trust, REIT 36,500
9,685 Shurgard Storage Centers Inc, REIT 230,624
13,553 SL Green Realty Corp, REIT 363,390
16,142 Spieker Properties Inc, REIT 881,757
9,157 Storage USA Inc, REIT 275,855
10,521 Summit Properties Inc, REIT 244,613
10,099 Sun Communities Inc, REIT 312,438
39,312 United Dominion Realty Trust Inc, REIT 425,061
15,443 Vornado Realty Trust, REIT 571,391
12,400 Webb (Del) Corp* 277,450
9,827 Weingarten Realty, REIT 397,994
-------------
25,981,883
-------------
REFINING -- 0.9%
18,400 Ashland Inc 648,600
34,000 Lyondell Petro Chemical Co 444,125
17,600 Sunoco Inc 478,500
59,600 Tesoro Petroleum Corp* 573,650
24,092 Ultramar Diamond Shamrock Corp 564,656
4,000 Valero Energy Corp 120,500
-------------
2,830,031
-------------
RETAIL TRADE -- 4.5%
10,800 Applebees International Inc 245,025
25,000 Borders Group Inc* 332,813
27,340 Burlington Coat Factory Warehouse 333,206
42,000 Cash American Investments Inc 315,000
39,400 CBRL Group Inc 475,263
54,100 Charming Shoppes Inc* 294,169
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL TRADE -- CONTINUED
23,700 Claire's Stores Inc 466,594
26,000 Consolidated Stores Corp* 354,250
14,700 CPI Inc 358,313
26,900 Dillard's Inc 344,656
28,200 Dress Barn Inc* 601,013
48,300 Goodys Family Clothing Inc* 221,881
15,500 Great Atlantic & Pacific Tea Co 217,000
33,600 Inacom Corp(b)* 1,344
34,500 Ingles Markets Inc, Class A 340,688
40,300 Lone Star Steakhouse and Saloon Inc 340,031
12,400 Michaels Stores Inc* 434,000
25,200 Neiman Marcus Group Inc, Class A* 845,775
29,800 NPC International Inc* 294,275
106,900 OfficeMax Inc* 554,544
16,200 Outback Steakhouse Inc* 371,588
16,400 Payless ShoeSource Inc* 875,350
23,900 Petco Animal Supplies Inc* 501,900
32,500 Phillips Van Heusen 296,563
38,400 Pier 1 Imports Inc 451,200
32,900 Ruby Tuesday Inc 411,250
16,900 Ruddick Corp 207,025
42,900 Ryan's Family Steak Houses Inc* 348,563
22,700 Saks Inc* 227,000
19,900 Shopko Stores Inc* 227,606
52,200 Spiegel Inc, Class A 355,613
13,000 Toys R Us Inc* 236,438
40,100 Transportation World Entertainment Corp* 388,469
25,300 Value City Department Stores Inc* 227,700
82,100 Venator Group Inc* 1,149,400
12,400 Weismarkets Inc 421,600
8,600 Zale Corp* 317,663
-------------
14,384,768
-------------
SERVICES -- 3.9%
6,500 Amerco* 127,563
25,000 Apac Teleservices Inc* 198,438
27,925 Arctic Cat Inc 330,738
32,400 Aztar Corp* 471,825
16,950 Banta Corp 373,959
7,000 Berlitz International Inc* 70,875
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
SERVICES -- CONTINUED
31,000 Bowne and Co Inc 321,625
35,700 Buffets Inc* 473,025
24,000 Ceridian Corp* 580,500
10,000 Chemed Corp 306,250
7,407 Chris Craft Industries Inc* 579,598
21,300 Dollar Thrifty Automotive Group Inc* 481,913
45,500 Edgewater Technology Inc* 284,375
32,400 Electro Rent Corp* 396,900
44,100 Fleming Cos Inc 680,794
27,600 Fluor Corp 826,275
46,000 Ingram Micro Inc* 690,000
33,100 Interpool Inc 399,269
23,800 Kelly Services, Class A 550,375
8,550 Key3Media Group Inc* 64,659
17,900 Manpower Inc 647,756
13,650 Marcus Corp 168,066
62,600 Modis Professional Services Inc* 430,375
41,100 NCO Group Inc* 714,113
10,700 Rent-A-Center Inc* 352,431
23,200 Republic Services Inc, Class A* 339,300
26,100 Rollins Truck Leasing Corp 176,175
31,200 Spherion Corp* 384,150
41,200 Supervalu Inc 615,425
28,200 Veterinary Centers of America Inc* 408,900
-------------
12,445,647
-------------
TECHNOLOGY -- 4.0%
15,908 Avnet Inc 952,492
4,900 Brocade Communications Systems Inc* 1,106,481
42,300 Cabletron Systems Inc* 1,583,606
57,400 Cadence Design Systems Inc* 1,219,750
25,900 Cirrus Logic Corp* 783,475
15,200 Deluxe Corp 334,400
13,600 Esterline Corp* 263,500
15,500 G TECH Holdings Corp* 277,063
17,400 Inprise Corp* 101,682
21,500 J.D. Edwards & Co.* 533,469
36,600 JDA Software Group Inc* 473,513
12,900 Manugistics Group Inc* 1,131,975
37,200 Network Associates Inc* 962,550
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
15,900 Policy Management System Corp* 214,650
39,100 Renaissance Worldwide Inc* 61,094
14,200 SERENA Software Inc* 624,800
6,800 Symantec Co* 331,925
12,000 Synopsys Inc* 444,750
7,850 Tektronix Inc 598,072
28,380 Thermo Electron Corp* 659,835
-------------
12,659,082
-------------
TELECOMMUNICATIONS -- 1.5%
9,900 American Tower Corp, Class A* 359,494
13,300 Aspect Communications Corp* 300,081
31,200 Citizens Communications Co* 508,950
12,900 MRV Communications Inc* 994,106
3,600 Redback Networks Inc* 537,750
5,800 Telephone and Data Systems Inc 672,800
10,300 VoiceStream Wireless Corp* 1,159,394
12,000 West Teleservices* 285,000
-------------
4,817,575
-------------
TEXTILES -- 0.2%
4,200 Crystal Brands Inc(a) 0
25,750 Guilford Mills 90,125
23,000 Shaw Industries Inc 286,063
11,400 Springs Industries Inc, Class A 340,575
-------------
716,763
-------------
TRANSPORTATION -- 3.3%
23,300 Airborne Freight Corp 348,044
7,700 Alexander & Baldwin Inc 202,606
16,700 America West Holdings Corp, Class B* 244,238
45,400 Brunswick Corp 851,250
10,300 CNF Transportation Inc 252,350
35,900 Continental Airlines Inc, Class B* 1,727,688
23,400 Fleetwood Enterprises Inc 320,288
5,300 Florida East Coast Industries Inc 231,213
14,200 GATX Corp 577,763
28,300 Heartland Express Inc* 495,250
23,800 Navistar International Corp* 892,500
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
58,000 Offshore Logistics Inc* 1,007,750
35,200 Ryder System Inc 675,400
24,800 UAL Corp 1,184,200
13,700 US Freightways Corp 427,269
20,900 Werner Enterprises Inc 282,150
33,800 Wisconsin Central Transport* 452,075
21,200 Yellow Corp* 323,300
-------------
10,495,334
-------------
UTILITIES -- 7.0%
33,500 Alliant Energy Corp 979,875
13,900 American Water Works Co 340,550
13,100 Atmos Energy Corp 271,825
10,500 Avista Corp 193,594
8,000 Black Hills Corp 204,000
11,300 Calpine Corp* 1,118,700
13,600 CH Energy Group Inc 513,400
11,000 Cleco Corp 459,250
16,800 CMP Group Inc 493,500
35,050 Connectiv Inc 622,138
10,500 DPL Inc 286,781
13,190 Dynegy Inc 593,550
11,300 Eastern Enterprises 714,725
38,400 El Paso Electric Co* 516,000
18,800 Energen Corp 487,625
13,500 Energy East Corp 306,281
10,000 Hawaiian Electric Industries Inc 327,500
13,900 Kansas City Power and Light Co 373,563
19,100 LG&E Energy Corp 467,950
27,100 MCN Corp 650,400
17,300 Minnesota Power & Light Co 383,844
71,700 Niagara Mohawk Holdings Inc* 923,138
14,500 Nicor Inc 534,688
6,900 NiSource Inc 165,169
38,300 Northeast Utilities 871,325
10,100 NSTAR 424,831
10,700 Nui Corporation 321,669
31,900 OGE Energy Corp 681,863
17,700 Oneok Inc 565,294
23,300 Pinnacle West Capital Corp 959,669
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
21,900 Potomac Electric Power Co 551,606
31,900 Public Service Co of New Mexico 681,863
14,500 Puget Sound Power and Light Co 338,938
17,800 RGS Energy Group Inc 442,775
24,700 SCANA Corp 676,163
17,300 Teco Energy Inc 424,931
23,140 UniSource Energy Corp 360,116
23,800 Utilicorp United Inc 566,738
12,300 Washington Gas Light Co 311,344
28,000 Western Gas Resources Inc 614,250
44,700 Western Resources Inc 894,000
25,200 Wisconsin Energy Corp 535,500
9,200 WPS Resources Corp 276,575
-------------
22,427,496
-------------
TOTAL COMMON STOCKS (COST $294,117,155) 306,186,370
-------------
RIGHTS AND WARRANTS -- 0.0%
CONSUMER GOODS -- 0.0%
6,934 Sunbeam Corporation Warrants, Expires 08/24/03* 1,734
-------------
TOTAL RIGHTS AND WARRANTS (COST $4,334) 1,734
-------------
SHORT-TERM INVESTMENTS -- 6.8%
CASH EQUIVALENTS -- 3.3%
$ 2,617,635 Fleet National Bank Time Deposit, 6.82%, due
10/31/00(c) 2,617,635
4,937,325 Merrimac Cash Fund Premium Class(c) 4,937,325
$ 3,000,000 Prudential Securities Group, Inc. Master Note, 6.96%,
due 12/08/00(c) 3,000,000
-------------
10,554,960
-------------
U.S. GOVERNMENT -- 0.5%
$ 1,480,000 U.S. Treasury Bill, 5.94%, due 12/07/00(d) 1,455,595
-------------
</TABLE>
See accompanying notes to the financial statements.
18
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.0%
$ 9,600,444 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/00, due 9/1/00, with a maturity value of
$9,601,973 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a rate
of 9.25%, maturity date of 2/15/16 and market value,
including accrued interest, of $9,794,001. 9,600,444
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $21,611,611) 21,610,999
-------------
TOTAL INVESTMENTS -- 102.9%
(Cost $315,733,100) 327,799,103
Other Assets and Liabilities (net) -- (2.9%) (9,290,264)
-------------
TOTAL NET ASSETS -- 100.0% $ 318,508,839
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
REIT - Real Estate Investment Trust
* Non-income producing security.
(a) Bankrupt issuer.
(b) Security valued at fair value using methods determined in good faith by or
at the direction of
the Trustees.
(c) Represents investments of security lending collateral (Note 1).
(d) Security has been segregated to cover margin requirements on open financial
futures contracts (Note 1 and 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $315,733,100) (Note 1) $327,799,103
Receivable for investments sold 3,846,026
Receivable for Fund shares sold 2,887
Dividends and interest receivable 493,854
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 18,957
Receivable for expenses waived or borne by Manager (Note
2) 21,203
------------
Total assets 332,182,030
------------
LIABILITIES:
Payable for investments purchased 2,357,812
Payable upon return of securities loaned (Note 1) 10,554,960
Payable for Fund shares repurchased 580,295
Payable to affiliate for (Note 2):
Management fee 87,019
Shareholder service fee 39,569
Accrued expenses 53,536
------------
Total liabilities 13,673,191
------------
NET ASSETS $318,508,839
============
NET ASSETS CONSIST OF:
Paid-in capital $317,804,713
Accumulated undistributed net investment income 934,940
Accumulated net realized loss (12,441,683)
Net unrealized appreciation 12,210,869
------------
$318,508,839
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $318,508,839
============
SHARES OUTSTANDING:
Class III 23,988,808
============
NET ASSET VALUE PER SHARE:
Class III $ 13.28
============
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $310) $ 3,160,212
Interest (including securities lending income of $32,851) 425,337
-----------
Total income 3,585,549
-----------
EXPENSES:
Management fee (Note 2) 513,037
Custodian and transfer agent fees 79,396
Audit fees 19,964
Legal fees 7,912
Trustees fees (Note 2) 1,840
Registration fees 184
Miscellaneous 2,760
Fees waived or borne by Manager (Note 2) (112,056)
-----------
513,037
Shareholder service fee (Note 2)
Class III 233,199
-----------
Net expenses 746,236
-----------
Net investment income 2,839,313
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 5,838,492
Closed futures contracts (1,991,666)
Closed swap contracts (2,346,475)
-----------
Net realized gain 1,500,351
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 35,223,217
Open futures contracts (751,438)
Open swap contracts (642,213)
-----------
Net unrealized gain 33,829,566
-----------
Net realized and unrealized gain 35,329,917
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,169,230
===========
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,839,313 $ 3,795,008
Net realized gain 1,500,351 8,100,985
Change in net unrealized appreciation (depreciation) 33,829,566 23,581,962
------------ --------------
Net increase in net assets from operations 38,169,230 35,477,955
------------ --------------
Distributions to shareholders from:
Net investment income
Class III (2,429,524) (3,821,691)
------------ --------------
Total distributions from net investment income (2,429,524) (3,821,691)
------------ --------------
Net realized gains
Class III (15,273,079) (10,205,405)
------------ --------------
Total distributions from net realized gains (15,273,079) (10,205,405)
------------ --------------
(17,702,603) (14,027,096)
------------ --------------
Net share transactions: (Note 5)
Class III 32,264,669 (103,356,983)
------------ --------------
Increase (decrease) in net assets resulting from net
share transactions 32,264,669 (103,356,983)
------------ --------------
Total increase (decrease) in net assets 52,731,296 (81,906,124)
NET ASSETS:
Beginning of period 265,777,543 347,683,667
------------ --------------
End of period (including accumulated undistributed
net investment income of $934,940 and $525,151,
respectively) $318,508,839 $ 265,777,543
============ ==============
</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, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 12.41 $ 11.69 $ 18.28 $ 15.89 $ 13.89 $ 13.61
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.12 0.15 0.18 0.27 0.28 0.23
Net realized and unrealized gain
(loss) 1.49 1.11 (2.50) 4.85 2.32 3.20
-------- -------- -------- -------- -------- --------
Total from investment operations 1.61 1.26 (2.32) 5.12 2.60 3.43
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.10) (0.14) (0.19) (0.29) (0.27) (0.23)
From net realized gains (0.64) (0.40) (4.08) (2.44) (0.33) (2.92)
-------- -------- -------- -------- -------- --------
Total distributions (0.74) (0.54) (4.27) (2.73) (0.60) (3.15)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.28 $ 12.41 $ 11.69 $ 18.28 $ 15.89 $ 13.89
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 13.40%** 10.66% (14.74)% 34.43% 19.12% 27.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $318,509 $265,778 $347,684 $769,612 $655,373 $231,533
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 1.83%* 1.12% 0.99% 1.51% 2.15% 1.67%
Portfolio turnover rate 67% 50% 49% 56% 58% 135%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.01 $ 0.01 $ 0.04 $ 0.04 $ 0.03 $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
* Annualized.
** Not 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, 2000 (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 of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is GMO
Russell 2500
Value + Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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
24
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000, the Fund loaned securities having a
market value of $10,198,307 collateralized by cash in the amount of
$10,554,960 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,
both based on notional amounts. 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. The Fund also enters into contracts
for differences in which the Fund agrees with the counterparty that its
return will be based on the relative performance of two different groups
or "baskets" of securities, adjusted by an interest rate payment. To the
extent that the relative performance of the two baskets of securities
exceeds or falls
25
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in value, 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, 2000 the
Fund had no open swap contracts.
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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable foreign withholding taxes, 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.
26
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 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, 2000, the Fund received $347,485 in
purchase premiums and $269,115 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, 2001 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 six months ended August 31, 2000 was $1,840. 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, 2000,
aggregated $223,238,508 and $193,735,185 respectively.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$315,733,100 $42,073,607 $(30,007,604) $12,066,003
</TABLE>
27
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 16.2% 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, 2000 February 29, 2000
------------------------- ---------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 5,446,123 $ 69,497,080 2,179,613 $ 27,387,551
Shares issued to shareholders
in reinvestment of distributions 1,343,942 16,590,685 987,722 12,477,700
Shares repurchased (4,224,189) (53,823,096) (11,478,311) (143,222,234)
----------- ------------ ------------ -------------
Net increase (decrease) 2,565,876 $ 32,264,669 (8,310,976) $(103,356,983)
=========== ============ ============ =============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
---------------------------- --------------------------------------------- --------------- ---------- --------------
<C> <S> <C> <C> <C>
Buys
24 Russell 2000 September 2000 $6,454,275 $131,894
========
Sales
2 Russell 2000 September 2000 $ 538,876 $ 12,972
========
</TABLE>
At August 31, 2000 the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
28
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 38.3%
ALBANIA -- 2.6%
USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, due
08/31/25 2,783,418
-----------
AUSTRIA -- 0.7%
GBP 500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 792,247
-----------
BRAZIL -- 0.8%
USD 1,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
04/15/24 825,000
-----------
BULGARIA -- 0.3%
USD 2,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%,
due 07/28/16 223,600
USD 2,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 07/28/24 92,500
-----------
316,100
-----------
JORDAN -- 0.2%
USD 250,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 6.00%, due 12/23/23 178,750
-----------
MEXICO -- 7.4%
FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 5,831,840
CHF 5,000,000 Mexico Par Bond, 3.75%, due 12/31/19 2,171,683
-----------
8,003,523
-----------
NIGERIA -- 0.4%
USD 987,181 Central Bank of Nigeria Par Bond Odd Lot,
Variable Rate, Step Up, 6.25%, due 11/15/20(a) 498,526
-----------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
RUSSIA -- 1.7%
USD 522,504 Russia Federation, 144A, 8.25%, due 03/31/10 370,978
USD 3,437,500 Russia Federation, 144A, Step Up, 2.25%, due
03/31/30 1,495,312
-----------
1,866,290
-----------
SUPRA NATIONAL -- 1.0%
AUD 11,800,000 European Bank for Reconstruction and Development,
Zero Coupon, due 02/10/28 1,056,796
-----------
SWEDEN -- 0.4%
SEK 3,700,000 Kingdom of Sweden, 6.00%, due 02/09/05 404,406
-----------
UNITED STATES -- 22.8%
U.S. GOVERNMENT -- 13.7%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/10(a) 5,418,329
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/12(a) 4,744,956
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 08/15/12(a) 4,590,532
-----------
14,753,817
-----------
U.S. GOVERNMENT AGENCY -- 9.1%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%, due
02/15/02(b) 4,880,750
USD 5,000,000 Government National Mortgage Association, TBA,
7.00% 4,909,375
-----------
9,790,125
-----------
TOTAL UNITED STATES 24,543,942
-----------
TOTAL DEBT OBLIGATIONS (COST $45,584,798) 41,268,998
-----------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MUTUAL FUND -- 63.2%
2,629,669 GMO Alpha LIBOR Fund (c) 68,055,844
-----------
TOTAL MUTUAL FUND (COST $67,568,635) 68,055,844
-----------
CALL OPTIONS PURCHASED -- 0.3%
OPTIONS ON CURRENCY -- 0.3%
USD 16,200,000 Japanese Yen, Expires 11/13/00, Strike 104.85 346,132
-----------
TOTAL CALL OPTIONS PURCHASED
(COST $617,220) 346,132
-----------
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
11,078,000 United Mexican States Warrants, Expires 6/30/03* --
-----------
NIGERIA -- 0.0%
987 Central Bank of Nigeria Warrants, Expires
11/15/20* --
-----------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-----------
SHORT-TERM INVESTMENTS -- 1.3%
COMMERCIAL PAPER -- 1.2%
USD 1,300,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 1,300,000
-----------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 0.1%
USD 46,794 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $46,801 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a
rate of 9.25%, maturity date of 2/15/16 and market
value, including accrued interest, of $51,958. 46,794
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,346,794) 1,346,794
-----------
TOTAL INVESTMENTS -- 103.1%
(Cost $115,117,447) 111,017,768
Other Assets and Liabilities (net) -- (3.1%) (3,344,910)
-----------
TOTAL NET ASSETS -- 100.0% $107,672,858
===========
</TABLE>
See accompanying notes to the financial statements.
4
<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, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
CPI - Consumer Price Index
EMTN - Euromarket Medium Term Note
TBA - To Be Announced (Note 1)
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
(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) All or a portion of this security has been segregated to cover collateral
requirements on TBA obligations (Note 1).
* 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $115,117,447) (Note 1) $111,017,768
Cash at interest on deposit at brokers (Note 1) 268,642
Interest receivable 695,460
Net receivable for open forward foreign currency
contracts (Notes 1 and 6) 346,584
Receivable for open swap contracts (Notes 1 and 6) 634,908
Receivable for expenses waived or borne by Manager (Note
2) 11,129
------------
Total assets 112,974,491
------------
LIABILITIES:
Payable for forward commitment (Note 1) 4,896,875
Due to custodian 224
Payable to affiliate for (Note 2):
Management fee 22,759
Shareholder service fee 13,570
Payable for variation margin on open futures contracts
(Notes 1 and 6) 331,967
Accrued expenses 36,238
------------
Total liabilities 5,301,633
------------
NET ASSETS $107,672,858
============
NET ASSETS CONSIST OF:
Paid-in capital $112,102,124
Accumulated undistributed net investment income 3,009,862
Accumulated net realized loss (4,312,612)
Net unrealized depreciation (3,126,516)
------------
$107,672,858
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $107,672,858
============
SHARES OUTSTANDING:
Class III 10,877,112
============
NET ASSET VALUE PER SHARE:
Class III $ 9.90
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $3,654,469
Dividends from investment company shares 29,868
----------
Total income 3,684,337
----------
EXPENSES:
Management fee (Note 2) 146,243
Custodian and transfer agent fees 33,488
Audit fees 24,932
Legal fees 3,128
Trustees fees (Note 2) 736
Registration fees 92
Miscellaneous 1,196
Fees waived or borne by Manager (Note 2) (63,572)
----------
146,243
Shareholder service fee (Note 2)
Class III 87,746
----------
Net expenses 233,989
----------
Net investment income 3,450,348
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (3,167,924)
Closed futures contracts (3,021,435)
Closed swap contracts 3,506,913
Foreign currency, forward contracts and foreign
currency related transactions 818,088
----------
Net realized loss (1,864,358)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 4,210,054
Open futures contracts 183,672
Open swap contracts (310,679)
Foreign currency, forward contracts and foreign
currency related transactions 49,810
----------
Net unrealized gain 4,132,857
----------
Net realized and unrealized gain 2,268,499
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,718,847
==========
</TABLE>
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, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,450,348 $ 7,660,718
Net realized loss (1,864,358) (3,455,636)
Change in net unrealized appreciation (depreciation) 4,132,857 (1,306,325)
------------ ------------
Net increase in net assets from operations 5,718,847 2,898,757
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,937,966) (8,388,446)
------------ ------------
Total distributions from net investment income (2,937,966) (8,388,446)
------------ ------------
Net realized gains
Class III -- (1,232,734)
------------ ------------
Total distributions from net realized gains -- (1,232,734)
------------ ------------
(2,937,966) (9,621,180)
------------ ------------
Net share transactions: (Note 5)
Class III (15,384,196) (16,704,303)
------------ ------------
Decrease in net assets resulting from net share
transactions (15,384,196) (16,704,303)
------------ ------------
Total decrease in net assets (12,603,315) (23,426,726)
NET ASSETS:
Beginning of period 120,276,173 143,702,899
------------ ------------
End of period (including accumulated undistributed
net investment income of $3,009,862 and $2,497,480,
respectively) $107,672,858 $120,276,173
============ ============
</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>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -----------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 10.23 $ 10.60 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income(a) 0.29+ 0.62+ 0.64+ 0.55+
Net realized and unrealized gain (loss) 0.21 (0.40) (0.58) 0.66
-------- -------- -------- --------
Total from investment operations 0.50 0.22 0.06 1.21
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.24) (0.70) (0.12) (0.27)
From net realized gains -- (0.11) (0.31) (0.34)
-------- -------- -------- --------
Total distributions (0.24) (0.81) (0.43) (0.61)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.64 $ 10.23 $ 10.60
======== ======== ======== ========
TOTAL RETURN(b) 5.27%++ 2.26% 0.44% 12.16%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $107,673 $120,276 $143,703 $228,386
Net operating expenses to average daily
net assets 0.40%** 0.40% 0.40% 0.40%**
Interest expense to average daily net
assets -- 0.01% -- --
Total net expenses to average daily net
assets 0.40%** 0.41%(c) -- --
Net investment income to average daily net
assets(a) 5.90%** 6.19% 5.97% 6.05%**
Portfolio turnover rate 90% 40% 113% 58%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ 0.01 $ 0.03 $ 0.02
</TABLE>
(a) Net investment income for the six months ended August 31, 2000 is affected
by the timing of the declaration of dividends by other Funds of the Trust
in which the Fund invests.
(b) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(c) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
+ Calculated using average shares outstanding throughout the period.
++ Not annualized.
* For the period from April 30, 1997 (commencement of operations) to February
28, 1998.
** 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, 2000 (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 benchmark is the
Lehman Brothers Aggregate Bond Index.
At August 31, 2000, 63.2% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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.
10
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Securities for
which quotations are not 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 a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
11
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000.
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 amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss.
12
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000, the Fund
had 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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the "lender") that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
13
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. 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, both based on notional
amounts. 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. Forward swap spread lock swap agreements
involve commitments to pay or receive a settlement amount calculated as
the difference between the swap spread and a fixed spread, multiplied by
the notional amount times the duration of the swap rate. The swap spread
is the difference between the benchmark swap rate (market rate) and the
specific treasury rate. 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, 2000, $268,642 in cash has been set aside.
Swaps are marked to market daily based upon quotations from market makers
and the change in value, 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 included as part of 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, 2000.
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.
14
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in
the name of the counterparty 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 the Fund has sold may
decline below the contractual repurchase price under the agreement. For
the six months ending August 31, 2000, the Fund had not entered into any
reverse repurchase agreements.
DELAYED DELIVERY COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
and the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. Collateral consisting of liquid
securities or cash and cash equivalents is maintained in an amount at
least equal to these commitments with the custodian.
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000 the Fund had a capital loss carryforward available to
offset future capital gains, if any, in the amount of $1,396,650, expiring
in 2008. The value of the capital loss carryforward may be limited due to
significant shareholder activity.
15
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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 these securities 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, 2000, the
Fund received $2,291 in purchase premiums. There is no premium for
redemptions or reinvested distributions.
16
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $736. 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, 2000 cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
U.S. Government securities $30,480,227 $35,238,625
Investments (non-U.S. Government securities) 75,860,268 86,926,337
</TABLE>
17
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
During the six months ended August 31, 2000, the Fund exchanged securities
with a market value of $75,860,268 for shares of GMO Alpha LIBOR Fund with
a value equal to that market value in taxable transactions. Such amounts
are included in purchase and sales above.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$115,117,447 $674,248 $(4,773,927) $(4,099,679)
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 62.4% 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:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 157,364 $ 1,527,000 1,559,385 $ 15,511,210
Shares issued to shareholders
in reinvestment of distributions 189,842 1,839,564 681,181 6,580,233
Shares repurchased (1,942,244) (18,750,760) (3,816,348) (38,795,746)
---------- ------------ ---------- ------------
Net decrease (1,595,038) $(15,384,196) (1,575,782) $(16,704,303)
========== ============ ========== ============
</TABLE>
18
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- --------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Buys
11/7/00 CAD 16,600,000 $11,274,351 $ 80,032
10/24/00 GBP 1,800,000 2,621,192 (52,010)
10/3/00 JPY 1,340,000,000 12,637,301 (19,682)
--------
$ 8,340
========
Sales
10/17/00 AUD 600,000 $ 346,791 $ 4,137
11/14/00 EUR 9,000,000 8,032,545 102,519
10/24/00 GBP 4,400,000 6,407,359 180,717
10/3/00 JPY 370,000,000 3,489,404 (11,966)
--------
$275,407
========
</TABLE>
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Units of Currency Receive/In Exchange For Appreciation
---------- ------------------------- ----------------------- --------------
<C> <S> <C> <C>
9/26/00 EUR 11,000,000 CHF 17,062,650 $21,623
9/19/00 SEK 62,663,758 EUR 7,500,000 24,981
9/19/00 EUR 2,400,000 SEK 20,280,696 16,233
-------
$62,837
=======
</TABLE>
19
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------------------------- --------------------------------------------- --------------- ----------- --------------
<C> <S> <C> <C> <C>
Buys
42 Australian Government Bond 3 Yr. September 2000 $ 2,794,572 $(22,520)
20 Canadian Government Bond 10 Yr. December 2000 1,381,569 4,888
87 Euro BOBL December 2000 7,936,305 (8,775)
92 Swiss Government Bond 10 Yr. December 2000 6,136,853 3,171
--------
$(23,236)
========
Sales
25 Australian Government Bond 10 Yr. September 2000 $ 2,051,921 $ 20,750
16 Euro Bund December 2000 1,487,717 5,444
14 Japanese Government Bond 10 Yr. December 2000 17,257,127 63,231
63 U.K. Gilt December 2000 10,277,408 43,188
170 U.S. Long Bond December 2000 17,074,375 22,929
257 U.S. Treasury Note 10 Yr. December 2000 25,720,078 (63,869)
159 U.S. Treasury Note 5 Yr. December 2000 15,909,938 (43,852)
--------
$ 47,821
========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
20
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
CREDIT DEFAULT SWAPS
7,922,250,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company dated $(213,720)
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.
378,000,000,000
ITL 3/31/03 Agreement with Morgan Guaranty Trust Company dated (172,228)
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.
FORWARD SWAP SPREAD LOCK SWAPS
15,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated (58,134)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
</TABLE>
21
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
5,000,000 USD 5/16/01 Agreement with UBS AG dated 5/12/00 to pay $ 27,407
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE
SWAPS
11,200,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company dated 253,811
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.
10,600,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 239,436
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 Trust Company dated 84,802
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 U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
14,000,000 USD 7/31/06 Agreement with Morgan Guaranty Trust Company dated $(170,283)
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
specified spread.
14,000,000 SEK 9/13/06 Agreement with UBS AG dated 9/09/99 to receive the 32,273
notional amount multiplied by 6.465% and to pay
the notional amount multiplied by 3 month Floating
Rate Swedish LIBOR adjusted by a specified spread.
13,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 231,742
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
7,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 211,253
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
TOTAL RETURN SWAPS
10,000,000 USD 9/01/00 Agreement with Goldman Sachs Capital Markets LP 89,531
dated 3/15/00 to receive (pay) the notional amount
multiplied by the return on the Lehman Baa
Corporate Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
</TABLE>
23
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA A FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
75,000,000 USD 11/13/00 Agreement with Morgan Guaranty Trust Company dated $ 126,600
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.+
9,838,021 USD/
10,000,000 USD 2/26/01 Agreement with UBS AG dated 1/12/00 to receive (47,582)
(pay) the notional amount multiplied by the change
in market value (including accrued interest) of
Federal National Mortgage Association TBA 30 Year
7.50% and to pay the initial market value
multiplied by 1 month LIBOR adjusted by a
specified spread.
10,000,000 USD 9/01/01 Agreement with Goldman Sachs Capital Markets LP 0
dated 8/30/00 to receive (pay) the notional amount
multiplied by the return on the Lehman Baa
Corporate Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
---------
$ 634,908
=========
</TABLE>
+ This swap agreement is valued by management (Note 1).
See Notes to Schedule of Investments for definitions of currency
abbreviations.
24
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE/
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 17.9%
BRAZIL -- 1.3%
USD 10,000,000 Brazil Discount Bond, Principal Strip, 0.00%,
due 04/15/24(a) 2,252,170
------------
BULGARIA -- 0.6%
USD 5,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 1,108,778
------------
CAYMAN ISLANDS -- 2.0%
CAD 1,000,000 Government of Canada (Cayman), 7.25%,
due 06/01/08 715,739
USD 3,000,000 Pemex Finance Ltd. Series 1A1 Class A2, 144A,
6.30%, due 05/15/10 2,756,400
------------
3,472,139
------------
CHILE -- 0.4%
USD 750,000 Banco Santander, Series MBIA, 6.50%, due 11/01/05 711,563
------------
SWEDEN -- 0.2%
SEK 2,500,000 Kingdom of Sweden, 6.00%, due 02/09/05 273,248
------------
UNITED STATES -- 13.4%
U.S. GOVERNMENT -- 2.5%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 08/15/13(a) 4,299,706
------------
U.S. GOVERNMENT AGENCY -- 10.9%
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%,
due 02/15/02(b) 3,904,600
USD 15,000,000 Government National Mortgage Association, TBA,
7.00% 14,728,125
------------
18,632,725
------------
TOTAL UNITED STATES 22,932,431
------------
TOTAL DEBT OBLIGATIONS (COST $31,230,591) 30,750,329
------------
MUTUAL FUND -- 88.8%
5,878,200 GMO Alpha LIBOR Fund (c) 152,127,821
------------
TOTAL MUTUAL FUND (COST $147,322,676) 152,127,821
------------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/
PAR VALUE ($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.1%
OPTIONS ON CURRENCY -- 0.1%
USD 11,100,000 Japanese Yen, Expires 11/13/00, Strike 104.85 237,165
------------
TOTAL CALL OPTIONS PURCHASED (COST $422,910) 237,165
------------
SHORT-TERM INVESTMENTS -- 0.7%
COMMERCIAL PAPER -- 0.7%
USD 1,100,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 1,100,000
------------
REPURCHASE AGREEMENT -- 0.0%
USD 15,203 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $15,205 and an effective yield of 5.73%,
collateralized by a U.S. Treasury Obligation with
a rate of 9.25%, maturity date of 2/15/16 and
market value, including accrued interest, of
$25,979. 15,203
------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,115,203) 1,115,203
------------
TOTAL INVESTMENTS -- 107.5%
(Cost $180,091,380) 184,230,518
Other Assets and Liabilities (net) -- (7.5%) (12,869,594)
------------
TOTAL NET ASSETS -- 100.0% $171,360,924
============
</TABLE>
See accompanying notes to the financial statements.
2
<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, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
CPI - Consumer Price Index
MBIA - Municipal Bond Insurance Association
TBA - To Be Announced (Note 1)
Variable rates - The rates shown on variable notes are the
current interest rates at August 31, 2000, which are subject
to change based on the terms of the security, including
varying reset dates.
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
(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) All or a portion of this security has been segregated to cover collateral
requirements on TBA obligations (Note 1).
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $180,091,380) (Note 1) $184,230,518
Interest receivable 355,145
Net receivable for open forward foreign currency
contracts (Notes 1 and 6) 133,475
Receivable for open swap contracts (Notes 1 and 6) 1,527,885
Receivable for expenses waived or borne by Manager (Note
2) 10,853
------------
Total assets 186,257,876
------------
LIABILITIES:
Payable for forward commitment (Note 1) 14,690,625
Payable to affiliate for (Note 2):
Management fee 28,922
Shareholder service fee 21,690
Payable for variation margin on open futures contracts
(Notes 1 and 6) 118,367
Accrued expenses 37,348
------------
Total liabilities 14,896,952
------------
NET ASSETS $171,360,924
============
NET ASSETS CONSIST OF:
Paid-in capital $172,285,438
Accumulated undistributed net investment income 2,062,564
Accumulated net realized loss (8,732,808)
Net unrealized appreciation 5,745,730
------------
$171,360,924
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $171,360,924
============
SHARES OUTSTANDING:
Class III 23,709,952
============
NET ASSET VALUE PER SHARE:
Class III $ 7.23
============
</TABLE>
4 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $1,320,152
Interest 783,219
----------
Total income 2,103,371
----------
EXPENSES:
Management fee (Note 2) 165,162
Custodian and transfer agent fees 39,744
Audit fees 20,516
Legal fees 4,232
Trustees fees (Note 2) 1,012
Miscellaneous 1,380
Fees waived or borne by Manager (Note 2) (66,884)
----------
165,162
Shareholder service fee (Note 2)
Class III 123,872
----------
Net expenses 289,034
----------
Net investment income 1,814,337
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 238,417
Closed futures contracts (631,231)
Closed swap contracts 1,963,029
Foreign currency, forward contracts and foreign
currency related transactions (341,668)
----------
Net realized gain 1,228,547
----------
Change in net unrealized appreciation (depreciation) on:
Investments 3,352,726
Open futures contracts (67,248)
Open swap contracts 1,232,910
Foreign currency, forward contracts and foreign
currency related transactions 382,939
----------
Net unrealized gain 4,901,327
----------
Net realized and unrealized gain 6,129,874
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,944,211
==========
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,814,337 $ 7,910,680
Net realized gain (loss) 1,228,547 (10,096,920)
Change in net unrealized appreciation (depreciation) 4,901,327 2,381,375
------------ ------------
Net increase in net assets from operations 7,944,211 195,135
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (375,935) (6,265,992)
------------ ------------
Total distributions from net investment income (375,935) (6,265,992)
------------ ------------
Net share transactions: (Note 5)
Class III 5,639,114 26,078,151
------------ ------------
Increase in net assets resulting from net share
transactions 5,639,114 26,078,151
------------ ------------
Total increase in net assets 13,207,390 20,007,294
NET ASSETS:
Beginning of period 158,153,534 138,146,240
------------ ------------
End of period (including accumulated undistributed
net investment income of $2,062,564 and $624,162,
respectively) $171,360,924 $158,153,534
============ ============
</TABLE>
6 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 YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ----------------------------------------
(UNAUDITED) 2000 1999 1998**
---------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.90 $ 7.18 $ 10.14 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income(a) 0.08 0.35+ 0.59+ 0.35+
Net realized and unrealized gain (loss) 0.27 (0.34) (0.19) 0.06
-------- -------- -------- --------
Total from investment operations 0.35 0.01 0.40 0.41
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.02) (0.29) (2.36)(b) (0.21)
In excess of net investment income -- -- (0.59)(b) --
From net realized gains -- -- (0.18) (0.06)
In excess of net realized gains -- -- (0.23) --
-------- -------- -------- --------
Total distributions (0.02) (0.29) (3.36) (0.27)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 7.23 $ 6.90 $ 7.18 $ 10.14
======== ======== ======== ========
TOTAL RETURN(c) 5.02%++ 0.27% 3.42% 4.15%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $171,361 $158,154 $138,146 $380,605
Net operating expenses to average daily
net assets 0.35%* 0.35% 0.35% 0.35%*
Interest expense to average daily net
assets -- 0.01% -- --
Total net expenses to average daily net
assets 0.35%* 0.36%(d) 0.35% 0.35%*
Net investment income to average daily net
assets(a) 2.20%* 4.98% 5.96% 5.88%*
Portfolio turnover rate 28% 94% 134% 27%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per
share amounts: --(e) $ 0.01 $ 0.03 $ 0.02
</TABLE>
(a) Net investment income for the six months ended August 31, 2000 and for the
year ending February 29, 2000 is affected by the timing of the declaration
of dividends by other Funds of the Trust in which the Fund invests.
(b) 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.
(c) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(d) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
(e) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
* Annualized.
** Period from July 29, 1997 (commencement of operations) to February 28,
1998.
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 benchmark is the
Lehman Brothers Aggregate Bond Index.
At August 31, 2000, 88.8% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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.
8
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Securities for
which quotations are not 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 a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
9
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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,
2000.
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 underlying
future, security or currency transaction to determine the realized
10
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
gain or loss. The Fund as a writer of an option has no control over
whether the underlying future, security or currency may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the future, security or currency 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, 2000 the
Fund had 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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
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 interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. 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, both based on notional
amounts. 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. Forward swap spread lock swap agreements
involve commitments to pay or receive a settlement amount calculated as
the difference between the swap spread and a fixed spread, multiplied by
the notional amount times the duration of the swap rate. The swap spread
is the difference between the benchmark swap rate (market rate) and the
specific treasury rate. 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
11
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. Swaps are marked to market daily based
upon quotations from market makers and the change in value, 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 included as part
of 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, 2000.
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 in
the name of the counterparty 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 the Fund sold may decline
below the contracted repurchase price under the agreement. For the six
months ended August 31, 2000, the Fund had not entered into any reverse
repurchase agreements.
DELAYED DELIVERY COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the
12
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated.
Collateral consisting of liquid securities or cash and cash equivalents is
maintained in an amount at least equal to these commitments with the
custodian.
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. federal income or
excise tax is necessary.
At February 29, 2000, the Fund had a capital loss carryforward available
to offset future capital gains, if any, of $4,653,232 expiring in 2008.
The value of the capital loss carryforward may be limited due to
significant shareholder activity.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
13
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 these securities 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 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, 2000, the
Fund received $12,021 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.
14
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000 was $1,012. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 31, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
U.S. Government securities $47,993,828 $43,141,875
Investments (non-U.S. Government securities) 13,670,152 5,300,000
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$180,091,380 $5,212,996 $(1,073,858) $4,139,138
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 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 U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000 February 29, 2000
---------------------- -------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,136,330 $ 8,014,000 4,187,339 $ 30,136,852
Shares issued to shareholders
in reinvestment of distributions 52,949 375,935 921,469 6,265,992
Shares repurchased (386,428) (2,750,821) (1,452,339) (10,324,693)
--------- ----------- ----------- ------------
Net increase 802,851 $ 5,639,114 3,656,469 $ 26,078,151
========= =========== =========== ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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
10/17/00 AUD 800,000 $ 462,388 $ (5,516)
11/07/00 CAD 12,000,000 8,150,133 57,238
11/14/00 EUR 1,100,000 981,756 (13,931)
10/24/00 GBP 1,500,000 2,184,327 (44,224)
10/03/00 JPY 930,000,000 8,770,664 (17,270)
--------
$(23,703)
========
Sales
11/14/00 EUR 1,000,000 $ 892,505 $ 4,475
10/24/00 GBP 2,900,000 4,223,032 111,808
10/03/00 JPY 260,000,000 2,452,014 (7,496)
--------
$108,787
========
</TABLE>
16
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Settlement Deliver/Units of Net Unrealized
Date Currency Receive/In Exchange For Appreciation
---------- ----------------- ----------------------- --------------
<S> <C> <C> <C> <C> <C>
9/26/00 EUR 8,900,000 CHF 13,805,235 17,495
9/19/00 SEK 47,620,570 EUR 5,700,000 19,398
9/19/00 EUR 1,700,000 SEK 14,365,493 11,498
-------
$48,391
=======
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------------------------- --------------------------------------------- --------------- ----------- --------------
<C> <S> <C> <C> <C>
Buys
20 Australian Government Bond 10 Yr. September 2000 $ 1,696,959 $(17,404)
30 Australian Government Bond 3 Yr. September 2000 2,058,233 (16,087)
3 Canadian Government Bond 10 Yr. December 2000 205,033 733
104 Euro BOBL December 2000 9,658,677 (9,606)
83 Euro Bund 10 Yr. December 2000 7,891,449 (39,982)
29 Swiss Government Bond 10 Yr. December 2000 1,966,218 999
--------
$(81,347)
========
Sales
14 Japanese Government Bond 10 Yr. December 2000 $17,202,465 $ 63,230
44 U.K. Gilt December 2000 7,391,409 28,741
9 U.S. Long Bond December 2000 903,938 1,214
143 U.S. Treasury Note 10 Yr. December 2000 14,311,172 (38,932)
102 U.S. Treasury Note 5 Yr. December 2000 10,206,375 (25,826)
--------
$ 28,427
========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
17
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
CREDIT DEFAULT SWAPS
1,058,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company dated $ (28,562)
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.
49,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company dated (22,326)
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.
FORWARD SWAP SPREAD LOCK SWAPS
10,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated (38,756)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
6,000,000 USD 5/16/01 Agreement with UBS AG dated 5/12/00 to pay 32,889
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
</TABLE>
18
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
INTEREST RATE SWAPS
5,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 112,942
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 7/31/06 Agreement with Morgan Guaranty Trust Company dated (109,468)
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
specified spread.
8,000,000 SEK 9/13/06 Agreement with UBS AG dated 9/09/99 to receive the 18,442
notional amount multiplied by 6.465% and to pay
the notional amount multiplied by 3 month Floating
Rate Swedish LIBOR adjusted by a specified spread.
20,000,000 USD 2/07/07 Agreement with Morgan Guaranty Trust Company dated 479,826
2/03/00 to receive the notional amount multiplied
by 7.395% and to pay the notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread.
8,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 142,610
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
5,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 150,895
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
</TABLE>
19
<PAGE>
GMO U.S. BOND/GLOBAL ALPHA B FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
TOTAL RETURN SWAPS
10,000,000 USD 9/01/00 Agreement with Goldman Sachs Capital Markets LP 89,532
dated 3/15/00 to receive (pay) the notional amount
multiplied by the return on the Lehman Baa
Corporate Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
19,676,042 USD/ 2/25/01 Agreement with UBS AG dated 1/12/00 to receive (95,165)
20,000,000 USD (pay) the notional amount multiplied by the change
in market value (including accrued interest) of
Federal National Mortgage Association TBA 30 Year
7.50% and to pay the initial market value
multiplied by 1 month LIBOR adjusted by a
specified spread.
75,000,000 USD 8/01/01 Agreement with Goldman Sachs Capital Markets LP 795,026
dated 8/01/00 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 specified spread.
10,000,000 USD 9/01/01 Agreement with Goldman Sachs Capital Markets LP --
dated 8/30/00 to receive (pay) the notional amount
multiplied by the return on the Lehman Baa
Corporate Index and to pay the notional amount
multiplied by 1 month LIBOR adjusted by a
specified spread.
-----------
$ 1,527,885
===========
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
20
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 12.3%
ARGENTINA -- 0.7%
USD 500,000 Republic of Argentina, 12.13%, due 02/25/19 466,250
USD 1,000,000 Republic of Argentina, 12.00%, due 02/01/20 932,500
-----------
1,398,750
-----------
BRAZIL -- 1.5%
USD 3,500,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
04/15/24 2,887,500
-----------
BULGARIA -- 0.4%
USD 2,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%, due 07/28/16 223,600
USD 2,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 07/28/24 92,500
USD 500,000 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.50%, due 07/28/12 385,000
-----------
701,100
-----------
CANADA -- 0.9%
CAD 2,000,000 Government of Canada Real Return, 4.25%, due
12/01/21 1,687,760
-----------
ECUADOR -- 0.0%
USD 200,000 Republic of Ecuador Par Bond, 144A,
Variable Rate, Step Up, 4.00%, due 08/15/30 77,000
-----------
JORDAN -- 0.2%
USD 500,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 6.00%, due 12/23/23 357,500
-----------
MEXICO -- 4.7%
FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 655,263
CHF 20,000,000 Mexico Par Bond, 3.75%, due 12/31/19 8,686,732
-----------
9,341,995
-----------
NIGERIA -- 0.3%
USD 1,206,672 Central Bank of Nigeria Par Bond Odd Lot,
Variable Rate, Step Up, 6.25%, due 11/15/20(a) 634,369
-----------
RUSSIA -- 0.3%
USD 190,001 Russia Federation, 144A, 8.25%, due 03/31/10 134,901
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
RUSSIA -- CONTINUED
USD 1,250,000 Russia Federation, 144A, Step Up, 2.25%, due
03/31/30 543,750
-----------
678,651
-----------
SUPRA NATIONAL -- 0.2%
AUD 4,600,000 European Bank for Reconstruction and Development,
Zero Coupon, due 02/10/28 411,971
-----------
SWEDEN -- 0.6%
SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 563,080
SEK 6,600,000 Kingdom of Sweden, 6.00%, due 02/09/05 721,373
-----------
1,284,453
-----------
UNITED STATES -- 2.3%
STRUCTURED NOTES -- 2.3%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR), 3.58%,
due 09/22/03(b) 4,605,000
-----------
VENEZUELA -- 0.2%
USD 500,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
03/31/20 405,000
-----------
TOTAL DEBT OBLIGATIONS (COST $25,514,782) 24,471,049
-----------
MUTUAL FUND -- 86.8%
6,666,380 GMO Alpha LIBOR Fund 172,525,912
-----------
TOTAL MUTUAL FUND (COST $167,528,495) 172,525,912
-----------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.3%
OPTIONS ON CURRENCY -- 0.3%
USD 25,200,000 Japanese Yen, Expires 11/13/00, Strike 104.85 538,428
-----------
TOTAL CALL OPTIONS PURCHASED (COST $960,120) 538,428
-----------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
14,210,000 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
4/15/20* --
-----------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-----------
SHORT-TERM INVESTMENTS -- 0.3%
COMMERCIAL PAPER -- 0.3%
USD 500,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 500,000
-----------
REPURCHASE AGREEMENT -- 0.0%
USD 67,730 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $67,741 and an effective yield of 5.73%,
collateralized by a U.S. Treasury Obligation with
a rate of 9.25%, maturity date of 2/15/16 and
market value, including accrued interest, of
$77,936. 67,730
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $567,730) 567,730
-----------
TOTAL INVESTMENTS -- 99.7%
(Cost $194,571,127) 198,103,119
Other Assets and Liabilities (net) -- 0.3% 528,054
-----------
TOTAL NET ASSETS -- 100.0% $198,631,173
===========
</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, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
FLIRB - Front Loaded Interest Reduction Bond
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
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
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</TABLE>
(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-income producing security.
4 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $194,571,127) (Note 1) $198,103,119
Cash at interest on deposit at brokers (Note 1) 259,335
Receivable for investments sold 2,521
Interest receivable 1,414,982
Receivable for open swap contracts (Notes 1 and 6) 349,457
Receivable for expenses waived or borne by Manager (Note
2) 12,708
------------
Total assets 200,142,122
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 32,195
Shareholder service fee 25,364
Net payable for open forward foreign currency contracts
(Notes 1 and 6) 1,316,606
Payable for variation margin on open futures contracts
(Notes 1 and 6) 97,199
Accrued expenses 39,585
------------
Total liabilities 1,510,949
------------
NET ASSETS $198,631,173
============
NET ASSETS CONSIST OF:
Paid-in capital $212,975,946
Distributions in excess of net investment income (3,610,568)
Accumulated net realized loss (13,061,238)
Net unrealized appreciation 2,327,033
------------
$198,631,173
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $198,631,173
============
SHARES OUTSTANDING:
Class III 20,989,167
============
NET ASSET VALUE PER SHARE:
Class III $ 9.46
============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $1,468,233
Interest (including securities lending income of $1,606) 1,259,202
----------
Total income 2,727,435
----------
EXPENSES:
Management fee (Note 2) 181,444
Custodian and transfer agent fees 44,896
Audit fees 24,656
Legal fees 4,784
Trustees fees (Note 2) 1,104
Miscellaneous 1,564
Fees waived or borne by Manager (Note 2) (77,004)
----------
181,444
Shareholder service fee (Note 2)
Class III 143,245
----------
Net expenses 324,689
----------
Net investment income 2,402,746
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,032,969)
Closed futures contracts (117,384)
Closed swap contracts 1,356,414
Foreign currency, forward contracts and foreign
currency related transactions (9,195,759)
----------
Net realized loss (8,989,698)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 4,211,303
Open futures contracts (207,589)
Open swap contracts 893,239
Foreign currency, forward contracts and foreign
currency related transactions 2,399,509
----------
Net unrealized gain 7,296,462
----------
Net realized and unrealized loss (1,693,236)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 709,510
==========
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,402,746 $ 9,808,414
Net realized loss (8,989,698) (14,577,871)
Change in net unrealized appreciation (depreciation) 7,296,462 779,167
------------ ------------
Net increase (decrease) in net assets from
operations 709,510 (3,990,290)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (4,475,228)
------------ ------------
Total distributions from net investment income -- (4,475,228)
------------ ------------
In excess of net investment income
Class III -- (639,858)
------------ ------------
Total distributions in excess of net investment
income -- (639,858)
------------ ------------
-- (5,115,086)
------------ ------------
Net share transactions: (Note 5)
Class III 15,191,548 28,624,997
------------ ------------
Increase in net assets resulting from net share
transactions 15,191,548 28,624,997
------------ ------------
Total increase in net assets 15,901,058 19,519,621
NET ASSETS:
Beginning of period 182,730,115 163,210,494
------------ ------------
End of period (including distributions in excess of
net investment income of $3,610,568 and $6,013,314,
respectively) $198,631,173 $182,730,115
============ ============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996*
---------------- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.41 $ 9.87 $ 10.15 $ 10.16 $ 9.89 $ 10.00
-------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income(a) 0.12+ 0.51 0.55 0.65+ 0.61 0.05
Net realized and unrealized gain
(loss) (0.07) (0.71) (0.25) 0.36 0.59 (0.16)
-------- -------- -------- -------- ------- -------
Total from investment operations 0.05 (0.20) 0.30 1.01 1.20 (0.11)
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.23) (0.37) (0.56) (0.57) --
In excess of net investment income -- (0.03) (0.09) -- -- --
From net realized gains -- -- (0.06) (0.28) (0.36) --
In excess of net realized gains -- -- (0.06) (0.18) -- --
-------- -------- -------- -------- ------- -------
Total distributions -- (0.26) (0.58) (1.02) (0.93) --
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.46 $ 9.41 $ 9.87 $ 10.15 $ 10.16 $ 9.89
======== ======== ======== ======== ======= =======
TOTAL RETURN(b) 0.53%++ (2.07)% 2.69% 10.19% 12.01% (1.10)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $198,631 $182,730 $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% 0.34%**
Interest expense to average daily net
assets -- 0.16% -- -- -- --
Total net expenses to average daily
net assets 0.34%** 0.50%(c) 0.34% 0.34% 0.34% 0.34%**
Net investment income to average
daily net assets(a) 2.52%** 5.09% 5.86% 6.21% 6.31% 6.16%**
Portfolio turnover rate 21% 116% 75% 103% 72% 0%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(d) $ 0.01 $ 0.03 $ 0.04 $ 0.04 $ 0.01
</TABLE>
* Period from December 28, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
(a) Net investment income for the for the six months ended August 31, 2000 and
for the year ended February 29, 2000 is affected by the timing of the
declaration of dividends by other Funds of the Trust in which the Fund
invests.
(b) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(c) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
8 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in global bond and
currency markets. The Fund's benchmark is the J.P. Morgan Global
Government Bond Index.
At August 31, 2000, 86.8% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha Libor Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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 quotations are not
readily available are valued at fair value as determined in good faith by
the Trustees or other persons acting at their direction.
9
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
10
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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,
2000.
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 underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000 there were
no open written option contracts.
11
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. Interest rate swap agreements involve
the exchange by the
12
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, both based on notional amounts. 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. Forward swap
spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of
the swap rate. The swap spread is the difference between the benchmark
swap rate (market rate) and the specific treasury rate. 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, 2000,
$259,335 in cash has been set aside. Swaps are marked to market daily
based upon quotations from market makers and the change in value, 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 included as part
of 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, 2000.
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 GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 in
the name of the counterparty 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 the Fund has sold may
decline below the contractual repurchase price under the agreement. For
the six months ended August 31, 2000, the Fund did not enter into any
reverse repurchase agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. The Fund receives compensation for lending its securities. At
August 31, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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 GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis. Interest
income on inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities 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, 2000, the
Fund received $38,479 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
15
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $1,104. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
U.S. Government securities $10,122,750 $10,122,750
Investments (non-U.S. Government securities) 37,613,733 28,960,700
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$194,571,127 $5,652,348 $(2,120,356) $3,531,992
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 66.9% 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.
16
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000 February 29, 2000
------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,668,579 $ 25,652,885 5,558,244 $ 55,187,578
Shares issued to shareholders
in reinvestment of distributions -- -- 509,734 4,888,345
Shares repurchased (1,105,677) (10,461,337) (3,178,026) (31,450,926)
----------- ------------ ----------- ------------
Net increase 1,562,902 $ 15,191,548 2,889,952 $ 28,624,997
=========== ============ =========== ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
<C> <S> <C> <C> <C>
Buys
10/17/00 AUD 3,600,000 $ 2,080,747 $ (24,821)
11/7/00 CAD 36,900,000 25,061,658 176,584
11/14/00 EUR 71,900,000 64,171,106 (910,617)
10/24/00 GBP 7,600,000 11,067,256 (352,862)
10/3/00 JPY 7,520,000,000 70,919,779 (341,188)
9/12/00 NZD 4,500,000 1,926,972 (118,752)
-----------
$(1,571,656)
===========
</TABLE>
17
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
<C> <S> <C> <C> <C>
Sales
11/14/00 EUR 2,300,000 $ 2,052,762 $ 10,292
10/24/00 GBP 2,400,000 3,494,923 (5,131)
10/3/00 JPY 800,000,000 7,544,657 (27,284)
9/12/00 NZD 4,500,000 1,926,972 188,028
-----------
$ 165,905
===========
</TABLE>
<TABLE>
<CAPTION>
FORWARD CROSS CURRENCY CONTRACTS
Settlement Deliver/Units of Receive/In Net Unrealized
Date Currency Exchange For Appreciation
---------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
9/19/00 EUR 3,900,000 SEK 32,956,131 26,379
9/26/00 EUR 13,300,000 CHF 20,630,295 26,144
9/19/00 SEK 90,229,688 EUR 10,800,000 36,622
-------
$89,145
=======
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- --------------------------------------------- ------------------ ------------- --------------
<C> <S> <C> <C> <C>
Buys
28 Australian Government Bond 10 Yr. September 2000 $ 2,367,736 $ (21,441)
75 Australian Government Bond 3 Yr. September 2000 5,128,481 (35,157)
59 Canadian Government Bond 10 Yr. December 2000 4,032,500 14,420
166 Euro Bobl December 2000 15,428,980 (16,744)
185 Euro Bund 10 Yr. December 2000 17,603,543 (94,443)
95 U.S. Long Bond December 2000 9,541,563 (13,905)
---------
$(167,270)
=========
</TABLE>
18
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FUTURES CONTRACTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- --------------------------------------------- ------------------ ------------- --------------
<C> <S> <C> <C> <C>
Sales
12 Japanese Government Bond 10 Yr. December 2000 $14,740,547 $ 59,235
116 Swiss Government Bond 10 Yr. December 2000 7,862,232 (7,296)
74 U.K. Gilt December 2000 12,442,090 48,533
320 U.S. Treasury Note 10 Yr. December 2000 32,025,000 (81,496)
185 U.S. Treasury Note 5 Yr. December 2000 18,511,563 (51,768)
---------
$ (32,792)
=========
</TABLE>
At August 31, 2000, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ---------- -------------------------------------------------- --------------
<S> <C> <C> <C>
CREDIT DEFAULT SWAPS
2,263,500,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company dated $ (61,063)
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.
</TABLE>
19
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ---------- -------------------------------------------------- --------------
<S> <C> <C> <C>
108,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company dated (49,208)
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.
FORWARD SWAP SPREAD LOCK SWAPS
25,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated (96,891)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
7,000,000 USD 5/16/11 Agreement with UBS AG dated 5/12/00 to pay 38,370
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE SWAPS
15,000,000 EUR 3/21/05 Agreement with UBS AG dated 3/17/00 to receive the (257,258)
notional amount multiplied by 5.222% and to pay
the notional amount multiplied by 3 month Floating
Rate EURIBOR adjusted by a specified spread.
7,100,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company dated 160,898
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.
</TABLE>
20
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ---------- -------------------------------------------------- --------------
<S> <C> <C> <C>
3,900,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 88,094
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 dated 201,789
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.
22,000,000 USD 7/31/06 Agreement with Morgan Guaranty Trust Company dated (267,588)
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
specified spread.
30,000,000 SEK 9/13/06 Agreement with UBS AG dated 9/09/99 to receive the 69,156
notional amount multiplied by 6.465% and to pay
the notional amount multiplied by 3 month Floating
Rate Swedish LIBOR adjusted by a specified spread.
20,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 356,526
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
10,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 301,790
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
</TABLE>
21
<PAGE>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ---------- -------------------------------------------------- --------------
<S> <C> <C> <C>
3,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to receive the (68,374)
notional amount multiplied by 5.895% and to pay
the notional amount multiplied by 3 month Floating
Rate EURIBOR adjusted by a specified spread.
TOTAL RETURN SWAPS
30,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company dated (40,062)
7/01/99 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.+
75,000,000 USD 9/27/01 Agreement with Morgan Guaranty Trust Company dated (26,722)
9/22/99 to receive (pay) the notional amount
multiplied by the return on the JP Morgan Traded
Total Return Government Bond Index and to pay the
notional amount multiplied by 1 month LIBOR
adjusted by a specified spread.+
---------
$ 349,457
=========
</TABLE>
+ This swap agreement is valued by management (Note 1).
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 45.1%
ARGENTINA -- 1.0%
USD 500,000 Republic of Argentina, 12.13%, due 02/25/19 466,250
USD 1,000,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.88%, due
03/31/23 820,000
------------
1,286,250
------------
AUSTRALIA -- 1.2%
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 09/14/07 1,631,915
------------
BRAZIL -- 0.6%
USD 1,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
04/15/24 825,000
------------
BULGARIA -- 2.9%
USD 1,000,000 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 8.25%, due
07/28/24 813,750
USD 5,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%, due 07/28/16 559,000
USD 5,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 07/28/24 231,250
USD 10,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 2,217,557
------------
3,821,557
------------
CANADA -- 11.2%
CAD 750,000 Government of Canada, 10.25%, due 03/15/14 716,942
CAD 5,000,000 Government of Canada Real Return, 4.25%, due
12/01/21 4,219,401
CAD 3,000,000 Government of Canada Real Return, 4.25%, due
12/01/26 2,434,176
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,562,352
GBP 3,500,000 Province of Quebec, 8.63%, due 11/04/11 5,706,146
------------
14,639,017
------------
CAYMAN ISLANDS -- 10.1%
GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due
09/15/02 2,922,513
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 1,431,478
EUR 10,000,000 MBNA America Euro Structured Offering,
Variable Rate, 3 mo. EURIBOR + .14%, 4.98%, due
05/19/04 8,877,663
------------
13,231,654
------------
JAPAN -- 0.8%
USD 1,030,000 Japan Highway Public Corporation, 7.63%, due
09/22/04 1,051,115
------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO -- 4.5%
FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,965,789
CHF 9,000,000 Mexico Par Bond, 3.75%, due 12/31/19 3,909,030
------------
5,874,819
------------
NIGERIA -- 0.5%
USD 1,228,385 Central Bank of Nigeria Par Bond Odd Lot,
Variable Rate, Step Up, 6.25%, due 11/15/20(a) 620,335
------------
NORWAY -- 0.5%
SEK 6,300,000 A/S Eksportfinans, 7.50%, due 08/16/01 682,842
------------
RUSSIA -- 2.5%
USD 916,467 Russia Federation, 144A, 8.25%, due 03/31/10 650,691
USD 6,029,344 Russia Federation, 144A, Step Up, 2.25%, due
03/31/30 2,622,765
------------
3,273,456
------------
SUPRA NATIONAL -- 1.3%
AUD 14,000,000 European Bank for Reconstruction and Development,
Zero Coupon, due 02/10/28 1,253,826
CAD 700,000 European Investment Bank, 8.50%, due 08/30/05 518,580
------------
1,772,406
------------
SWEDEN -- 3.2%
SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 2,252,318
SEK 17,200,000 Kingdom of Sweden, 6.00%, due 02/09/05 1,879,943
------------
4,132,261
------------
UNITED STATES -- 4.2%
CORPORATE DEBT -- 1.2%
SEK 14,000,000 Toyota Motor Credit, 7.50%, due 08/06/01 1,518,466
------------
U.S. GOVERNMENT AGENCY -- 3.0%
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%,
due 02/15/02(b) 3,904,600
------------
TOTAL UNITED STATES 5,423,066
------------
VENEZUELA -- 0.6%
USD 1,000,000 Republic of Venezuela Discount Bond Series W-B,
Variable Rate, 6 mo. LIBOR + .81%, 7.88%, due
03/31/20 810,000
------------
TOTAL DEBT OBLIGATIONS (COST $63,837,898) 59,075,693
------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUTUAL FUND -- 52.6%
2,659,304 GMO Alpha LIBOR Fund 68,822,782
------------
TOTAL MUTUAL FUND (COST $68,308,537) 68,822,782
------------
CALL OPTIONS PURCHASED -- 0.3%
OPTIONS ON CURRENCY -- 0.3%
USD 19,900,000 Japanese Yen, Expires 11/13/00, Strike 104.85 425,187
------------
TOTAL CALL OPTIONS PURCHASED (COST $758,190) 425,187
------------
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
8,613,000 United Mexican States Warrants, Expires 6/30/03* --
------------
NIGERIA -- 0.0%
1,227 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20* --
------------
VENEZUELA -- 0.0%
7,140 Republic of Venezuela Recovery Warrants, Expires
4/15/20* --
------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 0.4%
REPURCHASE AGREEMENT -- 0.4%
USD 475,990 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $476,066 and an effective yield of 5.73%,
collateralized by a U.S. Treasury Obligation with
a rate of 9.25%, maturity date of 2/15/16 and
market value, including accrued interest, of
$493,597. 475,990
------------
TOTAL SHORT-TERM INVESTMENTS (COST $475,990) 475,990
------------
TOTAL INVESTMENTS -- 98.4%
(Cost $133,380,615) 128,799,652
Other Assets and Liabilities (net) -- 1.6% 2,052,962
------------
TOTAL NET ASSETS -- 100.0% $130,852,614
============
</TABLE>
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
CPI - Consumer Price Index
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
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
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</TABLE>
(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-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $133,380,615) (Note 1) $128,799,652
Cash at interest on deposit at brokers (Note 1) 315,428
Foreign currency, at value (cost $38,807) (Note 1) 38,915
Receivable for Fund shares sold 494,832
Interest receivable 2,091,629
Receivable for open swap contracts (Notes 1 and 6) 332,850
Receivable for expenses waived or borne by Manager (Note
2) 13,490
------------
Total assets 132,086,796
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 28,026
Shareholder service fee 16,721
Net payable for open forward foreign currency contracts
(Notes 1 and 6) 823,174
Payable for variation margin on open futures contracts
(Notes 1 and 6) 307,779
Accrued expenses 58,482
------------
Total liabilities 1,234,182
------------
NET ASSETS $130,852,614
============
NET ASSETS CONSIST OF:
Paid-in capital $149,429,815
Accumulated undistributed net investment income 866,960
Accumulated net realized loss (13,988,336)
Net unrealized depreciation (5,455,825)
------------
$130,852,614
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $130,852,614
============
SHARES OUTSTANDING:
Class III 14,469,771
============
NET ASSET VALUE PER SHARE:
Class III $ 9.04
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $219) $ 3,572,612
Dividends from investment company shares 67,874
-----------
Total income 3,640,486
-----------
EXPENSES:
Management fee (Note 2) 180,960
Custodian and transfer agent fees 49,036
Audit fees 27,324
Legal fees 3,864
Trustees fees (Note 2) 920
Registration fees 92
Miscellaneous 1,472
Fees waived or borne by Manager (Note 2) (82,708)
-----------
180,960
Shareholder service fee (Note 2)
Class III 108,576
-----------
Net expenses 289,536
-----------
Net investment income 3,350,950
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (5,038,396)
Closed futures contracts (1,553,910)
Closed swap contracts 485,638
Foreign currency, forward contracts and foreign
currency related transactions (7,664,825)
-----------
Net realized loss (13,771,493)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 5,262,599
Open futures contracts 176,320
Open swap contracts 561,113
Foreign currency, forward contracts and foreign
currency related transactions 2,983,723
-----------
Net unrealized gain 8,983,755
-----------
Net realized and unrealized loss (4,787,738)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,436,788)
===========
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,350,950 $ 10,868,230
Net realized loss (13,771,493) (10,728,763)
Change in net unrealized appreciation (depreciation) 8,983,755 (4,636,311)
------------ ------------
Net decrease in net assets from operations (1,436,788) (4,496,844)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (6,522,666)
------------ ------------
Total distributions from net investment income -- (6,522,666)
------------ ------------
Net realized gains
Class III (686,070) (3,231,690)
------------ ------------
Total distributions from net realized gains (686,070) (3,231,690)
------------ ------------
(686,070) (9,754,356)
------------ ------------
Net share transactions: (Note 5)
Class III (12,397,716) (22,204,508)
------------ ------------
Decrease in net assets resulting from net share
transactions (12,397,716) (22,204,508)
------------ ------------
Total decrease in net assets (14,520,574) (36,455,708)
NET ASSETS:
Beginning of period 145,373,188 181,828,896
------------ ------------
End of period (including accumulated undistributed
net investment income of $866,960 and distributions
in excess of net investment income of $2,483,990,
respectively) $130,852,614 $145,373,188
============ ============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29
AUGUST 31, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.19 $ 10.06 $ 10.45 $ 10.78 $ 10.92 $ 9.64
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) 0.22 0.70 0.71 0.59 0.71 0.62
Net realized and unrealized gain
(loss) (0.33) (0.99) (0.42) 0.08 0.65 1.55
-------- -------- -------- -------- -------- --------
Total from investment operations (0.11) (0.29) 0.29 0.67 1.36 2.17
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.39) (0.36) (0.54) (0.81) (0.59)
In excess of net investment income -- -- (0.09) -- -- --
From net realized gains (0.04) (0.19) (0.23) (0.10) (0.54) (0.30)
In excess of net realized gains -- -- -- (0.36) (0.15) --
-------- -------- -------- -------- -------- --------
Total distributions (0.04) (0.58) (0.68) (1.00) (1.50) (0.89)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.04 $ 9.19 $ 10.06 $ 10.45 $ 10.78 $ 10.92
======== ======== ======== ======== ======== ========
TOTAL RETURN(b) (1.17)%+ (2.98)% 2.48% 6.32% 12.39% 22.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $130,853 $145,373 $181,829 $293,022 $235,783 $193,920
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 -- 0.03% -- -- -- --
Total net expenses to average daily
net assets 0.40%* 0.43%(c) 0.40% 0.40% 0.40% 0.40%
Net investment income to average
daily net assets(a) 4.63%* 6.51% 6.45% 6.24% 6.93% 8.17%
Portfolio turnover rate 68% 39% 106% 105% 95% 99%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.01 $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.01
</TABLE>
(a) Net investment income for the six months ended August 31, 2000 and for the
year ended February 29, 2000 is affected by the timing of the declaration
of dividends by other Funds of the Trust in which the Fund invests.
(b) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(c) Interest expense incurred as a result of entering into reverse repurchase
agreements is included in the Fund's net expenses. Income earned on
investing proceeds from reverse repurchase agreements is included in
interest income.
* Annualized.
+ Not annualized.
See accompanying notes to the financial statements. 9
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares
into classes.
The Fund seeks high total return through investment in foreign bond and
currency markets. The Fund's benchmark is the J.P. Morgan
Non-U.S. Government Bond Index.
At August 31, 2000, 52.6% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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 quotations are not
readily available are valued at fair value as determined in good faith by
the Trustees or other persons acting at their direction.
10
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
11
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000.
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 underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000 there were
no open written option contracts.
12
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the "lender") that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. Interest rate swap agreements involve
the exchange by the
13
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, both based on notional amounts. 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. Forward swap
spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of
the swap rate. The swap spread is the difference between the benchmark
swap rate (market rate) and the specific treasury rate. 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, 2000,
$315,428 in cash has been set aside. Swaps are marked to market daily
based upon quotations from market makers and the change in value, 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 included as part
of 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, 2000.
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 INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 in
the name of the counterparty 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 the Fund has sold may
decline below the contractual repurchase price under the agreement. For
the six months ended August 31, 2000, the Fund did not enter into any
reverse repurchase agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for
lending its securities. At August 31, 2000 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
15
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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
inflation indexed securities is accrued daily based upon an inflation
adjusted principal. Additionally, any increase in the principal or face
amount of these securities 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, 2000, the
Fund received $3,182 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
16
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $920. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- ------------
<S> <C> <C>
U.S. Government securities $ 8,282,250 $ 8,282,250
Investments (non-U.S. Government securities) 84,330,093 100,271,119
</TABLE>
During the six months ended August 31, 2000, the Fund exchanged securities
with a market value of $69,715,949 for shares of GMO Alpha LIBOR Fund with
a value equal to that market value in taxable transactions. Such amounts
are included in purchases and sales above.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$133,380,615 $1,908,195 $(6,489,158) $(4,580,963)
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 61.7% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders could have
a material effect.
17
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000 February 29, 2000
------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 229,379 $ 2,121,573 506,647 $ 5,058,435
Shares issued to shareholders
in reinvestment of distributions 72,256 676,322 824,412 7,759,488
Shares repurchased (1,648,382) (15,195,611) (3,580,058) (35,022,431)
----------- ------------ ----------- ------------
Net decrease (1,346,747) $(12,397,716) (2,248,999) $(22,204,508)
=========== ============ =========== ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- --------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Buys
11/7/00 CAD 12,300,000 $ 8,353,886 $ 59,126
11/14/00 EUR 53,300,000 47,570,514 (675,047)
10/24/00 GBP 2,500,000 3,640,545 (74,148)
10/3/00 JPY 7,010,000,000 66,110,060 (369,667)
9/12/00 NZD 6,800,000 2,911,868 (179,688)
-----------
$(1,239,424)
===========
Sales
10/17/00 AUD 1,300,000 $ 751,381 $ 8,963
11/14/00 EUR 1,700,000 1,517,258 7,608
10/24/00 GBP 2,900,000 4,223,032 92,140
10/3/00 JPY 990,000,000 9,336,513 (63,594)
9/12/00 NZD 6,800,000 2,911,869 284,130
-----------
$ 329,247
===========
</TABLE>
18
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Units of Currency Receive/In Exchange For Appreciation
---------- -------------------------- ----------------------- --------------
<S> <C> <C> <C> <C> <C>
9/26/00 EUR 12,900,000 CHF 20,009,835 $25,358
9/19/00 SEK 107,784,122 EUR 12,900,000 42,706
9/19/00 EUR 2,800,000 SEK 23,660,812 18,939
-------
$87,003
=======
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------------------------- --------------------------------------------- --------------- ----------- --------------
<C> <S> <C> <C> <C>
Buys
37 Australian Government Bond 3 Yr. September 2000 $ 2,461,885 $ (19,839)
130 Euro BOBL December 2000 11,858,846 (13,113)
145 Euro Bund 10 Yr. December 2000 13,482,436 (74,023)
5 Japanese Government Bond 10 Yr. December 2000 6,163,260 (54,713)
67 Swiss Government Bond 10 Yr. December 2000 4,469,230 2,308
---------
$(159,380)
=========
Sales
36 Australian Government Bond 10 Yr. September 2000 $ 2,954,766 $ 29,880
53 Canadian Government Bond 10 Yr. December 2000 3,661,158 (13,642)
60 U.K. Gilt December 2000 9,788,008 40,406
78 U.S. Long Bond December 2000 7,834,125 10,520
291 U.S. Treasury Note 10 Yr. December 2000 29,122,734 (76,220)
221 U.S. Treasury Note 5 Yr. December 2000 22,113,813 (59,974)
---------
$ (69,030)
=========
</TABLE>
At August 31, 2000, the Fund has sufficient cash and/or securities to
cover any margin requirements on open futures contracts.
19
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
CREDIT DEFAULT SWAPS
5,658,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company dated $(152,657)
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.
270,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company dated (123,020)
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.
FORWARD SWAP SPREAD LOCK SWAPS
20,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated (77,512)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
</TABLE>
20
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
5,000,000 USD 5/16/01 Agreement with UBS AG dated 5/12/00 to pay $ 27,407
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE SWAPS
20,000,000 EUR 3/21/05 Agreement with UBS AG dated 3/17/00 to receive the (343,011)
notional amount multiplied by 5.222% and to pay
the notional amount multiplied by 3 month Floating
Rate EURIBOR adjusted by a specified spread.
16,800,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company dated 380,717
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.
10,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 225,883
6/09/98 to pay the notional amount multiplied by
3.245% and to receive the notional amount
multiplied by 6 month Floating Rate Swiss LIBOR
adjusted by a specified spread.
</TABLE>
21
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
4,400,000 CHF 9/16/05 Agreement with Morgan Guaranty Trust Company dated $ 211,108
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.
20,000,000 USD 7/31/06 Agreement with Morgan Guaranty Trust Company dated (243,262)
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
specified spread.
27,000,000 SEK 9/13/06 Agreement with UBS AG dated 9/09/99 to receive the 62,241
notional amount multiplied by 6.465% and to pay
the notional amount multiplied by 3 month
Floating Rate Swedish LIBOR adjusted by a
specified spread.
15,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 267,394
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
9,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 271,611
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
</TABLE>
22
<PAGE>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
<C> <C> <S> <C>
5,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to receive the $(113,956)
notional amount multiplied by 5.895% and to pay
the notional amount multiplied by 3 month
Floating Rate EURIBOR adjusted by a specified
spread.
TOTAL RETURN SWAP
45,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company dated (60,093)
7/01/99 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.+
---------
$ 332,850
=========
</TABLE>
+ This swap agreement is valued by management (Note 1).
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
23
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 79.2%
ARGENTINA -- 8.0%
ARS 4,400,000 Provincia Corrientes Series 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.83%,
due 04/01/09 2,112,422
ARS 2,500,000 Provincia Corrientes Series 2, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.83%,
due 04/01/09 1,200,240
ARS 13,823,800 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 2.79%,
due 04/01/07(a) 8,544,817
DEM 3,830,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 5.44%,
due 03/31/23 1,194,815
USD 47,100,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.88%, due
03/31/23 38,622,000
ARS 27,436,201 Republic of Argentina INDER Certificates, 6.00%,
due 04/15/06 13,446,428
ARS 35,134,370 Republic of Argentina Pro 1 Co-Participation
Rights,
Variable Rate, 1 mo. Peso Deposit Rate, 2.79%,
due 04/01/07 16,186,128
USD 2,000,000 Republic of Argentina Pro 4,
Variable Rate, 1 mo. LIBOR, 6.62%, due 12/28/10 2,080,000
-------------
83,386,850
-------------
BOSNIA & HERZEGOVINA -- 0.2%
DEM 25,244,000 Bosnia & Herzegovina Series A, Step Up, 2.00%, due
12/11/17 2,352,510
DEM 12,335,000 Bosnia & Herzegovina Series B, Zero Coupon, due
12/11/17 140,184
-------------
2,492,694
-------------
BRAZIL -- 16.7%
USD 307,853 Brazil Capitalization Bond Series L, PIK, 8.00%,
due 04/15/14 238,778
USD 52,500,000 Brazil DCB (Bearer) Series RG,
Variable Rate, 6 mo. LIBOR + .88%, 7.44%, due
04/15/12 40,687,500
USD 31,000,000 Brazil DCB (Registered),
Variable Rate, 6 mo. LIBOR + .88%, 7.44%, due
04/15/12 24,025,000
USD 47,525,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
04/15/24 39,208,125
USD 52,320,000 Brazil FLIRB (Registered),
Variable Rate, Step Up, 7.38%, due 04/15/09 42,379,200
USD 15,209,702 Brazil MYDFA Trust Certificates,
Variable Rate, 6 mo. LIBOR + .81%, 7.19%, due
09/15/07 13,593,671
USD 16,000,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 7.44%, due
04/15/09 14,140,000
-------------
174,272,274
-------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
BULGARIA -- 4.8%
USD 6,551,707 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 8.25%, due
07/28/24 5,331,452
USD 23,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%, due 07/28/16 2,571,400
USD 23,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 07/28/24 1,063,750
USD 14,000,000 Bulgaria FLIRB Series A,
Variable Rate, Step Up, 3.00%, due 07/28/12 10,780,000
USD 39,844,572 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.50%, due 07/28/12 30,680,320
-------------
50,426,922
-------------
COLOMBIA -- 0.5%
USD 8,000,000 Republic of Colombia, 8.70%, due 02/15/16 5,480,000
-------------
COSTA RICA -- 0.1%
USD 1,000,000 Central Bank of Costa Rica Principal Bond Series
A, 6.25%, due 05/21/10 920,000
-------------
DOMINICAN REPUBLIC -- 1.1%
USD 17,957,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.94%, due
08/30/24 12,031,190
-------------
ECUADOR -- 1.1%
USD 29,778,000 Republic of Ecuador Par Bond, 144A,
Variable Rate, Step Up, 4.00%, due 08/15/30 11,464,530
-------------
IVORY COAST -- 1.9%
FRF 25,000,000 Ivory Coast Discount Bond,
Variable Rate, Step Up, 3.50%, due 03/31/28 1,016,568
FRF 538,720,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 03/29/18 12,413,300
FRF 256,889,500 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 03/29/18 5,919,302
-------------
19,349,170
-------------
JAMAICA -- 0.8%
USD 8,000,000 Jamaica Government Bond, 144A, 12.75%, due
09/01/07 7,864,000
-------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
JORDAN -- 1.4%
USD 4,245,760 Hashemite Kingdom of Jordan IAB,
Variable Rate, 6 mo. LIBOR + .81%, 7.75%, due
12/23/05 4,052,578
USD 241,084 Hashemite Kingdom of Jordan IAB,
Variable Rate, 6 mo. LIBOR + .81%, 7.75%, due
12/23/05 230,114
USD 14,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 6.00%, due 12/23/23 10,010,000
-------------
14,292,692
-------------
MACEDONIA -- 1.5%
USD 23,936,090 Macedonia Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR + .81%, 7.81%, due
07/12/12 15,797,819
-------------
MEXICO -- 14.5%
USD 19,000 Mexico Discount Bond Series A Odd Lot,
Variable Rate, 6 mo. LIBOR + .81%, 7.31%, due
12/31/19(a) 18,620
USD 13,000,000 Mexico Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 7.31%, due
12/31/19 13,390,000
USD 11,500,000 Mexico Discount Bond Series D,
Variable Rate, 6 mo. LIBOR + .81%, 7.93%, due
12/31/19 11,845,000
DEM 30,000,000 Mexico Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 5.43%,
due 12/31/19 12,683,050
USD 22,000,000 Mexico Global Bond, 11.38%, due 09/15/16 26,037,000
FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 43,935,377
CHF 72,000,000 Mexico Par Bond, 3.75%, due 12/31/19 31,272,237
USD 3,000,000 Mexico Par Bond, Series A, 6.25%, due 12/31/19 2,690,625
USD 10,500,000 Mexico Par Bond, Series B, 6.25%, due 12/31/19 9,417,187
USD 159,000 Mexico Par Bond, Series B Odd Lot, 6.25%, due
12/31/19(a) 134,554
-------------
151,423,650
-------------
MOLDOVA -- 0.0%
USD 400,000 Republic of Moldova (Registered), 9.88%, due
06/13/02 200,000
-------------
NIGERIA -- 2.4%
USD 29,500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step Up, 6.25%, due 11/15/20 16,372,500
USD 18,172,706 Nigeria Par Bond, Odd Lot, 6.25%, due 11/15/20(a) 9,177,219
-------------
25,549,719
-------------
PERU -- 1.9%
USD 4,325,000 Peru Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.19%, due
03/08/27 3,070,750
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERU -- CONTINUED
USD 7,775,000 Peru FLIRB,
Variable Rate, Step Up, 3.75%, due 03/07/17 5,063,469
USD 5,150,000 Peru FLIRB,
Variable Rate, Step Up, 144A, 3.75%, due
03/07/17 3,353,938
USD 14,000,000 Peru Par Bond,
Variable Rate, Step Up, 144A, 3.00%, due
03/07/27 5,740,000
USD 3,200,000 Peru PDI,
Variable Rate, Step Up, 4.50%, due 03/07/17 2,244,000
-------------
19,472,157
-------------
QATAR -- 0.5%
USD 5,000,000 State of Qatar, 144A, 9.75%, due 06/15/30 5,188,500
-------------
RUSSIA -- 13.3%
RUB 68,698,589 Russia Federal Loan Bond Series 26003, 10.00%, due
03/15/05(a) 1,024,976
USD 18,661,959 Russia Federation, 144A, 8.25%, due 03/31/10 13,249,991
USD 286,275,193 Russia Federation, 144A, Step Up, 2.25%, due
03/31/30 124,529,709
-------------
138,804,676
-------------
SOUTH KOREA -- 0.6%
USD 6,000,000 Export Import Bank of Korea, 7.10%, due 03/15/07 5,950,800
-------------
SUPRA NATIONAL -- 0.3%
ZAR 100,000,000 International Bank for Reconstruction and
Development Series EMTN, Zero Coupon, due
05/14/12* 2,869,846
-------------
TRINIDAD & TOBAGO -- 0.3%
USD 3,000,000 Republic of Trinidad & Tobago, 144A , 9.88%, due
10/01/09 3,135,000
-------------
TUNISIA -- 0.2%
JPY 200,000,000 Banque Centrale De Tunisie, 4.35%, due 08/15/17 1,915,323
-------------
TURKEY -- 0.6%
USD 2,000,000 Republic of Turkey, 11.88%, due 01/15/30 2,173,000
USD 4,000,000 Republic of Turkey Notes, 12.00%, due 12/15/08 4,335,000
-------------
6,508,000
-------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES -- 0.4%
U.S. GOVERNMENT AGENCY -- 0.4%
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%, due
02/15/02(b) 3,904,600
-------------
VENEZUELA -- 4.8%
USD 10,000,000 Republic of Venezuela, 9.25%, due 09/15/27 6,825,000
USD 1,547,145 Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 7.88%, due
12/18/07(a) 1,255,121
USD 12,195,693 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR(a) + .88%, 7.88%, due
12/18/08(a) 10,198,648
USD 5,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
03/31/20 4,050,000
USD 170,000 Republic of Venezuela FLIRB Series A Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 7.44%, due
03/31/07(a) 138,338
USD 488,000 Republic of Venezuela FLIRB Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 7.44%, due
03/31/07 397,720
CHF 26,666,630 Republic of Venezuela FLIRB,
Variable Rate, CHF 6 mo. LIBOR + .88%, 4.06%,
due 03/31/07 11,739,148
USD 8,036,813 Republic of Venezuela New Money Bond Series A Odd
Lot,
Variable Rate, 6 mo. LIBOR + 1%, 8.00%, due
12/18/05(a) 6,107,978
USD 5,629,412 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1%, 8.00%, due
12/18/05 4,559,824
USD 778,090 Republic of Venezuela New Money Bond Series B Odd
Lot,
Variable Rate, 6 mo. LIBOR + .88%, 7.88%, due
12/18/05(a) 591,349
DEM 960,000 Republic of Venezuela New Money Bond Series B,
Variable Rate DEM 6 mo. LIBOR + .88%, 5.56%, due
12/18/05 320,758
FRF 39,175,000 Republic of Venezuela Par Bond, 7.71%, due
03/31/20 4,380,646
-------------
50,564,530
-------------
VIETNAM -- 1.3%
USD 4,000,000 Vietnam Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.19%, due
03/13/28 2,400,000
USD 19,750,000 Vietnam Par Bond,
Variable Rate, Step Up, 3.25%, due 03/12/28 7,307,500
USD 6,591,000 Vietnam PDI,
Variable Rate, Step Up, 3.75%, due 03/14/16 3,888,690
-------------
13,596,190
-------------
TOTAL DEBT OBLIGATIONS (COST $796,570,823) 826,861,132
-------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOAN ASSIGNMENTS -- 9.5%
ALGERIA -- 6.6%
JPY 495,430,068 Algeria Tranche 1, JPY 6 mo. LIBOR + .8125%,
(1.0000%) 3,588,895
USD 2,828,571 Algeria Tranche 2, USD 6 mo. LIBOR + .8125%,
(7.1875%) 2,390,143
JPY 8,431,773,548 Algeria Tranche 3 Loan Agreement, JPY 6 mo. LIBOR
+ .8125%, (1.0000%) 53,963,667
EUR 13,806,442 Algeria Tranche 3, FRF 6 mo. LIBOR + .8125%,
(4.6875%) 8,592,715
-------------
68,535,420
-------------
CAMEROON -- 0.1%
NLG 23,084,718 Cameroon Loan Agreement, (No Tranche specified,
dated January 31, 1981)* 1,164,209
FRF 18,396,841 Republic of Cameroon Tranche B, (dated January 30,
1979)* 311,694
-------------
1,475,903
-------------
CONGO REPUBLIC (BRAZZAVILLE) -- 0.3%
FRF 102,097,963 Republic of Congo Loan Agreement* 1,626,036
USD 5,295,244 Republic of Congo Loan Agreement* 622,191
EUR 8,195,761 Republic of Congo Loan Agreement* 856,205
-------------
3,104,432
-------------
MOROCCO -- 1.7%
JPY 1,229,005,112 Morocco Restructuring and Consolidating Agreement
Tranche A, JPY Long Term Prime + .2175%,
(2.2675%) 9,666,430
USD 9,444,444 Morocco Tranche A, USD 6 mo. LIBOR + .8125%,
(7.75%) 8,677,083
-------------
18,343,513
-------------
RUSSIA -- 0.8%
DEM 15,000,000 International Bank for Economic Cooperation Loan
Agreement* 1,227,392
EUR 5,000,000 International Bank for Economic Cooperation Loan
Agreement* 844,645
DEM 5,208,190 Russia Foreign Trade Obligations* 793,142
USD 15,060,875 Russia Foreign Trade Obligations* 5,045,393
-------------
7,910,572
-------------
YUGOSLAVIA -- 0.0%
USD 1,400,368 Yugoslavia New Financing Agreement Tranche A* 101,527
USD 1,499,573 Yugoslavia New Financing Agreement Tranche C* 108,719
-------------
210,246
-------------
TOTAL LOAN ASSIGNMENTS (COST $88,533,690) 99,580,086
-------------
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOAN PARTICIPATIONS -- 2.2%
ALGERIA -- 0.3%
JPY 250,000,000 Algeria Tranche 3 Loan Agreement, JPY Long Term
Prime +.8125%, (3.4875%), (Participation with
Salomon) 1,600,009
JPY 250,000,000 Algeria Tranche S1, JPY Long Term Prime + .8125%,
(3.1387%), (Participation with Salomon) 1,359,715
-------------
2,959,724
-------------
CAMEROON -- 0.0%
NLG 4,968,184 Cameroon Loan Agreement, (No Tranche specified,
dated January 31, 1981), (Participation with
Salomon)* 250,555
-------------
INDONESIA -- 1.2%
USD 640,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (7.5188%),
(Participation with Salomon) 393,600
USD 960,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (7.625%), (Participation
with Salomon) 590,400
USD 744,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (7.5188%),
(Participation with Salomon) 453,840
USD 1,116,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (7.625%), (Participation
with Salomon) 680,760
USD 4,000,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (7.5188%),
(Participation with Salomon) 2,540,000
USD 3,810,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (7.625%), (Participation
with Salomon) 2,419,350
USD 4,890,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (7.6375%),
(Participation with Salomon) 3,105,150
USD 2,624,078 Republic of Indonesia Loan Agreement, dated
October 4, 1997 LIBOR +.625%, (6.6613%),
(Participation with Deutsche Bank) 1,836,854
-------------
12,019,954
-------------
JAMAICA -- 0.3%
USD 3,937,500 Jamaica Refinancing Agreement Tranche B, LIBOR +
.8125%, (7.5813%), (Participation with Chase
Manhattan Bank and Salomon) 3,622,500
-------------
MOROCCO -- 0.2%
JPY 311,100,681 Morocco Restructuring and Consolidating Agreement
Tranche A, JPY Long Term Prime + .2175%,
(3.0175%), (Participation with J.P. Morgan) 2,446,884
-------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
RUSSIA -- 0.2%
DEM 3,500,000 International Bank for Economic Cooperation Loan
Agreement, (Participation with Salomon)* 286,391
JPY 900,000,000 International Investment Bank Loan Agreement,
(Participation with Bank of America)* 1,603,526
-------------
1,889,917
-------------
YUGOSLAVIA -- 0.0%
USD 2,100,416 Yugoslavia New Financing Agreement Tranche B,
(Participation with Chase Manhattan Bank)* 152,280
USD 352,431 Yugoslavia New Financing Agreement Tranche C,
(Participation with Chase Manhattan Bank)* 25,551
-------------
177,831
-------------
TOTAL LOAN PARTICIPATIONS (COST $25,275,495) 23,367,365
-------------
PROMISSORY NOTES -- 0.6%
KENYA -- 0.5%
GBP 672,890 Republic of Kenya Promissory Notes, 0.00%, due
1/30/03(a) 604,273
GBP 1,856,250 Republic of Kenya Promissory Notes, 0.00%, due
7/30/02(a) 1,841,975
GBP 672,890 Republic of Kenya Promissory Notes, 0.00%, due
1/30/02(a) 737,816
GBP 1,856,250 Republic of Kenya Promissory Notes, 0.00%, due
7/30/01(a) 2,248,993
-------------
5,433,057
-------------
NIGERIA -- 0.1%
USD 3,000,000 Central Bank of Nigeria Promissory Notes, 5.09%,
due 1/5/10 795,000
-------------
TOTAL PROMISSORY NOTES (COST $8,209,351) 6,228,057
-------------
MUTUAL FUND -- 1.2%
467,502 GMO Alpha LIBOR Fund 12,098,943
-------------
TOTAL MUTUAL FUND (COST $12,052,193) 12,098,943
-------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUT OPTIONS PURCHASED -- 0.0%
OPTIONS ON FUTURES -- 0.0%
USD 3,750,000 Eurodollar, Expires 9/18/00, Strike 93.25 18,750
-------------
TOTAL PUT OPTIONS PURCHASED (COST $97,687) 18,750
-------------
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
29,000 United Mexican States Recovery Warrants, Expires
6/30/03** --
161,682,000 United Mexican States Warrants, Expires 6/30/03** --
NIGERIA -- 0.0%
45,710 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20** --
-------------
VENEZUELA -- 0.0%
74,355 Republic of Venezuela Recovery Warrants, Expires
4/15/20** --
-------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-------------
TOTAL INVESTMENTS -- 92.7%
(Cost $930,739,239) 968,154,333
Other Assets and Liabilities (net) -- 7.3% 76,354,551
-------------
TOTAL NET ASSETS -- 100.0% $1,044,508,884
=============
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NOTES TO SCHEDULE OF INVESTMENTS:
<S> <C>
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.
CPI - Consumer Price Index
DCB - Debt Conversion Bond
EMTN - Euromarket Medium Term Note
FLIRB - Front Loaded Interest Reduction Bond
IAB - Interest Arrears Bond
PDI - Past Due Interest
PIK - Payment In Kind
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
</TABLE>
10 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, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
ARS - Argentine Peso
CHF - Swiss Franc
DEM - German Mark
EUR - Euro
FRF - French Franc
GBP - British Pound
HKD - Hong Kong Dollar
JPY - Japanese Yen
NLG - Netherlands Guilder
RUB - Russian Ruble
USD - United States Dollar
ZAR - South African Rand
</TABLE>
(a) Valued by management (Note 1).
* Non-performing. Borrower not currently paying interest.
(b) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
** Non-income producing security.
See accompanying notes to the financial statements. 11
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $930,739,239) (Note 1) $ 968,154,333
Cash 76,971
Cash at interest on deposit at brokers (Note 1) 2,025,811
Receivable for investments sold 3,986,500
Receivable for Fund shares sold 53,909,956
Interest receivable 21,433,293
Net receivable for open forward foreign currency
contracts (Notes 1 and 6) 3,840,716
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 191,349
Receivable for open swap contracts (Notes 1 and 6) 2,147,148
Receivable for expenses waived or borne by Manager (Note
2) 21,477
Miscellaneous receivable (Note 1) 9,449,134
--------------
Total assets 1,065,236,688
--------------
LIABILITIES:
Payable for investments purchased 18,444,349
Payable for Fund shares repurchased 1,752,100
Payable to affiliate for (Note 2):
Management fee 289,605
Shareholder service fee 98,481
Accrued expenses 143,269
--------------
Total liabilities 20,727,804
--------------
NET ASSETS $1,044,508,884
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 986,965,009
Accumulated undistributed net investment income 22,664,103
Accumulated net realized loss (10,353,281)
Net unrealized appreciation 45,233,053
--------------
$1,044,508,884
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 430,807,562
==============
Class IV shares $ 613,701,322
==============
SHARES OUTSTANDING:
Class III 45,630,326
==============
Class IV 65,033,982
==============
NET ASSET VALUE PER SHARE:
Class III $ 9.44
==============
Class IV $ 9.44
==============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $33,058) $ 50,087,056
Dividends from investment company shares 103,812
------------
Total income 50,190,868
------------
EXPENSES:
Management fee (Note 2) 1,652,293
Custodian fees 225,584
Audit fees 43,516
Legal fees 51,042
Transfer agent fees 17,664
Trustees fees (Note 2) 5,796
Registration fees 92
Miscellaneous 5,888
Fees waived or borne by Manager (Note 2) (106,444)
------------
1,895,431
Shareholder service fee (Note 2)
Class III 281,337
Class IV 284,526
------------
Net expenses 2,461,294
------------
Net investment income 47,729,574
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (46,901,506)
Closed futures contracts 883,794
Closed swap contracts 39,883,970
Foreign currency, forward contracts and foreign
currency related transactions 14,582,538
------------
Net realized gain 8,448,796
------------
Change in net unrealized appreciation (depreciation) on:
Investments 107,263,678
Open futures contracts 239,240
Open swap contracts (32,890,517)
Foreign currency, forward contracts and foreign
currency related transactions (3,327,382)
------------
Net unrealized gain 71,285,019
------------
Net realized and unrealized gain 79,733,815
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $127,463,389
============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 47,729,574 $ 91,183,525
Net realized gain 8,448,796 32,158,816
Change in net unrealized appreciation (depreciation) 71,285,019 204,077,093
-------------- -------------
Net increase in net assets from operations 127,463,389 327,419,434
-------------- -------------
Distributions to shareholders from:
Net investment income
Class III (21,319,966) (51,599,442)
Class IV (32,341,220) (57,663,578)
-------------- -------------
Total distributions from net investment income (53,661,186) (109,263,020)
-------------- -------------
Net realized gains
Class III -- (5,234,784)
Class IV -- (6,680,035)
-------------- -------------
Total distributions from net realized gains -- (11,914,819)
-------------- -------------
In excess of net realized gains
Class III -- (46,638)
Class IV -- (59,515)
-------------- -------------
Total distributions in excess of net realized
gains -- (106,153)
-------------- -------------
(53,661,186) (121,283,992)
-------------- -------------
Net share transactions: (Note 5)
Class III 23,951,298 (175,611,247)
Class IV 22,293,389 120,316,839
-------------- -------------
Increase (decrease) in net assets resulting from net
share transactions 46,244,687 (55,294,408)
-------------- -------------
Total increase in net assets 120,046,890 150,841,034
NET ASSETS:
Beginning of period 924,461,994 773,620,960
-------------- -------------
End of period (including accumulated undistributed
net investment income of $22,664,103 and
$28,595,715, respectively) $1,044,508,884 $ 924,461,994
============== =============
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.74 $ 6.89 $ 11.64 $ 14.09 $ 11.76 $ 8.39
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.45+ 0.84+ 0.92+ 1.13+ 1.48 1.35
Net realized and unrealized gain
(loss) 0.77 2.20 (4.41) 1.51 6.40 3.84
-------- -------- -------- -------- -------- --------
Total from investment operations 1.22 3.04 (3.49) 2.64 7.88 5.19
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.52) (1.07) (0.23) (0.84) (1.58) (1.17)
From net realized gains -- (0.12) (1.03) (4.25) (3.97) (0.65)
In excess of net realized gains -- --(a) --(a) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.52) (1.19) (1.26) (5.09) (5.55) (1.82)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 8.74 $ 6.89 $ 11.64 $ 14.09 $ 11.76
======== ======== ======== ======== ======== ========
TOTAL RETURN(b) 14.46%++ 46.81% (32.94)% 22.27% 74.32% 63.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $430,808 $378,593 $450,336 $460,387 $555,452 $615,485
Net expenses to average daily net
assets 0.55%* 0.56% 0.56% 0.53% 0.57% 0.50%
Net investment income to average
daily net assets 10.04%* 10.82% 10.99% 8.62% 8.35% 12.97%
Portfolio turnover rate 68% 123% 272% 255% 152% 158%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(c) --(c) $ 0.02 $ 0.03 $ 0.03 $ 0.02
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not annualized.
(a) The distribution in excess of net realized gains was less than $.001.
(b) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(c) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
See accompanying notes to the financial statements. 15
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ----------------------------------------
(UNAUDITED) 2000 1999 1998**
---------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.74 $ 6.90 $ 11.63 $ 10.99
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.46+ 0.84+ 0.91+ 0.10+
Net realized and unrealized gain (loss) 0.76 2.20 (4.37) 0.54
-------- -------- -------- --------
Total from investment operations 1.22 3.04 (3.46) 0.64
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.52) (1.08) (0.24) --
From net realized gains -- (0.12) (1.03) --
In excess of net realized gains -- --(a) --(a) --
-------- -------- -------- --------
Total distributions (0.52) (1.20) (1.27) --
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 8.74 $ 6.90 $ 11.63
======== ======== ======== ========
TOTAL RETURN(b) 14.47%++ 47.00% (32.82)% 5.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $613,701 $545,869 $323,285 $310,580
Net expenses to average daily net assets 0.50%* 0.51% 0.51% 0.50%*
Net investment income to average daily net
assets 10.16%* 10.87% 10.87% 7.17%*
Portfolio turnover rate 68% 123% 272% 255%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: --(c) --(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.
++ Not annualized.
(a) The distribution in excess of net realized gains was less than $.001.
(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.
16 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares
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 benchmark is the J.P. Morgan Emerging
Markets Bond Index Global.
The Fund offers two classes of shares: Class III and Class IV. The
principal economic difference between the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
At August 31, 2000, 1.2% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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
17
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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. Shares of other Funds of
the Trust are valued at their net asset value as reported on each business
day. Securities for which quotations are not 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 a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
18
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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, 2000.
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
19
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
amounts paid on the underlying future, security or currency transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying future, security or currency may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the future, security or currency
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, 2000 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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
20
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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 interest rate, total return, forward
swap spread lock and credit default swap agreements to manage its exposure
to interest rates and credit risk. 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, both based on notional
amounts. 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. Forward swap spread lock swap agreements
involve commitments to pay or receive a settlement amount calculated as
the difference between the swap spread and a fixed spread, multiplied by
the notional amount times the duration of the swap rate. The swap spread
is the difference between the benchmark swap rate (market rate) and the
specific treasury rate. 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, 2000, $2,025,811 in cash has been set aside.
Swaps are marked to market daily based upon quotations from market makers
and the change in value, 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 included as part of 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, 2000.
The miscellaneous receivable in the Fund includes potential recovery
amounts from pending litigation commenced by the Fund against a
counterparty relating to certain closed credit default swap transactions.
The outcome of this litigation is not predictable and the amount actually
received by the Fund could be more or less than the amount the Fund
believes it is due, as valued 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
21
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in
the name of the counterparty 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 the Fund has sold may
decline below the contracted repurchase price under the agreement. For the
six months August 31, 2000, the Fund did not enter into any reverse
repurchase agreements.
DELAYED DELIVERY COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
and the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. Collateral consisting of liquid
securities or cash and cash equivalents is maintained with the custodian
in an amount at least equal to these commitments.
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, 2000, 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
22
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 U.S. federal income tax purposes. Therefore, no provision
for U.S. federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares. Distributions to shareholders
are recorded by the Fund on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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 inflation indexed securities
is accrued daily based upon an inflation adjusted principal. Additionally,
any increase in the principal or face amount of these securities 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
23
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000, the Fund
received $347,826 in purchase premiums and $165,333 in redemption fees.
There is no premium for reinvested distributions.
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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $5,796. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
24
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 31, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
U.S. Government securities $ 25,255,750 $ 25,255,750
Investments (non-U.S. Government securities) 613,993,728 599,493,548
</TABLE>
At August 31, 2000, the cost for U.S. federal income tax purposes and
gross unrealized appreciation and depreciation in value of investments
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$930,739,239 $124,620,804 $(87,205,710) $37,415,094
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 39.0% 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, 2000 February 29, 2000
------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Class III:
Shares sold 6,558,520 $ 61,556,101 8,327,628 $ 64,234,029
Shares issued to shareholders
in reinvestment of distributions 1,741,986 15,207,537 5,357,740 41,374,128
Shares repurchased (5,979,692) (52,812,340) (35,692,441) (281,219,404)
----------- ------------ ------------ -------------
Net increase (decrease) 2,320,814 $ 23,951,298 (22,007,073) $(175,611,247)
=========== ============ ============ =============
</TABLE>
25
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Class IV:
Shares sold 1,113,018 $ 10,182,008 22,519,103 $ 171,859,561
Shares issued to shareholders
in reinvestment of distributions 3,587,678 31,284,550 7,990,878 62,255,370
Shares repurchased (2,149,813) (19,173,169) (14,912,078) (113,798,092)
----------- ------------ ------------ -------------
Net increase 2,550,883 $ 22,293,389 15,597,903 $ 120,316,839
=========== ============ ============ =============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver Units of Currency Value (Depreciation)
---------- ------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales
9/13/00 CHF 60,700,000 $34,875,070 $2,137,125
11/14/00 EUR 94,800,000 84,609,469 1,200,647
10/24/00 GBP 1,500,000 2,184,327 95,133
4/3/01 HKD 77,834,000 9,998,651 1,349
4/5/02 HKD 77,883,000 10,008,674 (8,674)
10/3/00 JPY 6,500,000,000 61,300,341 416,332
11/7/00 ZAR 10,000,000 1,423,645 (1,196)
----------
$3,840,716
==========
</TABLE>
26
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
-------------------------- --------------------------------------------- --------------- ------------ --------------
<C> <S> <C> <C> <C>
Buys
357 U.S. Treasury Note 10 Yr. December 2000 $ 35,727,891 $25,838
=======
Sales
6 Japanese Government Bond 10 Yr. December 2000 $ 7,395,911 $29,617
3 Swiss Government Bond 10 Yr. December 2000 200,115 (188)
500 U.S. Treasury Bill December 2000 117,293,750 (2,438)
-------
$26,991
=======
</TABLE>
At August 31, 2000, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
CREDIT DEFAULT SWAPS
10,000,000 USD 9/15/00 Agreement with Morgan Guaranty Trust Company dated $ (108,799)
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 Brady Bond due 10/27/14.
</TABLE>
27
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
15,000,000 USD 11/03/00 Agreement with Credit Suisse Financial Products $ (79,184)
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 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 Products (159,896)
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 74.75 USD and
the then-market value of Brazil Debt Conversion
"DCB" Bond due 4/15/12.
10,000,000 USD 12/18/00 Agreement with Morgan Guaranty Trust Company dated (209,268)
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.
</TABLE>
28
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
20,000,000 USD 3/01/01 Agreement with Morgan Guaranty Trust Company dated $ (695,542)
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.
25,000,000 USD 9/10/01 Agreement with Credit Suisse Financial Products (258,041)
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 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 (862,285)
(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 par value
and the then-market value of United Mexican
States, 9.875% due 1/15/07.
</TABLE>
29
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 5/12/98 to pay $ 51,747
.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 SA Euro
Medium Term Notes.
10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 10/01/98 to (541,008)
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
SA Euro Medium Term Notes.
15,000,000 USD 6/20/03 Agreement with Goldman Sachs International dated 2,257,562
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.
</TABLE>
30
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
FORWARD SWAP SPREAD LOCK SWAPS
60,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated $ (232,538)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
40,000,000 USD 5/16/01 Agreement with UBS AG dated 5/12/00 to pay 219,259
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
INTEREST RATE SWAPS
250,000,000 HKD 4/02/02 Agreement with UBS AG dated 3/31/00 to pay the (158,149)
notional amount multiplied by 6.99% and to receive
the notional amount multiplied by 3 month Floating
Rate Hong Kong HIBOR adjusted by a specified
spread.
32,000,000 USD 4/02/02 Agreement with UBS AG dated 3/31/00 to receive the 121,916
notional amount multiplied by 7.09% and to pay the
notional amount multiplied by 3 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
500,000,000 HKD 4/17/02 Agreement with UBS AG dated 4/13/00 to pay the $ (256,038)
notional amount multiplied by 6.935% and to
receive the notional amount multiplied by 3 month
Floating Rate Hong Kong HIBOR adjusted by a
specified spread.
64,000,000 USD 4/17/02 Agreement with UBS AG dated 4/13/00 to receive the 97,639
notional amount multiplied by 6.97% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specific spread.
500,000,000 HKD 4/26/02 Agreement with UBS AG dated 4/20/00 to pay the (205,223)
notional amount multiplied by 6.895% and to
receive the notional amount multiplied by 3 month
Floating Rate Hong Kong HIBOR adjusted by a
specified spread.
64,000,000 USD 4/26/02 Agreement with UBS AG dated 4/20/00 to receive the 91,996
notional amount multiplied by 6.945% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
500,000,000 HKD 4/29/02 Agreement with UBS AG dated 4/26/00 to pay the (341,847)
notional amount multiplied by 6.999% and to
receive the notional amount multiplied by 3 month
Floating Rate Hong Kong HIBOR 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
64,000,000 USD 4/29/02 Agreement with UBS AG dated 4/26/00 to receive the $ 199,249
notional amount multiplied by 7.059% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
1,000,000,000 HKD 4/03/03 Agreement with Morgan Guaranty Trust Company dated (782,295)
3/30/00 to pay the notional amount multiplied by
7.12% and to receive the notional amount
multiplied by 3 month Floating Rate Hong Kong
HIBOR adjusted by a specified spread.
129,500,000 USD 4/03/03 Agreement with Morgan Guaranty Trust Company dated 1,203,636
3/30/00 to receive the notional amount multiplied
by 7.23% and to pay the notional amount multiplied
by 3 month LIBOR adjusted by a specified spread.
2,400,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company dated 54,388
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.
2,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 277,123
6/09/98 to pay the notional amount multiplied by
3.245% and to receive the notional amount
multiplied by 6 month Floating Rate Swiss LIBOR
adjusted by a specified spread.
</TABLE>
33
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
13,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated $ 247,369
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.
15,000,000 EUR 2/22/07 Agreement with UBS AG dated 2/18/00 to pay the 45,464
notional amount multiplied by 5.76% and to receive
the notional amount multiplied by 6 month Floating
Rate EURIBOR.
50,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 891,314
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
26,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 784,655
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
TOTAL RETURN SWAPS
5,471,278 USD/ 9/07/00 Agreement with Morgan Guaranty Trust Company dated 291,081
7,000,000 USD 8/21/00 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Argentina, 10.25% due 7/21/30 and to pay initial
market value multiplied by 1 month LIBOR adjusted
by a specified spread.
</TABLE>
34
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
3,959,479 USD/ 9/07/00 Agreement with Morgan Guaranty Trust Company dated $ 157,386
5,000,000 USD 8/22/00 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Argentina, 10.25% due 7/21/30 and to pay initial
market value multiplied by 1 month LIBOR adjusted
by a specified spread.
6,408,500 USD/ 9/08/00 Agreement with Morgan Guaranty Trust Company dated 130,252
7,000,000 USD 8/23/00 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Argentina, 12.00% due 2/01/20 and to pay initial
market value multiplied by 1 month LIBOR adjusted
by a specified spread.
5,565,000 USD/ 9/08/00 Agreement with Morgan Guaranty Trust Company dated 36,699
6,000,000 USD 8/23/00 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 1 month LIBOR adjusted
by a specified spread.
</TABLE>
35
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
32,081,428 USD/ 9/13/00 Agreement with Morgan Guaranty Trust Company dated $ (79,971)
34,250,000 USD 8/25/00 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 1 month LIBOR adjusted
by a specified spread.
9,949,188 USD/ 9/14/00 Agreement with Deutsche Bank AG dated 3/10/00 to (1,446)
12,000,000 USD 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.
9,917,083 USD/ 10/02/00 Agreement with Morgan Guaranty Trust Company dated 123,204
10,000,000 USD 8/25/00 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil Global
Bond, 12.25% due 3/06/30 and to pay initial market
value multiplied by 2 month LIBOR adjusted by a
specified spread.
</TABLE>
36
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
20,477,231 USD/ 10/03/00 Agreement with Deutsche Bank AG dated 3/30/00 to $(1,280,353)
23,500,000 USD receive (pay) the notional amount multiplied by
the change in market value (including accrued
interest) of Republic of Argentina, 6.625% due
3/31/23 and to pay initial market value multiplied
by 6 month LIBOR adjusted by a specified spread.
5,033,294 USD/ 10/06/00 Agreement with Morgan Guaranty Trust Company dated 81,168
5,000,000 USD 4/05/00 to receive (pay) the notional amount
multiplied by the change in market value
(including accrued interest) of Mexico Discount
Floating Rate Note Series D due 12/31/19 and to
pay initial market value multiplied by 6 month
LIBOR adjusted by a specified spread.
19,344,922 USD/ 11/09/00 Agreement with Deutsche Bank AG dated 2/07/00 to 1,307,916
25,000,000 USD 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.
</TABLE>
37
<PAGE>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Appreciation
Fund/Counterparty Expiration Date Description (Depreciation)
----------------- --------------- -------------------------------------------------- --------------
<C> <C> <S> <C>
8,157,639 USD/ 11/14/00 Agreement with Deutsche Bank AG dated 2/09/00 to $ (44,988)
10,000,000 USD receive (pay) the notional amount multiplied by
the change in market value (including accrued
interest) of Republic of Argentina Discount
Floating Rate Note due 3/31/23 and to pay initial
market value multiplied by 9 month LIBOR adjusted
by a specified spread.
15,000,000 USD 8/23/01 Agreement with Lehman Brothers Special Financing (227,004)
Inc. dated 8/21/00 to pay (receive) the notional
amount multiplied by the return on the Lehman
Brothers Emerging Markets Index and to receive the
notional amount multiplied by 1 month LIBOR
adjusted by a specified spread.
-----------
$ 2,147,148
===========
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
38
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 31.9%
ARGENTINA -- 0.3%
USD 1,000,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.88%, due
03/31/23 820,000
-----------
AUSTRALIA -- 0.5%
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 09/14/07 1,631,915
-----------
AUSTRIA -- 2.3%
GBP 4,500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 7,130,227
-----------
BRAZIL -- 1.9%
USD 7,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
04/15/24 5,775,000
-----------
BULGARIA -- 1.9%
USD 10,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%, due 07/28/16 1,118,000
USD 10,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 07/28/24 462,500
USD 15,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 3,326,335
-----------
USD 1,000,000 Bulgaria FLIRB Series B,
Variable Rate, Step Up, 3.50%, due 07/28/12 770,000
-----------
5,676,835
-----------
CANADA -- 7.9%
CAD 3,750,000 Government of Canada, 10.25%, due 03/15/14 3,584,712
CAD 8,000,000 Government of Canada Real Return, 4.25%, due
12/01/21 6,751,041
CAD 5,000,000 Government of Canada Real Return, 4.25%, due
12/01/26 4,056,961
GBP 6,000,000 Province of Quebec, 8.63%, due 11/04/11 9,781,965
-----------
24,174,679
-----------
CAYMAN ISLANDS -- 3.3%
GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due
09/15/02 2,922,513
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 2,862,955
EUR 4,670,000 MBNA America Euro Structured Offering,
Variable Rate, 3 mo. EURIBOR + .14%, 4.98%, due
05/19/04 4,145,869
-----------
9,931,337
-----------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ECUADOR -- 0.0%
USD 163,000 Republic of Ecuador Par Bond, 144A,
Variable Rate, Step Up, 4.00%, due 08/15/30 62,755
-----------
MEXICO -- 3.0%
FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,310,526
CHF 18,000,000 Mexico Par Bond, 3.75%, due 12/31/19 7,818,059
-----------
9,128,585
-----------
NIGERIA -- 0.3%
USD 1,603,625 Central Bank of Nigeria Par Bond Odd Lot,
Variable Rate, Step Up, 6.25%, due 11/15/20(a) 809,831
-----------
NORWAY -- 0.5%
SEK 13,700,000 A/S Eksportfinans, 7.50%, due 08/16/01 1,484,911
-----------
RUSSIA -- 1.7%
USD 1,496,287 Russia Federation, 144A, 8.25%, due 03/31/10 1,062,364
USD 9,843,924 Russia Federation, 144A, Step Up, 2.25%, due
03/31/30 4,282,107
-----------
5,344,471
-----------
SUPRA NATIONAL -- 1.1%
AUD 16,100,000 European Bank for Reconstruction and Development,
Zero Coupon, due 02/10/28 1,441,900
CAD 2,700,000 European Investment Bank, 8.50%, due 08/30/05 2,000,237
-----------
3,442,137
-----------
SWEDEN -- 1.7%
SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 3,941,557
SEK 5,700,000 Kingdom of Sweden, 8.00%, due 08/15/07 696,757
SEK 6,100,000 Kingdom of Sweden, 6.50%, due 10/25/06 687,151
-----------
5,325,465
-----------
UNITED STATES -- 4.9%
CORPORATE DEBT -- 1.6%
SEK 44,000,000 Toyota Motor Credit, 7.50%, due 08/06/01 4,772,320
-----------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE/
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT -- 1.7%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/14(a) 4,159,232
USD 1,050,410 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(b) 1,038,593
-----------
5,197,825
-----------
U.S. GOVERNMENT AGENCY -- 1.6%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 6.89%, due
02/15/02(b) 4,880,750
-----------
TOTAL UNITED STATES 14,850,895
-----------
VENEZUELA -- 0.6%
USD 500,000 Republic of Venezuela, 9.25%, due 09/15/27 341,250
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 7.38%, due
03/31/20 1,620,000
-----------
1,961,250
-----------
TOTAL DEBT OBLIGATIONS (COST $107,081,435) 97,550,293
-----------
MUTUAL FUND -- 65.5%
7,731,430 GMO Alpha LIBOR Fund 200,089,419
-----------
TOTAL MUTUAL FUND (COST $198,491,921) 200,089,419
-----------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.3%
OPTIONS ON CURRENCY -- 0.3%
USD 39,600,000 Japanese Yen, Expires 11/13/00, Strike 104.85 846,101
-----------
TOTAL CALL OPTIONS PURCHASED (COST $1,508,760) 846,101
-----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
13,746,000 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
4/15/20* --
-----------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-----------
SHORT-TERM INVESTMENTS -- 0.4%
COMMERCIAL PAPER -- 0.4%
USD 1,200,000 Galleon Capital Corp, 144A, 6.57%, due 9/01/00 1,200,000
-----------
REPURCHASE AGREEMENT -- 0.0%
USD 56,908 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/00, due 9/1/00, with a maturity value
of $56,917 and an effective yield of 5.73%,
collaterized by a U.S. Treasury Obligation with a
rate of 9.25%, maturity date of 2/15/16 and market
value, including accrued interest, of $64,947. 56,908
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,256,908) 1,256,908
-----------
TOTAL INVESTMENTS -- 98.1%
(Cost $308,339,024) 299,742,721
Other Assets and Liabilities (net) -- 1.9% 5,676,975
-----------
TOTAL NET ASSETS -- 100.0% $305,419,696
===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
CPI - Consumer Price Index
EMTN - Euromarket Medium Term Note
FLIRB - Front Loaded Interest Reduction Bond
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2000, which are subject to change based on the terms of
the security, including varying reset dates.
CURRENCY ABBREVIATIONS:
</TABLE>
<TABLE>
<S> <C>
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
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</TABLE>
(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-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $308,339,024) (Note 1) $299,742,721
Foreign currency, at value (cost $155,284) (Note 1) 155,632
Receivable for investments sold 126,033
Interest receivable 3,938,674
Net receivable for open forward foreign currency
contracts (Notes 1 and 6) 1,819,934
Receivable for open swap contracts (Notes 1 and 6) 801,882
Receivable for expenses waived or borne by Manager (Note
2) 18,755
------------
Total assets 306,603,631
------------
LIABILITIES:
Payable for Fund shares repurchased 495,575
Payable to affiliate for (Note 2):
Management fee 64,983
Shareholder service fee 38,906
Payable for variation margin on open futures contracts
(Notes 1 and 6) 513,098
Accrued expenses 71,373
------------
Total liabilities 1,183,935
------------
NET ASSETS $305,419,696
============
NET ASSETS CONSIST OF:
Paid-in capital $313,280,433
Accumulated undistributed net investment income 5,835,545
Accumulated net realized loss (6,713,239)
Net unrealized depreciation (6,983,043)
------------
$305,419,696
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $305,419,696
============
SHARES OUTSTANDING:
Class III 31,380,268
============
NET ASSET VALUE PER SHARE:
Class III $ 9.73
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 7,639,418
Dividends from investment company shares 102,688
-----------
Total income 7,742,106
-----------
EXPENSES:
Management fee (Note 2) 368,613
Custodian and transfer agent fees 76,728
Audit fees 30,360
Legal fees 7,636
Trustees fees (Note 2) 1,748
Miscellaneous 2,300
Fees waived or borne by Manager (Note 2) (118,772)
-----------
368,613
Shareholder service fee (Note 2)
Class III 221,168
-----------
Net expenses 589,781
-----------
Net investment income 7,152,325
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (9,563,697)
Closed futures contracts (2,054,645)
Closed swap contracts 856,705
Foreign currency, forward contracts and foreign
currency related transactions 4,226,655
-----------
Net realized loss (6,534,982)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 10,806,625
Open futures contracts (249,097)
Open swap contracts 1,029,292
Foreign currency, forward contracts and foreign
currency related transactions 506,634
-----------
Net unrealized gain 12,093,454
-----------
Net realized and unrealized gain 5,558,472
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,710,797
===========
</TABLE>
See accompanying notes to the financial statements. 7
<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, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,152,325 $ 20,364,468
Net realized gain (loss) (6,534,982) 2,370,822
Change in net unrealized appreciation (depreciation) 12,093,454 (6,187,230)
------------ ------------
Net increase in net assets from operations 12,710,797 16,548,060
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (8,881,147) (32,068,429)
------------ ------------
Total distributions from net investment income (8,881,147) (32,068,429)
------------ ------------
Net realized gains
Class III (3,132,734) (3,809,147)
------------ ------------
Total distributions from net realized gains (3,132,734) (3,809,147)
------------ ------------
(12,013,881) (35,877,576)
------------ ------------
Net share transactions: (Note 5)
Class III 21,383,114 (21,042,118)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 21,383,114 (21,042,118)
------------ ------------
Total increase (decrease) in net assets 22,080,030 (40,371,634)
NET ASSETS:
Beginning of period 283,339,666 323,711,300
------------ ------------
End of period (including accumulated undistributed
net investment income of $5,835,545 and $7,564,367,
respectively) $305,419,696 $283,339,666
============ ============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $ 10.47 $ 10.66 $ 12.16 $ 10.92 $ 9.99
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) 0.24+ 0.65+ 0.74 0.88 0.66 1.05
Net realized and unrealized gain
(loss) 0.18 (0.17) (0.39) 0.73 2.07 1.62
-------- -------- -------- -------- -------- --------
Total from investment operations 0.42 0.48 0.35 1.61 2.73 2.67
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.29) (1.11) (0.16) (0.88) (0.60) (1.04)
From net realized gains (0.10) (0.14) (0.38) (2.23) (0.45) (0.42)
In excess of net realized gains -- -- -- -- (0.44) (0.28)
-------- -------- -------- -------- -------- --------
Total distributions (0.39) (1.25) (0.54) (3.11) (1.49) (1.74)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 9.70 $ 10.47 $ 10.66 $ 12.16 $ 10.92
======== ======== ======== ======== ======== ========
TOTAL RETURN(c) 4.42%** 4.95% 3.20% 14.44% 25.57% 27.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $305,420 $283,340 $323,711 $320,905 $468,979 $236,162
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(a) 4.85%* 6.51% 6.30% 6.50% 6.86% 8.54%
Portfolio turnover rate 85% 65% 116% 135% 90% 85%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: --(b) $ 0.01 $ 0.04 $ 0.05 $ 0.03 $ 0.03
</TABLE>
(a) Net investment income for the six months ended August 31, 2000 and for the
year ended February 29, 2000 is affected by the timing of the declaration
of dividends by other Funds of the Trust in which the Fund invests.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
(c) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
** Not annualized.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 9
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in foreign bond and
currency markets. The Fund's benchmark is the J.P. Morgan Non-U.S.
Government Bond Index (Hedged).
At August 31, 2000, 65.5% of the Fund is invested in GMO Alpha LIBOR Fund,
a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR
Fund are not publicly available for direct purchase. Alpha LIBOR Fund
invests primarily in relatively high quality, low volatility fixed income
instruments.
The financial statements of the GMO Alpha LIBOR Fund 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 other Funds of the Trust 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
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 quotations are not
readily available are valued at fair value as determined in good faith by
the Trustees or other persons acting at their direction.
10
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and
at its discretion may override a price supplied by a source (by taking a
price supplied by another source).
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 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
11
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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,
2000.
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 underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000, the Fund
had no written option contracts outstanding.
12
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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.
Premiums paid for purchasing options which expire are treated as realized
losses. The risk associated with purchasing put and call options is
limited to the premium paid. Premiums paid for purchasing options which
are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying future, security or currency transaction to
determine the realized gain or loss.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the "lender") that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into interest rate, total return, forward
swap spreadlock and credit default swap agreements to manage its exposure
to interest rates and credit risk. Interest rate swap agreements involve
the exchange by the
13
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, both based on notional amounts. 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. Forward swap
spread lock swap agreements involve commitments to pay or receive a
settlement amount calculated as the difference between the swap spread and
a fixed spread, multiplied by the notional amount times the duration of
the swap rate. The swap spread is the difference between the benchmark
swap rate (market rate) and the specific treasury rate. 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. Swaps are marked to market
daily based upon quotations from market makers and the change in value, 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 included as part
of 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, 2000.
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
14
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 in the name of the counterparty 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 the Fund has sold may decline below the contractual repurchase
price under the agreement. For the six months ended, August 31, 2000, the
Fund had not entered into any reverse repurchase agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. The Fund receives compensation for lending its securities. At
August 31, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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
15
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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
inflation indexed securities is accrued daily based upon an inflation
adjusted principal. Additionally, any increase in the principal or face
amount of the securities 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, 2000, the
Fund received $37,121 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 average daily net assets at the annual rate of .15% for Class III
shares.
16
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2001 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, interest expense and
extraordinary expenses) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $1,748. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
U.S. Government securities $ 15,644,250 $ 15,644,250
Investments (non-U.S. Government securities) 244,039,970 222,737,590
</TABLE>
During the six months ended August 31, 2000, the Fund exchanged securities
with a market value of $195,054,032 for shares of GMO Alpha LIBOR Fund
with a value equal to that market value in taxable transactions. Such
amounts are included in purchases and sales above.
At August 31, 2000 the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$308,339,024 $4,939,606 $(13,535,909) $(8,596,303)
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 92.8% 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.
17
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (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, 2000 February 29, 2000
------------------------ --------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 2,501,996 $ 24,747,011 7,145,457 $ 74,727,562
Shares issued to shareholders
in reinvestment of distributions 1,240,979 11,950,631 3,607,085 34,924,563
Shares repurchased (1,573,436) (15,314,528) (12,460,892) (130,694,243)
---------- ------------ ----------- -------------
Net increase (decrease) 2,169,539 $ 21,383,114 (1,708,350) $ (21,042,118)
========== ============ =========== =============
</TABLE>
18
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- --------------- ------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Buys
11/7/00 CAD 19,300,000 $13,108,130 $ 89,916
10/24/00 GBP 5,600,000 8,154,820 (163,868)
10/3/00 JPY 3,480,000,000 32,819,259 (40,084)
9/12/00 NZD 6,300,000 2,697,761 (166,231)
----------
$ (280,267)
==========
Sales
10/17/00 AUD 2,300,000 $ 1,329,366 $ 15,858
11/14/00 EUR 26,500,000 23,651,381 303,683
10/24/00 GBP 25,700,000 37,424,801 1,354,595
10/3/00 JPY 1,080,000,000 10,185,287 (37,898)
9/12/00 NZD 6,300,000 2,697,761 263,239
----------
$1,899,477
==========
</TABLE>
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Settlement
Date Deliver/Units of Currency Receive/In Exchange For
---------- ------------------------------------------------------ -----------------------------------------------------
<C> <S> <C> <C> <C>
9/26/00 EUR 25,700,000 CHF 39,864,555
9/19/00 SEK 274,058,736 EUR 32,800,000
9/19/00 EUR 6,200,000 SEK 52,391,798
<CAPTION>
Settlement Net Unrealized
Date Appreciation
---------- --------------
<C> <C>
9/26/00 50,520
9/19/00 108,268
9/19/00 41,936
--------
$200,724
========
</TABLE>
19
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------------------------- --------------------------------------------- --------------- ----------- --------------
<C> <S> <C> <C> <C>
Buys
112 Australian Government Bond 3 Yr. September 2000 $ 7,452,192 $ (49,939)
469 Euro BOBL December 2000 42,783,068 (45,759)
549 Euro Bund 10 Yr. December 2000 51,047,291 (280,265)
19 Japanese Government Bond 10 Yr. December 2000 23,420,386 (207,912)
81 Swiss Government Bond 10 Yr. December 2000 5,403,099 2,791
---------
$(581,084)
=========
Sales
24 Canadian Government Bond 10 Yr. December 2000 $ 1,657,883 $ (6,178)
140 U.K. Gilt December 2000 22,838,685 95,390
162 U.S. Long Bond December 2000 16,270,875 19,881
549 U.S. Treasury Note 10 Yr. December 2000 54,942,891 (143,766)
442 U.S. Treasury Note 5 Yr. December 2000 44,227,625 (113,695)
---------
$(148,368)
=========
</TABLE>
At August 31, 2000, 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
CREDIT DEFAULT SWAPS
6,036,000,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company dated $ (162,834)
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.
288,000,000,000 3/31/03 Agreement with Morgan Guaranty Trust Company dated (131,221)
ITL 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.
FORWARD SWAP SPREAD LOCK SWAPS
35,000,000 USD 4/04/01 Agreement with Morgan Guaranty Trust Company dated (135,647)
4/04/00 to pay (receive) the notional amount
multiplied by the difference between the 10 year
swap spread and a fixed spread times the duration
of the 10 year swap rate.
12,000,000 USD 5/16/01 Agreement with UBS AG dated 5/12/00 to pay 65,778
(receive) the notional amount multiplied by the
difference between the 10 year swap spread and a
fixed spread times the duration of the 10 year
swap rate.
</TABLE>
21
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
INTEREST RATE SWAPS
40,000,000 EUR 3/21/05 Agreement with UBS AG dated 3/17/00 to receive the (686,022)
notional amount multiplied by 5.222% and to pay
the notional amount multiplied by 3 month Floating
Rate EURIBOR adjusted by a specified spread.
27,300,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company dated 618,665
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.
14,200,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company dated 320,754
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 dated 437,236
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 7/31/06 Agreement with Morgan Guaranty Trust Company dated (425,708)
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
specified spread.
</TABLE>
22
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
------------------ ----------- -------------------------------------------------- --------------
<C> <C> <S> <C>
62,000,000 SEK 9/13/06 Agreement with UBS AG dated 9/09/99 to receive the 142,922
notional amount multiplied by 6.465% and to pay
the notional amount multiplied by 3 month Floating
Rate Swedish LIBOR adjusted by a specified spread.
30,000,000 USD 3/27/10 Agreement with UBS AG dated 3/23/00 to receive the 534,788
notional amount multiplied by 7.23% and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
16,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 482,865
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
7,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to receive the (159,539)
notional amount multiplied by 5.895% and to pay
the notional amount multiplied by 3 month Floating
Rate EURIBOR adjusted by a specified spread.
TOTAL RETURN SWAP
75,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company dated (100,155)
7/01/99 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.+
-----------
$ 801,882
===========
</TABLE>
+ This swap agreement is valued by management (Note 1).
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
23
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 92.6%
CHINA - 9.6%
1,887,000 Beijing Datang Power Generation Co Ltd Class H 442,759
4,231,000 China Overseas Land & Investment Ltd 504,511
195,900 China Resources Enterprise 291,365
554,800 China Mobile Ltd * 4,268,075
13,000 Cosco Pacific Ltd 11,751
966,763 Guangdong Electric Power Development Co Ltd Class B 785,875
3,310,000 Guangdong Investment Ltd * 454,105
4,343,000 Guangshen Railway Co Class H 595,824
941,000 Huaneng Power International Inc Class H 392,119
1,212,000 Qingling Motor Co Ltd Class H 195,802
135,000 Shanghai Industrial Holdings 289,064
2,045,750 Shanghai New Asia Group Class B * 650,549
867,000 Shanghai Petrochemical Co Class H 141,178
4,166 SIIC Medical Science and Technology (Group) Ltd * 897
782,000 Yizheng Chemical Fibre Co Class H 200,531
-----------------
9,224,405
-----------------
HONG KONG - 3.8%
400,000 iMerchants Ltd * 22,053
3,392,000 Legend Holdings Ltd 3,609,760
-----------------
3,631,813
-----------------
INDONESIA - 21.7%
5,554,000 Astra International * 1,756,707
59,000,000 Bank Internasional Indonesia * 532,171
7,731,000 Barito Pacific Timber * 278,930
11,373,000 Citra Marga Nusaphala Persad * 656,529
4,110,000 Gajah Tunggal Tbk * 227,372
2,823,000 Gudang Garam 4,237,046
50,820 Gulf Resources Ltd ADR * 508,200
1,401,000 HM Sampoerna 2,080,860
8,890,500 Indah Kiat Pulp & Paper * 1,555,704
4,026,000 Indorama Synthetics 404,295
1,750,000 International Nickel * 1,536,380
4,693,000 Kalbe Farma * 380,971
9,846,000 Matahari Putra Prima Tbk 757,840
See accompanying notes to the financial statements. 1
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA - CONTINUED
5,457,500 Mulia Industrindo Tbk * 275,664
1,582,000 PT Bimantara Citra * 216,895
1,257,000 PT Hero Supermarket Tbk * 231,294
2,434,000 PT Indofood Sukses Makmur Tbk * 1,091,860
20,000 PT Indosat (Persero) Tbk Class B ADR 180,000
2,988,000 PT Kawasan Industri Jababeka Tbk * 100,618
4,800,000 PT Multipolar Corp Tbk * 277,090
4,925,500 PT Pabrik Kertas Tjiwi Kimia 725,645
6,599,000 Telekomunikasi Indonesia 2,293,579
93,200 Telekomunikasi Indonesia Class B ADR 664,050
-----------------
20,969,700
-----------------
KOREA - 5.1%
27,100 Cheil Industries Inc * 176,960
4,490 Halla Climate Control Corp 166,844
112,500 Hankook Tire Co Ltd * 275,986
63,810 Hanwha Corp 201,430
35,000 Hotel Shilla Co * 146,787
17,050 Hyundai Electronics Industries * 312,167
22,638 Hyundai Heavy Industries 449,187
26,000 Hyundai Merchant Marine 97,786
85,000 Inchon Oil Refinery Co * 156,776
13,783 Kookmin Bank 167,820
14,100 Korea Electric Power Corp 414,575
32,000 Korea Express * 153,542
22,500 Korean Air Lines 160,113
58,000 LG International Corp * 159,026
95,500 Orion Electric Co * 171,405
2,100 Pohang Iron & Steel (b) 160,746
39,900 Poongsan Corp 250,826
21,000 Sam Yang 190,349
1,760 Samsung Electro Mechanics 74,765
14,400 Shin Young Securities Co 155,851
13,782 SK Corp 233,688
15,500 SK Global * 165,660
8,000 SK Telecom ADR 205,000
280 SK Telecom * 61,619
30,152 Tai Han Electric Wire 247,471
-----------------
4,956,379
-----------------
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIA - 18.5%
975,600 Affin Holdings Berhad 531,445
150,000 AMMB Holdings Berhad 493,421
850,000 CSM Corp * 492,105
618,800 DRB-Hicom Berhad * 402,220
172,000 Edaran Otomobil Berhad 470,737
184,000 Genting Berhad 518,105
1,240,000 Highlands and Lowlands Berhad 848,421
288,000 Hong Leong Credit Berhad 530,526
103,000 Hong Leong Industries Berhad * 333,395
771,000 IJM Corp Berhad Class A 693,900
980,000 IOI Corp Berhad 835,579
600,000 Kuala Lumpur Kepong Berhad 852,632
447,000 Malakoff Berhad 1,164,553
510,900 Malayan Banking Berhad 1,962,932
883,000 Malaysian International Shipping (Foreign Registered) 1,336,118
232,500 Malaysian Oxygen Berhad 642,434
80,000 Malaysian Pacific Industries 694,737
2,172,000 Metroplex Berhad 331,516
393,400 Nylex Berhad 215,335
202,500 Oriental Holdings Berhad 418,322
529,000 Sime Darby Berhad 587,468
8,594,000 Tan Chong International Ltd 1,377,367
491,000 Tanjong 1,065,987
126,000 Tenaga Nasional Berhad 421,105
304,000 United Engineers 648,000
-----------------
17,868,360
-----------------
PHILIPPINES - 9.6%
11,878,570 Aboitiz Equity Ventures Inc 405,385
4,870,256 Ayala Corp 777,082
208,495 Equitable Banking Corp 309,566
4,950,000 Filinvest Land * 182,094
6,644,500 International Container Terminal * 153,136
1,236,319 Ionics Circuits Inc 424,664
4,020,500 JG Summit Holdings Inc Class B 258,381
See accompanying notes to the financial statements. 3
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES - CONTINUED
837,200 La Tondena Distillers Inc 612,246
400,000 Manila Electric Class B * 580,609
15,260,000 Metro Pacific Corp * 216,430
87,600 Metropolitan Bank & Trust Co 341,664
9,234,000 Petron Corp * 266,021
197,870 Philippine Long Distance Telephone 3,354,472
998,750 San Miguel Corp Class B 1,173,047
1,871,000 Universal Robina Corp 215,606
-----------------
9,270,403
-----------------
SINGAPORE - 4.7%
148,000 DBS Group Holdings Ltd 1,788,416
273,000 Oversea-Chinese Banking Corp 1,887,353
174,405 Overseas Union Bank 881,499
-----------------
4,557,268
-----------------
TAIWAN - 0.5%
110,000 Ambassador Hotel * 30,268
4,000 Asustek Computer Inc 24,588
240,000 Chia Hsin Food & Synthetic * 31,050
97,000 China Steel Corp 64,308
55,000 First Bank 47,791
105,000 Formosa Taffeta Co 66,570
124,800 Pacific Construction * 27,914
22,000 Taiwan Semiconductor * 95,229
25,000 United Microelectronics * 66,377
-----------------
454,095
-----------------
THAILAND - 19.1%
228,300 Advanced Info Service Public Co Ltd (Foreign Registered) * 2,759,149
808,700 Ban Pu Coal Public Co Ltd (Foreign Registered) 395,694
3,685,700 Bangchak Petroleum Public Co Ltd (Foreign Registered) * 522,986
1,352,600 Bangkok Bank Pcl (Foreign Registered) * 1,398,100
4,411,300 Bangkok Expressway Public Co Ltd (Foreign Registered) * 841,789
2,000 Bangkok Land Co Ltd (Foreign Registered) * 132
3,074,400 Bank of Ayudhya Pcl (Foreign Registered) * 451,288
76,700 BEC World Public Co Ltd (Foreign Registered) 461,607
873,320 CP Feedmill Public Co Ltd (Foreign Registered) 1,089,861
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, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THAILAND - CONTINUED
153,485 Delta Electronics Public Co Ltd (Foreign Registered) 1,141,515
1,501,500 Electricity Generating Public Co Ltd (Foreign Registered) 1,754,046
1,588,000 Krung Thai Bank Public Co Ltd (Foreign Registered) * 475,914
3,022,000 National Finance Pcl * 421,417
563,000 National Petrochemical (Foreign Registered) 365,003
102,000 PTT Exploration and Production Public Co Ltd (Foreign Registered) 633,835
2,469,500 Safari World Public Co * 356,454
226,352 Shinawatra Computer Public Co Ltd (Foreign Registered) * 1,035,543
35,000 Siam Cement Pcl (Foreign Registered) * 448,685
1,861,300 Siam Commercial Bank Pcl (Foreign Registered) * 853,807
1,530,100 Telecomasia Corp Public Co Ltd (Foreign Registered) * 1,235,310
3,598,200 Thai Military Bank * 501,767
3,848,000 Thai Petrochemical (Foreign Registered) * 395,391
2,824,500 Thai Telephone & Telecommunications (Foreign Registered) * 373,145
1,235,030 United Broadcasting Pcl (Foreign Registered) * 543,866
-----------------
18,456,304
-----------------
TOTAL COMMON STOCKS (Cost $108,215,559) 89,388,727
-----------------
DEBT OBLIGATIONS - 3.6%
CHINA - 0.0%
$ 100,000 Qingling Motor Co Ltd, 3.50%, due 1/22/02 31,330
-----------------
U.S. GOVERNMENT - 3.6%
$ 2,734,585 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 (a) 2,635,456
$ 84,328 U.S. Treasury Inflation Indexed Note, 3.875%, due 1/15/09 (a) 830,874
-----------------
3,466,330
-----------------
TOTAL DEBT OBLIGATIONS (Cost $3,471,930) 3,497,660
-----------------
PREFERRED STOCKS - 1.6%
KOREA - 1.6%
13,200 Samsung Electronics (Non Voting) 2.82% 1,523,878
-----------------
TOTAL PREFERRED STOCKS (Cost $169,855) 1,523,878
-----------------
See accompanying notes to the financial statements. 5
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS & WARRANTS - 0.3%
MALAYSIA - 0.1%
162,600 Affin Holdings Berhad Warrants, Expires 5/15/05 * 30,167
120,200 IJM Corp Berhad Warrants, Expires 8/24/04 * 39,856
-----------------
70,023
-----------------
THAILAND - 0.2%
247,600 Banpu Public Co Ltd Warrants, Expires 1/14/03 * 31,499
268,320 Charoen Pokphand Foods Public Co Ltd Warrants, Expires 6/30/02 * 32,166
480,663 Telecomasia Corp Public Co Ltd Warrants, Expires 12/31/49 * 120,079
-----------------
183,744
-----------------
TOTAL RIGHTS & WARRANTS (Cost $16,319) 253,767
-----------------
SHORT-TERM INVESTMENTS - 1.8%
CASH EQUIVALENTS - 1.8%
$ 1,700,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 1,700,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,700,000) 1,700,000
-----------------
TOTAL INVESTMENTS - 99.8%
(COST $113,573,663) 96,364,032
OTHER ASSETS AND LIABILITIES (NET) - 0.2% 200,624
-----------------
TOTAL NET ASSETS - 100% $ 96,564,656
-----------------
-----------------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
ADR American Depositary Receipt
(a) All or a portion of this security is held as collateral
for open swap contracts (Note 6).
(b) Valued by management (Note 1).
* Non-income producing security.
6 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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
INDUSTRY SECTOR
<S> <C>
Telecommunications 20.8 %
Banking 13.6
Electronic Equipment 9.1
Food and Beverage 7.6
Utilities 5.2
Financial Services 4.6
Paper and Allied Products 3.9
Consumer Goods 3.8
Transportation 3.6
Automotive 3.5
Conglomerates 2.9
Services 2.5
Energy Services 2.4
Real Estate 2.3
Construction 2.3
Health Care 1.9
Chemicals 1.7
Textiles 1.1
Machinery 1.0
Retail Trade 0.8
Metals and Mining 0.5
Miscellaneous 4.9
----------------
100.0 %
----------------
----------------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $113,573,663) (Note 1) $ 96,364,032
Foreign currency, at value (cost $1,019,900) (Note 1) 1,019,366
Cash 35,641
Net receivable for open forward foreign currency contracts (Notes 1 and 6) 33,794
Dividends and interest receivable 150,654
Receivable for expenses waived or borne by Manager (Note 2) 6,882
------------------
Total assets 97,610,369
------------------
LIABILITIES:
Payable for open swap contracts (Notes 1 and 6) 931,426
Payable to affiliate for (Note 2):
Management fee 67,695
Shareholder service fee 12,536
Accrued expenses 34,056
------------------
Total liabilities 1,045,713
------------------
NET ASSETS $ 96,564,656
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 112,910,287
Accumulated undistributed net investment income 953,579
Accumulated undistributed net realized gain 808,629
Net unrealized depreciation (18,107,839)
------------------
$ 96,564,656
------------------
------------------
Net assets attributable to Class III Shares $ 96,564,656
------------------
------------------
Shares outstanding - Class III 10,929,129
------------------
------------------
Net asset value per share - Class III $ 8.84
------------------
------------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $211,569) $ 1,490,099
Interest 115,649
----------------
Total income 1,605,748
----------------
EXPENSES:
Management fee (Note 2) 438,277
Custodian fees 128,708
Audit fees 21,804
Transfer agent fees 13,800
Legal fees 3,036
Trustees fees (Note 2) 828
Miscellaneous 1,196
Fees waived or borne by Manager (Note 2) (40,664)
----------------
566,985
Shareholder service fee - Class III (Note 2) 81,162
----------------
Net expenses 648,147
----------------
Net investment income 957,601
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 1,195,702
Closed swap contracts (462,354)
Foreign currency, forward contracts and foreign currency related
transactions (71,929)
----------------
Net realized gain 661,419
----------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (23,470,208)
Open swap contracts (310,016)
Foreign currency, forward contracts and foreign currency related
transactions 38,894
----------------
Net unrealized loss (23,741,330)
----------------
Net realized and unrealized loss (23,079,911)
----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (22,122,310)
----------------
----------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
-------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 957,601 $ 247,305
Net realized gain 661,419 26,435,103
Change in net unrealized appreciation (depreciation) (23,741,330) 20,620,338
-------------------- ------------------
Net increase (decrease) in net assets resulting
from operations (22,122,310) 47,302,746
-------------------- ------------------
Distributions to shareholders from:
Net investment income - Class III (77,141) (220,569)
Net realized gains - Class III (11,956,816) (3,424,176)
-------------------- ------------------
(12,033,957) (3,644,745)
-------------------- ------------------
Net share transactions - Class III (Note 5) 11,502,874 (1,843,973)
-------------------- ------------------
Total increase (decrease) in net assets (22,653,393) 41,814,028
NET ASSETS:
Beginning of period 119,218,049 77,404,021
-------------------- ------------------
End of period (including accumulated
undistributed net investment income of $953,579
and $73,119, respectively) $ 96,564,656 $ 119,218,049
-------------------- ------------------
-------------------- ------------------
</TABLE>
10 See accompanying notes to the financial statements.
<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 YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 --------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.35 $ 7.67 $ 10.44 $ 10.00
--------------- ------- ------- --------
Income (loss) from investment operations:
Net investment income 0.09 0.03 0.08 (b) 0.01(b)
Net realized and unrealized gain (loss) (2.35) 5.01 (2.69) 0.43
--------------- ------- ------- --------
Total from investment operations (2.26) 5.04 (2.61) 0.44
--------------- ------- ------- --------
Less distributions to shareholders from:
Net investment income (0.01) (0.02) (0.08) -
In excess of net investment income - - (0.08) -
Net realized gains (1.24) (0.34) - -
--------------- ------- ------- --------
(1.25) (0.36) (0.16) -
--------------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 8.84 $ 12.35 $ 7.67 $ 10.44
=============== ======= ======= ========
TOTAL RETURN (a) (18.51%)*** 65.57% (25.03%) 4.40%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 96,565 $119,218 $ 77,404 $ 40,161
Net expenses to average daily net assets 1.20%** 1.25% 1.26% 2.52%**
Net investment income to average daily net assets 1.77%** 0.22% 1.04% 2.86%**
Portfolio turnover rate 45% 121% 61% 1%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.00 (c) $ 0.01 $ 0.02 $ 0.01
</TABLE>
* Period from February 18, 1998 (commencement of operations) to
February 28, 1998.
** Annualized
*** Not annualized.
(a) Calculation excludes subscription and redemption fees. The total return
would have been lower had certain expenses not been waived during the
periods shown.
(b) Computed using average shares outstanding throughout the period.
(c) Fees and expenses voluntarily waived or borne by the Manager were less
than $.01 per share.
See accompanying notes to the financial statements. 11
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Asia Fund seeks high total return through investment in equity
securities traded in the Asian securities markets. The Fund's benchmark is
the GMO Asia 7 Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current 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
12
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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 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, 2000.
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 future, security, or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security, or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security, or currency 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, 2000 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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against
13
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
the proceeds on the transaction to determine the realized gain or loss. 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 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, 2000, 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, both based on notional amounts. 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. 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
14
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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, 2000.
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, 2000, 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
U.S. federal income tax purposes. Therefore, no provision for U. S. 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. For the six months ended August 31,
2000, the Fund did not incur any capital gains or repatriation taxes.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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.
15
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income, net
of applicable withholding taxes, 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. For the six months ended August 31, 2000, the Fund received $728
in purchase premiums and $401 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 purchases.
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.
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.
16
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2001 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.
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, 2000, was $828. 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, 2000, cost of purchases and proceeds
from sales of investments, other than short term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
---------- --------
<S> <C> <C>
Investments (non- U.S. Government securities) $46,170,086 $49,482,515
</TABLE>
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$113,573,663 $8,743,514 $25,953,145 $17,209,631
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 72.4% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
17
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000 February 29, 2000
--------------------------- ---------------------------
Class III: Shares Amount Shares Amount
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold 6,309 $ 60,668 886,861 $ 10,585,446
Shares issued to
shareholders in
reinvestment of
distributions 1,281,045 11,542,206 265,213 3,419,887
Shares repurchased (9,029) (100,000) (1,595,661) (15,849,306)
---------- ------------ ---------- -------------
Net increase (decrease) 1,278,325 $ 11,502,874 (443,587) $ (1,843,973)
========== ============ ========== =============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Settlement Units Net Unrealized
Date Deliver/Receive of Currency Value Appreciation
(Depreciation)
---------- --------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Buy
11/15/00 THB 65,200,000 $ 1,600,360 $ (63,542)
------------
Sale
11/15/00 THB 65,200,000 $ 1,600,360 $ 97,336
------------
</TABLE>
Currency Abbreviations:
THB Thai Baht
18
<PAGE>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NET
EXPIRATION UNREALIZED
NOTIONAL AMOUNT DATE DESCRIPTION DEPRECIATION
------------------ ---------- --------------------------------------------- -------------
<S> <C> <C> <C>
TOTAL RETURN SWAPS
$ 3,000,001 9/04/00 Agreement with Indosuez W.I. Carr Ltd. Dated $ (867,742)
3/02/00 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.
405,000 6/08/01 Agreement with Lehman Brothers Special (63,684)
Financing Inc. dated 6/13/00 to receive
(pay) the notional amount multiplied by the
return on the KOPSI 200 Korean Index and to
pay the notional amount multiplied by 3
month LIBOR adjusted by a specified spread.
-----------
$ (931,426)
===========
</TABLE>
19
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 92.1%
AUSTRALIA - 1.1%
25,200 Amcor Ltd 80,301
19,595 Australia and New Zealand Banking Group Ltd 147,526
15,900 Bank of Western Australia 34,176
600 Boral Ltd * 738
12,600 Caltex Australia Ltd 20,749
70,963 CSR Ltd 180,411
66,500 National Food Ltd 77,616
49,100 National Mutual Holdings 76,315
8,400 PaperlinX Ltd 17,473
21,674 PMP Communications Ltd 24,546
118,835 Qantas Airways Ltd 270,532
27,797 Schroders Property 37,583
44,800 Western Mining Corp Holdings Ltd 211,199
79,165 Westfield Trust Units 145,458
----------------
1,324,623
----------------
AUSTRIA - 3.2%
2,968 Austria Tabakwerke AG 114,124
6,169 Austrian Airlines 71,573
2,873 Bau Holdings AG 88,121
8,752 Boehler Uddeholm (Bearer) 279,414
5,515 Brau Union AG 239,762
723 EA-Generali AG 116,344
6,012 Energie-Versorgung Niederoesterreich AG 188,143
10,732 Erste Bank Der Oesterreichischen Sparkassen AG 478,018
5,194 Flughafen Wien AG 178,290
1,363 Mayr-Melnhof Karton AG (Bearer) 61,801
7,346 Oesterreichische Brau Beteiligungs AG 326,548
5,765 OMV AG 428,020
6,378 RHI AG 135,522
821 VA Technologie AG (Bearer) 39,948
42,644 Voest-Alpine Stahl AG 1,127,901
----------------
3,873,529
----------------
BELGIUM - 0.2%
550 Arbed SA 39,607
651 Credit Commercial Dexia 91,562
250 Glaverbel NPV 18,003
350 Groupe Bruxelles Lambert NPV 91,016
----------------
240,188
----------------
CANADA - 0.9%
1,700 Bank of Montreal 69,630
9,268 Boliden Ltd SDR * 8,496
4,200 Hudsons Bay Co 44,004
See accompanying notes to the financial statements. 1
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CANADA - CONTINUED
400 Magna International Class A 19,137
4,600 Methanex Corp * 27,295
1,500 Molson Co Ltd Class A 31,736
3,200 PanCanadian Petroleum Ltd 75,408
2,100 Potash Corp of Saskatchewan 111,220
3,900 Quebecor Inc Class B 103,804
2,146 Rogers Wireless Communications Inc * 64,759
6,900 Stelco Inc Class A 33,221
39,630 Transcanada Pipelines Ltd 384,301
4,300 Westcoast Energy Inc 83,104
----------------
1,056,115
----------------
DENMARK - 0.7%
1,280 Carlsberg A/S Class B * 46,246
1,820 Danisco A/S * 59,463
3,910 Den Danske Bank 489,540
1,830 Kapital Holding AS 51,061
330 Novo-Nordisk A/S Class B * 67,090
1,980 Ostasiatiske Kompagni * 39,900
1,530 Tele Danmark A/S Class B * 92,131
----------------
845,431
----------------
FINLAND - 0.8%
864 Elisa Communications Oyj Class A * 32,876
8,800 Enso Oyj Class R 80,583
16,000 Fortum Oyj 56,472
1,600 Instrumentarium Oyj 38,336
5,900 Kesko Oyj 54,028
800 Metra AB Class A 14,509
1,800 Metso Oyj 21,764
1,000 Pohjola Group Insurance Class B 37,829
16,400 Raisio Group Plc Class V 26,536
2,400 Sampo Insurance Co Ltd Class A 97,618
236 Sanitec Oyj 2,014
250 Stockmann AB Class A 3,778
4,000 Stora Enso Oyj Class A 37,340
16,400 UPM-Kymmene Oyj 414,813
----------------
918,496
----------------
FRANCE - 10.8%
6,980 Air France * 133,978
17,670 Alcatel SA * 1,446,061
11,699 Assurances Generales de France (Bearer) 590,777
16,533 Aventis SA Class A 1,242,037
13,838 Banque Nationale de Paris 1,273,327
215 Bongrain 55,834
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE - CONTINUED
8,840 Christian Dior SA * 485,699
4,344 Compagnie Generale d'Industrie et de Participations 206,233
21,690 Credit Lyonnais SA 877,399
2,521 Dexia Strip * 112
5,677 Eridania Beghin-Say SA 504,714
37,800 Eurotunnel SA Units (Bearer) * 33,942
90 Fromageries Bel SA 43,208
1,750 Lagardere Groupe 124,856
1,900 Metaleurop SA * 12,737
7,250 Michelin SA Class B 212,705
2,970 Pechiney SA Class A 135,985
6,728 Pernod Ricard 353,508
3,687 Peugeot SA 681,481
1,700 Remy Cointreau SA 55,166
23,240 Renault SA 1,011,588
4,420 Rhodia SA 63,502
4,729 Saint-Gobain 629,807
11,870 Skis Rossignol 166,738
852 Societe Eurafrance 439,333
29,436 Societe Generale Class A * 1,745,544
33,604 Usinor Sacilor 360,001
1,380 Vallourec 59,136
----------------
12,945,408
----------------
GERMANY - 6.2%
900 AGIV AG 8,882
250 Axel Springer Verlag AG 242,266
4,400 Bankgesellschaft Berlin AG 62,980
18,000 BASF AG 675,322
16,251 Bayer AG 688,445
3,350 Bayerische Hypotheken und Wechsel-Bank AG 74,458
950 Bayerische Motoren Werke AG 30,743
700 Bayerische Vereinsbank 40,919
2,050 Bilfinger & Berger 25,516
13,000 Buderus AG 211,505
15,150 Commerzbank AG 486,235
7,959 Continental AG 144,703
13,500 DaimlerChrysler AG 697,326
5,944 Deutsche Bank AG 519,468
14,816 Deutsche Telekom 572,989
1,151 Dresdner Bank AG 51,983
8,400 FAG Kugelfischer 55,637
550 Fresenius Medical Care AG 47,578
2,713 Heidelberg Port-Zement 149,544
See accompanying notes to the financial statements. 3
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - CONTINUED
600 Holzmann (Philipp) * 11,586
3,350 Leirheit AG 96,795
3,500 Lufthansa AG 77,636
3,650 RWE AG 135,805
500 Schering AG 26,716
7,800 Schmalbach-Lubeca AG 49,998
4,479 Siemens AG 722,743
4,472 Suedzucker AG 48,108
35,088 Thyssen Krupp AG 536,554
17,188 Veba AG 825,174
2,050 Volkswagen AG 89,305
----------------
7,406,919
----------------
HONG KONG - 4.1%
100,500 Amoy Properties Ltd 94,066
31,000 Cheung Kong Holdings 405,421
89,500 CLP Holdings Ltd 401,639
133 Dickson Concept International Ltd 119
21,281 Great Eagle Holdings Ltd 35,199
700 Guoco Group 1,795
18,300 Hang Lung Development Co Ltd 17,011
55,000 Henderson Land Development Co Ltd 305,348
768 HKR International Ltd 409
100,700 Hong Kong Aircraft Engineering Co Ltd 181,405
91,500 Hong Kong Electric Holdings Ltd 289,776
43,000 Hong Kong Ferry Co Ltd 36,939
17,000 Hong Kong Land Holdings 34,000
11,000 Hutchison Whampoa 155,142
600 Hysan Development Co Ltd 835
95,441 Jardine Matheson Holdings Ltd 467,661
127 Kumagai Gumi Ltd * 26
400 Lai Sun Garment International Ltd * 14
796 Leading Spirit Conrowa Electric * 11
297,400 Mandarin Oriental ADR 184,388
3,000 New Asia Realty & Trust Co Class A * 731
815 New World Development Co Ltd 1,332
1,200 Oriental Press Group * 163
500 Realty Development Corp Class A * 144
2,939,000 Regal Hotels International Ltd * 105,512
900 Shaw Brothers Ltd 831
70,972 South China Morning Post Ltd 53,234
99,000 Sun Hung Kai Properties Ltd 932,968
98,500 Swire Pacific Ltd Class A 675,670
136,000 Wharf Holdings Ltd 323,465
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - CONTINUED
122,200 Wheelock and Co Ltd 101,842
80 Wing Lung Bank 307
28,000 Yue Yuen Industrial Holdings 64,801
----------------
4,872,204
----------------
ITALY - 3.0%
252,500 Banca di Roma 310,912
13,400 Banca Popolare di Bergamo Credit 243,031
49,200 Banca Popolare di Milano 345,556
128,300 Banco Ambrosiano Veneto SPA (Savings Shares) 313,109
87,297 Banco di Napoli 89,486
80,000 ENI SPA 467,285
13,769 Fiat SPA 341,288
13,017 Fiat SPA (Savings Shares) 172,434
41,580 HPI SPA 62,289
25,350 IFIL Finanziaria di Partecipazioni SPA 207,795
29,250 IFIL Finanziaria di Partecipazioni SPA (Savings Shares) 130,024
21,650 Immsi SPA * 31,085
2,200 Industrie Natuzzi SPA ADR 21,863
26,884 Italcementi SPA * 104,687
1,600 Italmobiliare SPA 41,536
95,000 Parmalat Finanziaria SPA 129,646
49,700 Pirelli & Co 127,476
30,136 RAS SPA 352,856
21,650 Sirti SPA 31,663
25,000 SNIA BPD SPA 27,827
8,000 Telecom Italia SPA (Savings Shares) 47,582
----------------
3,599,430
----------------
JAPAN - 25.6%
2,000 Acom Ltd 170,480
4,200 Arabian Oil Co Ltd * 13,588
78,000 Asahi Bank 307,202
5,000 Asahi Breweries Ltd 45,715
2,000 Autobacs Seven 57,577
2,000 Bank Of Tokyo-Mitsubishi 24,494
39,000 Bank of Yokohama 171,521
12,000 Brother Industries Ltd 27,794
20,000 Canon Sales Co Inc 340,398
16,000 Chiba Bank 65,416
10,200 Chubu Electric Power Co Inc 173,125
11,000 Chugoku Electric Power Co Inc 171,230
200 Chuo Mitsui Trust & Banking Co Ltd * 769
115,000 Cosmo Oil Co Ltd 231,855
26,000 Daicel Chemical Industries Ltd 73,387
See accompanying notes to the financial statements. 5
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
40,000 Daido Steel Co Ltd 105,401
43,000 Dai-Ichi Kangyo Bank 326,210
19,000 Daiichi Pharmaceuticals Co Ltd 448,987
9,000 Dainippon Printing Co Ltd 141,701
24,000 Daishowa Paper Manufacturing * 92,273
5,300 Daito Trust Construction Co Ltd 88,963
252,000 Daiwa Bank 633,308
79,000 Daiwa House Industry Co Ltd 518,567
8,000 Daiwa Kosho Lease Co Ltd 24,081
14,000 Daiwa Securities Co Ltd 174,606
13,000 Ezaki Glico Co Ltd 78,020
84,000 Fuji Bank 638,822
7,000 Fuji Heavy Industries Ltd 46,343
14,800 Fuji Photo Film Co Ltd 530,158
48,000 Fujita Corp * 17,554
12,000 Fukuyama Transporting Co Ltd 67,179
10,370 General Sekiyu (KK) 50,955
10,000 Gunze Ltd 31,789
52,000 Hino Motors * 208,215
89,000 Hitachi Ltd 1,054,079
3,700 Hokkaido Electric Power 51,940
14,000 Hokuriku Bank * 30,851
21,000 Honda Motor Co Ltd 768,005
3,000 House Foods Corp 41,354
6,000 INAX Corp 32,464
32,000 Industrial Bank of Japan 242,761
48,000 Ishikawajima-Harima Heavy Industries * 70,218
12,000 Itochu Corp * 52,888
18,000 Itoham Foods Inc 70,893
8,000 Japan Airport Terminal Co Ltd 65,266
161,000 Japan Energy Co Ltd * 173,622
14,000 Japan Radio Co 135,090
14,000 Japan Securities Finance Co 81,264
83 Japan Tobacco Inc 636,665
6,000 JGC Corp 28,695
5,000 Jusco Co Ltd 94,008
49,000 Kajima Corp 145,658
9,000 Kandenko Co 48,021
12,100 Kansai Electric Power 198,565
86,000 Kawasaki Heavy Industries Ltd * 99,194
9,000 Kawasaki Kisen 16,710
69,000 Keio Teito Electric Railway Co Ltd 274,991
4,000 Kissei Pharmaceutical Co Ltd 78,770
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
244,000 Kobe Steel Ltd * 153,301
500 Kokusai Denshin Denwa 42,573
23,000 Komatsu Ltd 148,603
119,000 Kubota Corp 383,871
18,000 Kyowa Hakko Kogyo Co Ltd 147,862
39,200 Kyushu Electric Power Co Inc 615,716
24,000 Maeda Corp 91,598
3,000 Maeda Road Construction 13,869
156,000 Marubeni Corp * 431,545
4,000 Marui Co Ltd 63,053
6,000 Matsushita Electric Industrial Co Ltd 164,291
27,000 Mitsubishi Corp 197,487
9,000 Mitsubishi Gas Chemical Co Inc 27,429
282,000 Mitsubishi Heavy Industries 991,654
62,000 Mitsubishi Material 194,767
63,000 Mitsubishi Motors * 200,863
16,000 Mitsubishi Trust & Banking 123,031
3,000 Mitsui Fudosan Co Ltd 32,493
41,000 Mitsui Petrochemical Industries Ltd 207,999
13,000 Mitsui-Soko 25,234
2,000 Mochida Pharmaceutical Co Ltd 13,297
39,000 Mycal Corp 113,372
13,000 New Oji Paper Co Ltd 86,431
3,100 Nichiei Co Ltd (Kyoto) 36,337
86,000 Nichirei 322,581
15,000 Nikko Securities 144,739
600 Nintendo Co Ltd 103,751
33,000 Nippon Express Co Ltd 185,362
13,000 Nippon Hodo Co 57,417
5,000 Nippon Kayaku Co Ltd 28,413
22,000 Nippon Light Metal 23,106
8,000 Nippon Meat Packers Inc 101,875
190,550 Nippon Oil Co Ltd 1,082,833
55,000 Nippon Shinpan Co 116,560
20,000 Nippon Suisan Kaisha Ltd 35,446
30,000 Nishimatsu Construction 97,337
271,000 Nissan Motor Co * 1,362,116
23,000 Nisshin Oil Mills Ltd 72,684
41,000 Nisshin Steel Co Ltd 36,525
72,000 Nisshinbo Industries Inc 334,884
209,000 Nissho Iwai Corp * 215,585
459,000 NKK Corp * 292,686
7,000 NOF Corp 15,491
See accompanying notes to the financial statements. 7
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
8,000 NTN Corp 33,758
14,000 Obayashi Corp 55,926
31,000 Odakyu Electric Railway 111,919
7,000 Oki Electric Industry * 50,019
17,000 Okumura Corp 56,592
3,000 Ono Pharmaceutical Co Ltd 119,561
79,000 Onoda Cement Co Ltd 127,419
12,000 Onward Kashiyama Co Ltd 117,817
42,000 Orient Corp * 170,930
12,000 Penta Ocean Construction 15,416
6,600 Promise Co 459,846
6,000 Q.P. Corp 50,638
71,000 Renown Inc * 71,905
5,000 Royal Co Ltd 47,590
7,000 Ryosan Co 150,975
34,000 Sagami Railway Co Ltd 94,374
212,000 Sakura Bank Ltd 1,578,470
19,000 Sankyo Co Ltd 440,079
20,000 Sanwa Bank Ltd 189,235
18,000 Sanyo Electric Co 152,757
40,000 Seino Transportation Co Ltd 212,678
68,000 Sekisui Chemical 237,847
88,000 Sekisui House Ltd 892,873
25,200 Shikoku Electric Power 367,461
1,300 Shimachu Co 21,407
40,000 Shimizu Corp 118,155
3,000 Shiseido Co Ltd 35,446
38,000 Showa Shell Sekiyu 187,434
22,000 Snow Brand Milk Products Co Ltd 83,346
23,000 Stanley Electric Co Ltd 278,226
4,000 Sumitomo Forestry Co Ltd 29,857
194,000 Sumitomo Metal Industries * 116,429
13,000 Sumitomo Realty and Development Co Ltd 56,442
81,000 Sumitomo Trust & Banking 571,193
18,000 Suzuki Motor Corp 190,904
120,000 Taisei Corp 175,544
6,000 Takara Standard Co 22,506
10,000 Takuma Corp 72,393
6,000 Tanabe Seiyaku Co Ltd 42,479
30,000 Teijin Ltd 111,403
58,000 Teikoku Oil Co Ltd 206,133
6,000 The Bank of Fukuoka Ltd 38,203
9,000 TOA Corp 10,296
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
23,000 Toei Co Ltd 191,739
23,500 Tohoku Electric Power Co Inc 336,061
81,000 Tokai Bank 410,165
26,000 Tokyo Gas Co 66,804
4,000 Tokyo Steel Manufacturing Co 18,005
39,500 Tomen Corp * 42,226
22,000 Toppan Printing Co Ltd 214,966
30,000 Toray Industries Inc 109,715
7,000 Tostem Corp 101,679
19,000 Toyo Seikan Kaisha 326,050
5,000 Toyo Suisan Kaisha 47,262
47,000 Toyo Trust & Banking Co Ltd 163,953
120,000 Toyobo Co Ltd 219,430
2,000 UNY Co Ltd 21,324
4,000 Yamaha Corp 35,146
3,000 Yamaha Motor Co 21,380
302,000 Yasuda Trust & Banking 353,995
----------------
30,579,503
----------------
NETHERLANDS - 3.7%
16,800 ABN Amro Holdings NV 418,209
9,600 Buhrmann NV Maastricht 272,689
12,500 DSM NV 382,292
11,800 Fortis (NL) NV 363,716
500 Gucci Group NV * 52,009
12,400 ING Groep NV 831,226
11,450 KLM-Konin Luchtvaart Mij NV * 286,556
18,100 Kon Bolswessanen 202,757
3,700 Nedlloyd NV * 69,277
2,000 OCE NV * 29,783
20,700 Royal Dutch Petroleum 1,260,628
7,100 Royal KPN NV * 189,431
3,850 Stork NV 41,759
3,500 Vedior NV * 45,897
1,400 VIB NV 33,606
----------------
4,479,835
----------------
NEW ZEALAND - 0.1%
14,600 Air New Zealand Class B 15,377
30,000 Carter Holt Harvey Ltd 23,634
30,400 Lion Nathan Ltd 60,653
----------------
99,664
----------------
NORWAY - 4.8%
12,800 Bergesen d.y. ASA Class A 282,112
8,300 Bergesen d.y. ASA Class B 167,383
See accompanying notes to the financial statements. 9
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NORWAY - CONTINUED
72,900 Christiania Bank OG Kreditkasse 382,399
254,063 Den Norske Bank Class A 1,153,508
3,000 Elkem AS Class A 52,896
20,900 Fred Olsen Energy * 198,074
27,650 Kvaerner ASA * 370,215
1,700 Kvaerner ASA Class B * 19,296
1,400 Leif Hoegh and Co AS * 15,042
16,700 Merkantildata ASA * 107,660
31,450 Norsk Hydro AS 1,351,660
8,050 Norske Skogindustrier ASA Class A 282,988
2,550 Norske Skogindustrier ASA Class B 73,625
14,500 Orkla ASA 258,061
42,700 Petroleum Geo-Services * 814,059
8,100 SAS Norge ASA Class B 69,624
3,700 Smedvig ASA Class A 74,617
2,300 Smedvig ASA Class B 41,441
7,000 Storebrand 49,755
23,400 Tandberg Data ASA * 42,806
----------------
5,807,221
----------------
PORTUGAL - 0.5%
2,168 Banco Espirito Santo e Commercial de Lisboa (Registered) 35,253
161,680 Electricidade de Portugal SA * 524,657
21,068 Sonae SGPS SA * 32,591
----------------
592,501
----------------
SINGAPORE - 4.2%
164,000 Brierley Investments Ltd * 29,059
41,000 Cerebos Pacific Ltd 80,985
22,000 City Developments Ltd 109,278
252,000 Comfort Group 133,957
14,000 Creative Technology Ltd 304,189
21,489 DBS Group Holdings Ltd 259,671
188,000 DBS Land Ltd 303,631
59,564 Haw Par Brothers International Ltd 106,581
39,000 Hotel Properties Ltd 33,759
24,308 Inchcape Berhad 19,629
116,500 Jardine Strategic Holdings 332,025
38,000 Keppel Bank Ltd 69,761
27,000 Keppel Land Ltd 41,881
58,000 Marco Polo Developments Ltd 61,663
17,700 Oversea-Chinese Banking Corp 122,367
150,517 Overseas Union Bank 760,761
100 Robinson and Co Ltd 293
60,780 Shangri-La Asia Ltd 61,565
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE - CONTINUED
161,000 Singapore Airlines Ltd (Registered) 1,552,664
63,000 Singapore Land Ltd 144,937
71 Singapore Press Holdings 1,143
176,400 Straits Trading Co Ltd 150,647
49,000 United Industrial Corp Ltd 23,343
392 United Overseas Bank 3,074
188,000 United Overseas Land 176,936
203,000 Wing Tai Holdings 179,260
----------------
5,063,059
----------------
SPAIN - 1.1%
17,400 Compania Espanola de Petroleos 148,507
28,900 Endesa 563,973
33,027 Repsol SA 654,787
----------------
1,367,267
----------------
SWEDEN - 5.1%
24,613 Assi Doman 371,679
44,742 Avesta Sheffield AB 146,983
5,800 Drott AB Class B 64,537
2,900 Electrolux AB 35,956
21,650 Foreningssparbanken AB Class A 322,347
26,903 Gambro AB Class A 222,374
31,533 Gambro AB Class B 263,986
7,800 Investor AB Class B 110,761
31,177 Mo Och Domsjo AB Class B 718,592
145,300 Nordbanken Holdings AB 1,008,547
1,900 Perstorp AB Class B 23,255
58,800 Skandinaviska Enskilda Banken Class A 704,117
1,400 SKF AB Class B 20,325
12,600 SSAB Swedish Steel Class A 108,155
3,300 SSAB Swedish Steel Class B 27,976
18,977 Svenska Cellulosa Class B 359,973
42,700 Svenska Handelsbanken Class A 705,897
5,000 Svenska Kullagerfabriken AB 67,822
4,600 Swedish Match AB 14,868
772 Sydkraft AB Class C 12,435
49,918 Trelleborg AB Class B 341,198
5,850 Volvo AB Class A 93,610
22,300 Volvo AB Class B 369,835
----------------
6,115,228
----------------
SWITZERLAND - 2.7%
50 Ascom Holding AG (Bearer) 186,508
300 Baloise Holdings 304,382
100 Banque Cantonale Vaudoise (Bearer) 34,432
See accompanying notes to the financial statements. 11
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND - CONTINUED
1,020 BK Vision AG (Bearer) * 258,139
100 Credit Suisse Holdings (Registered) 20,889
290 Fischer (Georg) AG (Registered) 85,874
150 Givaudan * 40,114
100 Helvetia Patria Holding 86,999
40 Jelmoli (Bearer) 50,455
360 Merkur Holding AG (Registered) 89,455
110 Pargesa Holdings SA (Bearer) 263,866
250 Pharma Vision * 164,558
11 Roche Holding AG * 98,476
840 SAir Group (Registered) 129,913
120 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 80,503
620 Schweizerische Lebensversicherungs-und Rentenanstalt 477,128
130 Sika Finanz AG (Bearer) 38,495
20 Societe Generale de Surveillance Holding SA (Bearer) 35,924
110 Swisscom AG * 31,184
1,560 UBS AG (New Shares) (Registered) * 226,943
980 Zurich Allied 504,468
----------------
3,208,705
----------------
UNITED KINGDOM - 13.3%
9,900 Abbey National Plc 120,129
11,900 Allied Domecq Plc 55,405
10,600 Allied Zurich Plc 130,089
33,100 Anglian Water Plc * 269,208
12,440 Arcadia Group 7,964
55,746 Associated British Food 305,979
44,300 BAA 354,499
19,450 Barclays Plc 486,739
10,999 Barratt Development 35,687
43,546 Bass Plc 425,761
60,606 BG Group Plc 378,287
21,800 Boots Co 161,127
82,140 British Airways Plc 388,705
53,300 British American Tobacco 343,541
8,036 British Energy Plc 27,125
19,018 British Energy Plc (Deferred Shares) (c) * -
123,700 Coats Viyella 91,338
190,195 Corus Group Plc * 195,091
6,930 De Vere Group Plc 30,652
28,500 Great Portland Estates Plc 93,091
10,100 Great Universal Stores Plc 71,712
20,200 Halifax Group Plc 158,118
23,617 Inchcape Plc 101,367
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - CONTINUED
3,500 Johnson Matthey 52,451
38,700 Laird Group 143,582
38,380 Land Securities 459,850
301,700 Marks & Spencer 910,839
5,238 Mothercare Plc * 10,708
166,758 National Power 1,142,762
17,500 Northern Foods Plc 27,117
15,800 Peninsular & Oriental Steam Navigation Co 141,837
58,054 Powergen Plc 493,279
7,628 RMC Group 71,584
9,300 Royal Bank of Scotland Group 168,326
67,015 Royal & Sun Alliance Insurance Group 468,017
253,700 Sainsbury (J) 1,317,761
62,066 Scottish Hydro-Electric Plc 503,890
157,935 Scottish Power Plc 1,206,384
45,500 Scottish & Newcastle Plc 305,183
52,130 Severn Trent Plc 511,964
11,500 Slough Estates 65,422
12,600 Southwest Water 114,027
15,200 Tate & Lyle 56,394
44,300 Taylor Woodrow Plc 105,060
262,800 Tesco 828,767
45,804 Thames Water Plc 556,465
17,186 Thistle Hotels Plc 31,381
47,947 Transport Development Group Plc 154,868
10,200 Unigate Plc (New Shares) * 36,359
90,155 United Utilities 839,494
55,540 Viglen Technology Plc (Entitlement Letters) * -
12,391 Whitbread Plc Class A 89,781
211,169 Wilson (Connolly) Holdings 474,686
87,977 Yorkshire Water 431,047
----------------
15,950,899
----------------
UNITED STATES - 0.0%
140 Magna Entertainment Corp Class A * 949
----------------
TOTAL COMMON STOCKS (Cost $114,496,320) 110,347,174
----------------
PREFERRED STOCKS - 0.9%
GERMANY - 0.3%
550 Hugo Boss AG 2.20% 116,866
1,900 MAN AG 0.00% 38,176
1,400 RWE AG 0.00% 42,008
See accompanying notes to the financial statements. 13
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - CONTINUED
9,000 Villeroy & Boch AG (Non Voting) 5.23% 82,015
4,650 Volkswagen AG 0.00% 121,129
----------------
400,194
----------------
ITALY - 0.6%
18,000 Compagnia Assicuratrice Unipol 4.80% 25,925
24,480 Fiat SPA 0.00% 370,205
9,000 IFI-Istituto Finanziario 2.85% 272,049
5,499 Societa Assicuratrice Industriale SPA (SAI) 0.00% * 43,364
----------------
711,543
----------------
TOTAL PREFERRED STOCKS (Cost $1,263,781) 1,111,737
----------------
RIGHTS & WARRANTS - 0.0%
AUSTRALIA - 0.0%
1,770 Franked Income Fund Warrants, Expires 12/31/02 * 199
----------------
FRANCE - 0.0%
155,500 Eurotunnel SA Paris Warrants, Expires 10/31/01 * 2,765
155,500 Eurotunnel SA Paris Warrants, Expires 10/31/03 * 6,912
3,420 Generale des Eaux Warrants, Expires 5/02/01 * 11,159
----------------
18,071
----------------
GERMANY - 0.0%
4,472 Suedzucker AG Rights, Expires 9/13/00 * 199
----------------
ITALY - 0.0%
11,801 Banca Intesa SPA Warrants, Expires 11/15/02 * 14,164
----------------
SINGAPORE - 0.0%
113,800 Asia Food & Properties Ltd Warrants, Expires 7/12/02 * 9,256
9,500 Haw Par Brothers International Ltd Warrants, Expires 7/18/01 * 6,844
----------------
16,100
----------------
TOTAL RIGHTS & WARRANTS (Cost $84,618) 51,498
----------------
SHORT-TERM INVESTMENTS - 10.1%
CASH EQUIVALENTS - 9.4%
$ 10,100,000 Banque Nationale Paribas (London) Time Deposit, 6.60%, due 9/01/00 10,100,000
1,137,400 The Boston Global Investment Trust (a) 1,137,400
----------------
11,237,400
----------------
U.S. GOVERNMENT - 0.7%
$ 900,000 U.S. Treasury Bill, 5.18%, due 1/04/01 (b) 881,031
----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $12,119,507) 12,118,431
----------------
14 See accompanying notes to the financial statements.
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
VALUE ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS - 103.2%
(Cost $127,964,226) 123,628,840
Other Assets and Liabilities (net) - (3.2%) (3,799,856)
----------------
TOTAL NET ASSETS - 100.0% $ 119,828,984
================
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
ADR American Depositary Receipt
SDR Swedish Depository Receipt
(a) Represents investment of security lending collateral
(Note 1).
(b) All or a portion of this security is held as collateral for
open futures contracts (Note 6).
(c) Bankrupt issuer.
*Non-income producing security.
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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of the Fund's
equity investments was as follows:
<TABLE>
INDUSTRY SECTOR
<S> <C>
Banking 18.7 %
Utilities 8.9
Energy Services 6.7
Automotive 5.8
Conglomerates 4.9
Services 4.5
Transportation 4.4
Construction 3.9
Insurance 3.6
Electronic Equipment 3.6
Consumer Goods 3.6
Machinery 3.5
Real Estate 3.4
Retail Trade 3.4
Metals and Mining 3.4
Chemicals 3.3
Paper and Allied Products 2.6
Financial Services 2.4
Food and Beverage 1.9
Health Care 1.5
Textiles 1.4
Telecommunications 1.0
Communications 0.4
Computers 0.2
Aerospace 0.2
Miscellaneous 2.8
-------------
100.0 %
=============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $127,964,226) (Note 1) $ 123,628,840
Foreign currency, at value (cost $811,164) (Note 1) 798,190
Cash 91,896
Receivable for investments sold 13,442
Receivable for variation margin on open futures contracts (Notes 1 and 6) 30,590
Dividends and interest receivable 242,319
Foreign withholding taxes receivable 158,322
Receivable for expenses waived or borne by Manager (Note 2) 41,354
--------------
Total assets 125,004,953
--------------
LIABILITIES:
Net payable for open forward foreign currency contracts (Notes 1 and 6) 3,600,790
Payable upon return of securities loaned (Note 1) 1,137,400
Payable for Fund shares repurchased 257,000
Payable to affiliate for (Note 2):
Management fee 55,074
Shareholder service fee 12,306
Accrued expenses 113,399
--------------
Total liabilities 5,175,969
--------------
NET ASSETS $ 119,828,984
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 114,008,834
Accumulated undistributed net investment income 65,852
Accumulated undistributed net realized gain 13,761,153
Net unrealized depreciation (8,006,855)
--------------
$ 119,828,984
==============
NET ASSETS ATTRIBUTABLE TO:
Class III Shares $ 61,101,245
==============
Class IV Shares $ 58,727,739
==============
SHARES OUTSTANDING:
Class III 5,854,009
==============
Class IV 5,630,550
==============
NET ASSET VALUE PER SHARE:
Class III $ 10.44
==============
Class IV $ 10.43
==============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $284,155) $ 2,265,573
Interest (including securities lending income of $23,499) 257,067
--------------
Total income 2,522,640
--------------
EXPENSES:
Management fee (Note 2) 341,523
Custodian fees 184,644
Audit fees 28,612
Transfer agent fees 21,528
Legal fees 3,496
Trustees fees (Note 2) 828
Miscellaneous 1,923
Fees waived or borne by Manager (Note 2) (241,031)
--------------
341,523
Shareholder service fee - (Note 2)
Class III 52,614
Class IV 25,351
--------------
Net expenses 419,488
--------------
Net investment income 2,103,151
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 5,717,299
Closed futures contracts (552,745)
Foreign currency, forward contracts and foreign currency
related transactions 9,888,614
--------------
Net realized gain 15,053,168
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) 1,763,790
Open futures contracts (356,175)
Foreign currency, forward contracts and foreign currency
related transactions (4,638,383)
--------------
Net unrealized loss (3,230,768)
--------------
Net realized and unrealized gain 11,822,400
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,925,551
==============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) FEBRUARY 29, 2000
-------------------- ---------------------
<S> <C> <C>
Operations:
Net investment income $ 2,103,151 $ 4,143,147
Net realized gain 15,053,168 20,010,581
Change in net unrealized appreciation (depreciation) (3,230,768) 8,774,898
-------------------- ---------------------
Net increase in net assets resulting from operations 13,925,551 32,928,626
-------------------- ---------------------
Distributions to shareholders from:
Net investment income
Class III - (2,479,440)
Class IV - (1,769,224)
-------------------- ---------------------
Total distributions from net investment income - (4,248,664)
-------------------- ---------------------
In excess of net investment income
Class III - (703,048)
Class IV - (501,666)
-------------------- ---------------------
Total distributions in excess of net investment income - (1,204,714)
-------------------- ---------------------
Net realized gains
Class III (4,626,195) (2,379,277)
Class IV (4,052,627) (3,607,975)
-------------------- ---------------------
Total distributions from net realized gains (8,678,822) (5,987,252)
-------------------- ---------------------
(8,678,822) (11,440,630)
-------------------- ---------------------
Net share transactions - (Note 5)
Class III (17,050,456) (30,221,889)
Class IV 4,052,627 (70,092,083)
-------------------- ---------------------
Decrease in net assets resulting from
net share transactions (12,997,829) (100,313,972)
-------------------- ---------------------
Total decrease in net assets (7,751,100) (78,825,976)
NET ASSETS:
Beginning of period 127,580,084 206,406,060
-------------------- ---------------------
End of period (including accumulated undistributed net
investment income of $65,852 and distributions in excess of
net investment income of $2,037,299, respectively) $ 119,828,984 $ 127,580,084
==================== =====================
</TABLE>
See accompanying notes to the financial statements. 19
<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, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996 *
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.04 $ 9.28 $ 11.92 $ 12.68 $ 11.54 $ 10.00
---------------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.18 + 0.23 + 0.23 + 0.27 + 0.22 0.23
Net realized and unrealized gain (loss) 0.99 1.26 (0.36) (c) 1.72 1.63 1.44
---------------- --------- --------- --------- --------- ---------
Total from investment operations 1.17 1.49 (0.13) 1.99 1.85 1.67
---------------- --------- --------- --------- --------- ---------
Less distributions to shareholders from:
Net investment income - (0.33) (0.08) (0.27) (0.28) (0.06)
In excess of net investment income - (0.09) (0.21) - - -
Net realized gains (0.77) (0.31) (2.22) (2.48) (0.43) (0.07)
---------------- --------- --------- --------- --------- ---------
Total distributions (0.77) (0.73) (2.51) (2.75) (0.71) (0.13)
---------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.44 $ 10.04 $ 9.28 $ 11.92 $ 12.68 $ 11.54
================ ========= ========= ========= ========= =========
TOTAL RETURN (a) 11.81%*** 15.86% (1.84%) 17.98% 16.55% 16.66% ***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 61,101 $ 75,054 $ 97,450 $ 207,653 $ 581,099 $ 407,227
Net expenses to average
daily net assets 0.69%** 0.69% 0.69% 0.69% 0.72% (b) 0.69% **
Net investment income to average
daily net assets 3.35%** 2.25% 2.07% 2.15% 2.25% 1.89% **
Portfolio turnover rate 16% 68% 68% 96% 84% 7%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.02 $ 0.03 $ 0.05 $ 0.05 $ 0.04 $ 0.05
</TABLE>
* Period from June 30, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
*** Not 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
year ended February 28, 1999 due to timing of purchases and redemptions of
Fund shares in relation to fluctuating market values of the investments of
the Fund.
20 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 YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ---------------------------------------
(UNAUDITED) 2000 1999 1998 *
---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.03 $ 9.27 $ 11.92 $ 10.87
---------------- --------- --------- ---------
Income from investment operations:
Net investment income 0.17 + 0.29 + 0.24 + 0.01 +
Net realized and unrealized gain (loss) 1.00 1.21 (0.36) (b) 1.04
---------------- --------- --------- ---------
Total from investment operations 1.17 1.50 (0.12) 1.05
---------------- --------- --------- ---------
Less distributions to shareholders from:
Net investment income - (0.34) (0.09) -
In excess of net investment income - (0.09) (0.22) -
Net realized gains (0.77) (0.31) (2.22) -
---------------- --------- --------- ---------
Total distributions (0.77) (0.74) (2.53) -
---------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.43 $ 10.03 $ 9.27 $ 11.92
================ ========= ========= =========
TOTAL RETURN (a) 11.83%*** 15.94% (1.79%) 9.66% ***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $ 58,728 $ 52,526 $ 108,956 $ 362,829
Net expenses to average
daily net assets 0.63%** 0.63% 0.63% 0.63% **
Net investment income to average
daily net assets 3.30%** 2.81% 2.17% 0.72% **
Portfolio turnover rate 16% 68% 68% 96%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.03 $ 0.05 $ 0.01
</TABLE>
* Period from January 9, 1998 (commencement of operations) to February 28,
1998.
** Annualized.
*** Not 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
year 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. 21
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares
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 benchmark is the MSCI EAFE Index (Hedged).
The Fund offers two classes of shares: Class III and Class IV. 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 described in the
Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current 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
22
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 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, 2000.
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 future, security or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security or currency 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, 2000 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
23
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
the option. Premiums paid for purchasing options which expire are treated
as realized losses. Premiums paid for purchasing options which are
exercised or closed are added to the amounts paid or offset against the
proceeds on the transaction to determine the realized gain or loss. The
risk associated with purchasing put and call options is limited to the
premium 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, 2000.
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, both based on notional amounts. 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. Total return swaps are marked to market daily based upon
quotations from market makers and the change in value, 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, 2000, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As
24
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000, the Fund loaned securities having a
market value of $1,073,547 collateralized by cash in the amount of
$1,137,400 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
U.S. federal income tax purposes. Therefore, no provision for U.S. 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. For the six months ended August 31,
2000, the Fund did not incur any capital gains or repatriation taxes.
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. Distributions to shareholders
are recorded by the Fund on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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, net
of applicable withholding taxes, is recorded on the ex-dividend date, or
when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the accretion
of discounts. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
25
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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.
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. For the six months ended August 31,
2000, the Fund received $18 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.
GMO has entered into a binding agreement effective until June 30, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $828. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
26
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000,
aggregated $19,285,535 and $36,595,497, respectively.
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$127,964,226 $10,432,925 $14,768,311 $4,335,386
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 66.4% 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.
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, 2000 February 29, 2000
------------------------------------- -------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 285 $ 2,992 1,086,050 $ 10,842,254
Shares issued to
shareholders in
reinvestment of
distributions 450,019 4,626,195 461,723 4,817,120
Shares
repurchased (2,070,712) (21,679,643) (4,578,895) (45,881,263)
---------------- ---------------- ---------------- ----------------
Net decrease (1,620,408) $ (17,050,456) (3,031,122) $ (30,221,889)
================ ================ ================ ================
</TABLE>
27
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SHARE TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended Year Ended
CLASS IV: August 31, 2000 February 29, 2000
------------------------------------- -------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold _ $ _ _ $ _
Shares issued to
shareholders in
reinvestment of
distributions 394,608 4,052,627 345,952 3,649,790
Shares
repurchased - - (6,862,374) (73,741,873)
---------------- ---------------- ---------------- ----------------
Net increase
(decrease) 394,608 $ 4,052,627 (6,516,422) $ (70,092,083)
================ ================ ================ ================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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
10/13/00 AUD 6,496,367 $ 3,754,649 $ (164,504)
10/13/00 CAD 16,169,612 10,975,910 (125,615)
09/08/00 CHF 43,592,312 25,023,623 (1,199,148)
03/23/01 CHF 20,441,896 11,929,536 (135,542)
09/08/00 DKK 83,260,764 9,929,152 (668,615)
03/23/01 DKK 39,573,415 4,745,708 (56,987)
09/08/00 EUR 182,074,232 161,899,626 (9,305,141)
03/23/01 EUR 66,121,832 59,330,900 (313,931)
09/08/00 GBP 70,391,764 102,422,681 (4,700,835)
03/23/01 GBP 23,935,345 34,922,825 (515,269)
10/13/00 HKD 126,942,388 16,281,832 (32,238)
10/13/00 JPY 2,005,849,294 18,933,979 (640,636)
09/08/00 NOK 367,428,346 40,489,597 (2,179,217)
03/23/01 NOK 160,386,050 17,624,206 (174,260)
10/13/00 NZD 16,025,052 6,861,794 (1,202,333)
09/08/00 SEK 588,104,846 62,336,221 (3,216,366)
</TABLE>
28
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS - CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
--------------- ------------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Buys - continued
03/23/01 SEK 266,601,713 $ 28,636,709 $ (229,845)
10/13/00 SGD 6,089,030 3,552,319 (67,122)
-----------------
$ (24,927,604)
=================
Sales
10/13/00 AUD 12,919,420 $ 7,466,925 $ 470,041
10/13/00 CAD 12,293,922 8,345,097 49,525
09/08/00 CHF 43,592,312 25,023,623 1,396,600
03/23/01 CHF 23,150,416 13,510,181 164,056
09/08/00 DKK 83,260,764 9,929,152 711,295
03/23/01 DKK 43,687,349 5,239,057 32,472
09/08/00 EUR 182,074,232 161,899,626 6,486,053
03/23/01 EUR 99,936,098 89,672,328 780,855
09/08/00 GBP 70,391,764 102,422,681 2,062,929
03/23/01 GBP 39,221,521 57,226,095 664,115
10/13/00 HKD 198,004,716 25,396,399 41,883
10/13/00 JPY 5,801,963,555 54,766,953 1,206,532
09/08/00 NOK 367,428,346 40,489,597 2,416,925
03/23/01 NOK 188,368,436 20,699,083 192,655
10/13/00 NZD 14,847,831 6,357,718 1,054,461
09/08/00 SEK 588,104,846 62,336,221 3,471,510
03/23/01 SEK 297,066,194 31,909,015 57,628
10/13/00 SGD 6,185,244 3,608,450 67,279
-----------------
$ 21,326,814
=================
</TABLE>
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
29
<PAGE>
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- ------------ ------------------- ------------ -----------------
<S> <C> <C> <C> <C>
Buys
38 DAX September 2000 $ 6,131,779 $ 36,452
14 HANG SENG September 2000 1,540,138 (31,233)
-----------------
$ 5,219
=================
Sales
13 IBEX 35 September 2000 $ 1,257,993 $ 40,081
25 NEW FTSE 100 September 2000 2,432,676 (72,337)
-----------------
$ (32,256)
=================
</TABLE>
At August 31, 2000, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
30
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 85.9%
BRAZIL - 6.4%
17,000,000 Brasil Telecom Participacoes SA * 186,865
3,578,122 Cia Saneamento Basico SAO PA 387,409
10,899,000 Companhia Siderurgica Nacional SA 395,946
56,264,000 Electrobras 1,054,467
17,000,000 Embratel Participacoes SA * 322,341
6,000 Petroleo Brasileiro SA (Petrobras) ADR * 190,875
82,523 Souza Cruz (Registered) 405,925
17,000,000 Tele Celular Sul Participacoes SA * 54,191
17,000,000 Tele Centro Oeste Celular SA * 87,546
17,000,000 Tele Leste Celular Participacoes SA * 15,510
17,000,000 Tele Nordeste Celular Participacoes SA * 41,110
17,000,000 Tele Norte Celular Participacoes SA * 13,548
17,000,000 Tele Norte Leste Participacoes SA * 333,553
17,017,640 Telemig Celular Participacoes SA * 43,585
17,001,128 Telesp Celular Participacoes SA * 177,533
-----------------
3,710,404
-----------------
CHILE - 2.0%
9,900 Banco Santander ADR 149,738
13,400 Banco Santiago ADR 262,975
2,400 Compania Cervecerias 55,500
11,200 Compania de Telefones de Chile ADR * 197,400
7,600 Distribucion y Servicio ADR 131,100
6,800 Enersis SA ADR * 117,300
17,000 Gener SA ADR 216,750
-----------------
1,130,763
-----------------
CZECH REPUBLIC - 3.9%
22,910 Ceska Sporitelna * 116,582
176,579 Ceske Energeticke Zavody AS * 481,304
11,380 Ceske Radiokomunikace * 506,275
8,075 Komercni Banka AS * 181,045
1,110 Severoceske Doly 9,591
21,730 SPT Telecom AS * 328,446
2,742 Tabak AS 386,820
169,500 Unipetrol * 254,489
-----------------
2,264,552
-----------------
EGYPT - 2.3%
48,000 Al Ahram Beverage Co GDR * 813,600
20,100 MobiNil-Egyptian Mobile Services Co * 514,651
-----------------
1,328,251
-----------------
HONG KONG - 0.2%
128,000 Legend Holdings Ltd 136,217
-----------------
1
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDIA - 0.1%
100 Castrol India 590
1,000 Satyam Computer Services * 12,513
2,500 Silverline Technologies Ltd ADR * 52,344
-----------------
65,447
-----------------
INDONESIA - 4.8%
893,000 Astra International * 282,452
147,576,000 Bank Internasional Indonesia (Entitlement Letters) (b) (c) * -
4,573,700 Bank Internasional Indonesia * 41,254
581,100 Gudang Garam 872,174
9,000 Gulf Resources Ltd ADR * 90,000
196,900 HM Sampoerna 292,449
1,267,900 Indah Kiat Pulp & Paper * 221,863
846,000 Matahari Putra Prima Tbk 65,116
525,600 PT Indofood Sukses Makmur Tbk * 235,777
1,302,000 PT Pabrik Kertas Tjiwi Kimia 191,816
270,000 Tambang Timah Persero (Foreign Registered) 70,625
1,222,112 Telekomunikasi Indonesia 424,763
-----------------
2,788,289
-----------------
ISRAEL - 5.6%
241,789 Bank Hapoalim Ltd 770,450
237,111 Bank Leumi Le-Israel 546,589
536 Clal Electronics Industries Ltd * 120,890
58,440 Clal Industries Ltd * 724,062
1,000 Elron Electronic Industries Ltd * 41,225
700 Formula Systems Ltd ADR * 35,700
2,407 IDB Development Corp Ltd Class A1 * 112,536
78,049 Israel Discount Bank Class A * 92,446
1,000 Nice Systems Ltd ADR * 80,000
11,944 Teva Pharmaceutical 734,123
-----------------
3,258,021
-----------------
KOREA - 8.8%
7,200 Daewoo Securities 52,340
8,120 Halla Climate Control Corp 301,731
14,084 Hana Bank 75,707
16,200 Hyundai Electronics Industries * 296,604
18,500 Hyundai Merchant Marine 69,578
5,400 Hyundai Motor Co 81,822
16,285 Hyundai Securities Co 149,815
24,347 Kookmin Bank 296,446
6,850 Korea Telecommunications ADR 259,444
53,800 Korean Air Lines 382,847
3,000 LG Electronics Co 76,302
614 LG Information & Communication 32,950
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
KOREA - CONTINUED
7,300 LG Investments and Securities Co Ltd 76,703
6,990 Pohang Iron & Steel (c) 535,054
2,700 Samsung Electro Mechanics 114,697
4,624 Samsung Electronics 1,140,621
1,614 Samsung Electronics GDS 144A (Non Voting) 100,431
18,000 Samsung Heavy Industries * 70,620
4,608 Samsung Securities 93,926
10,836 SK Corp 183,736
12,100 SK Telecom ADR 310,062
13,830 Ssangyong Oil Refining 320,569
-----------------
5,022,005
-----------------
MALAYSIA - 8.9%
70,000 AMMB Holdings Berhad 230,263
41,000 British American Tobacco Berhad 383,026
120,000 Commerce Asset Holdings 315,789
326,900 DRB-Hicom Berhad * 212,485
63,000 Edaran Otomobil Berhad 172,421
160,000 Hong Leong Bank Berhad 288,421
186,400 Kuala Lumpur Kepong Berhad 264,884
393,000 Magnum Corp Berhad 247,176
170,000 Malayan Banking Berhad 653,158
24,000 Malaysian Pacific Industries 208,421
77,000 Nestle Malaysia 389,053
104,000 Oriental Holdings Berhad 214,842
529,000 Sime Darby Berhad 587,468
1,077,000 Tan Chong International Ltd 172,612
99,000 Tanjong 214,934
100,000 Tenaga Nasional Berhad 334,210
90,000 United Engineers 191,842
-----------------
5,081,005
-----------------
MEXICO - 8.7%
131,000 Alfa SA Class A 360,746
115,800 Carso Global Telecom Class A * 298,133
5,300 Cemex SA de CV ADR (Participating Certificates) 124,219
30,061 Cemex SA de CV CPO 141,072
12,400 Fomento Economico Mexicano SA 564,975
141,803 Grupo Carso SA de CV Class A * 503,716
109,000 Grupo Financiero Inbursa SA * 412,058
49,300 Grupo Mexico Class B 220,111
1,000 Grupo Televisa SA GDR * 64,750
102,240 Grupo Televisa SA (Participating Certificates) * 330,415
22,000 Telefonos de Mexico Class L ADR 1,197,625
324,562 Wal-Mart de Mexico SA de CV * 810,920
-----------------
5,028,740
-----------------
3
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PAKISTAN - 1.9%
173,600 Fauji Fertilizer 123,475
57,200 HUB Power Co GDR * 400,400
7,900 Lever Brothers Pakistan Ltd 135,843
93,312 Pakistan State Oil 285,088
400,000 Pakistan Telecom Corp Ltd Class A 177,859
-----------------
1,122,665
-----------------
PHILIPPINES - 0.5%
384,000 Ayala Corp 61,270
27,000 La Tondena Distillers Inc 19,745
948,800 Petron Corp * 27,334
7,600 Philippine Long Distance Telephone 128,842
48,400 San Miguel Corp Class B 56,846
-----------------
294,037
-----------------
POLAND - 0.2%
3,500 Agora SA GDR 144A * 90,125
-----------------
RUSSIA - 6.4%
48,000 Irkutskenergo ADR 222,000
20,400 Lukoil Holding Co ADR 1,326,000
8,100 Mobile Telesystems ADR * 237,937
88,000 Norilsk Nickel (Registered) * 880,000
42,000 Surgutneftegaz ADR * 813,750
12,000 Unified Energy Systems GDR * 202,500
-----------------
3,682,187
-----------------
SOUTH AFRICA - 10.0%
136,740 Amalgamated Bank of South Africa 564,806
17,500 Anglo American Platinum Corp 684,188
7,500 Anglo Gold Ltd 292,578
147,600 Comparex Holding Ltd * 228,624
9,700 De Beers Centenary Link Units 269,889
10,800 De Beers Consolidated Mines Ltd ADR 299,700
60,734 Dimension Data Holdings Plc * 592,314
7,599 Liberty International Plc 58,852
70,201 Liberty Life Association of Africa Ltd 654,437
11,853 Nedcor Ltd 268,594
52,000 Rembrandt Group Ltd 514,593
16,800 Sappi Ltd 146,977
73,500 Sasol Ltd 600,860
143,203 Standard Bank Investment Corp 605,878
-----------------
5,782,290
-----------------
TAIWAN - 5.3%
10,000 Asustek Computer Inc 61,469
448,500 China Development Industrial Bank Inc * 463,331
148,000 China Steel Corp 98,119
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TAIWAN - CONTINUED
22,080 China Steel Corp GDR * 292,008
493,900 Formosa Chemicals & Fibre Co 554,738
26,100 Hon Hai Precision Industry Co Ltd 199,073
47,900 Macronix International * 104,055
67,320 Mosel Vitelic Inc * 115,910
247,500 Nan Ya Plastic Corp 410,210
102,400 Taiwan Semiconductor * 443,247
121,200 United Microelectronics * 321,796
-----------------
3,063,956
-----------------
THAILAND - 5.9%
47,700 Advanced Info Service Public Co Ltd (Foreign Registered) * 576,484
137,500 Bangkok Bank Pcl (Foreign Registered) * 142,125
440,000 Bank of Ayudhya Pcl (Foreign Registered) * 64,587
58,800 BEC World Public Co Ltd (Foreign Registered) 353,879
129,000 CP Feedmill Public Co Ltd (Foreign Registered) 160,986
26,649 Delta Electronics Public Co Ltd (Foreign Registered) 198,197
485,000 Industrial Finance Corp of Thailand (Foreign Registered) * 74,752
387,231 Krung Thai Bank Public Co Ltd (Foreign Registered) * 116,051
61,700 PTT Exploration and Production Public Co Ltd (Foreign Registered) 383,408
75,336 Shinawatra Computer Public Co Ltd (Foreign Registered) * 344,656
10,000 Siam Cement Pcl (Foreign Registered) * 128,196
146,600 Siam Commercial Bank Pcl (Foreign Registered) * 67,248
409,000 Telecomasia Corp Public Co Ltd (Foreign Registered) * 330,202
441,774 Thai Farmers Bank Pcl (Foreign Registered) * 270,198
984,600 Thai Petrochemical (Foreign Registered) * 101,170
263,200 United Broadcasting Pcl (Foreign Registered) * 115,905
-----------------
3,428,044
-----------------
TURKEY - 0.9%
2,538,000 Arcelik 80,432
5,765,000 Doktas Dokumculuk Ticaret * 66,036
3,212,000 KOC Holding AS 176,602
10,512,000 Turkiye IS Bankasi 212,725
-----------------
535,795
-----------------
VENEZUELA - 3.1%
63,324 Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR 1,559,353
109,300 Siderurgica Venezolana (Sivensa) Class A ADR (Registered) * 218,600
-----------------
1,777,953
-----------------
TOTAL COMMON STOCKS (Cost $51,723,437) 49,590,746
-----------------
5
See accompanying notes to the financial statements.
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS - 8.9%
BRAZIL - 7.4%
19,898,415 Banco Bradesco SA 0.00% 167,324
516,000 Banco do Brasil SA 0.00% 2,342
19,898,415 Bradespar SA 0.00% * 13,670
3,177,000 Brasil Telecom Participacoes SA 0.00% * 45,398
15,000 Companhia Vale do Rio Doce 0.00% 405,606
10,280,000 Electrobras Class B (Registered) 0.00% 209,046
3,177,000 Embratel Participacoes SA 0.12% * 70,542
129,831 Investimentos Itau SA 0.00% 137,716
3,737,000 Itaubanco SA (Registered) 0.00% 357,372
27,775 Petroleo Brasileiro SA (Petrobras) 0.68% 841,111
3,177,000 Tele Celular Sul Participacoes SA 0.00% * 13,008
3,177,000 Tele Centro Oeste Celular SA 0.00% * 13,794
3,177,000 Tele Leste Celular Participacoes SA 0.00% * 3,265
3,177,000 Tele Nordeste Celular Participacoes SA 0.00% * 9,778
3,177,000 Tele Norte Celular Participacoes SA 0.86% * 2,811
5,539,591 Tele Norte Leste Participacoes SA 1.60% 140,355
19,642 Telecomunicacoes Brasileiras SA ADR 0.00% 1,802,153
3,177,000 Telecomunicacoes Brasileiras SA (Registered) 0.00% * 70
3,180,296 Telemig Celular Participacoes SA 0.00% * 10,400
3,177,182 Telesp Celular Participacoes SA 0.00% * 46,972
-----------------
4,292,733
-----------------
RUSSIA - 1.5%
12,222,000 Unified Energy Systems 0.00% * 867,762
-----------------
TOTAL PREFERRED STOCKS (Cost $4,363,542) 5,160,495
-----------------
INVESTMENT FUNDS - 0.9%
TAIWAN - 0.5%
34,900 R.O.C. Taiwan Fund * 272,656
-----------------
UNITED STATES - 0.4%
15,000 Morgan Stanley Emerging Markets Fund * 218,437
-----------------
TOTAL INVESTMENT FUNDS (Cost $467,617) 491,093
-----------------
DEBT OBLIGATIONS - 0.4%
U.S. GOVERNMENT - 0.4%
$ 244,645 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 (a) 235,776
-----------------
TOTAL DEBT OBLIGATIONS (Cost $233,885) 235,776
-----------------
6
See accompanying notes to the financial statements.
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RIGHTS & WARRANTS - 0.1%
BRAZIL - 0.0%
317,718 Telesp Celular Participacoes SA Preferred Rights, Expires 10/02/00 * 192
1,700,112 Telesp Celular Participacoes SA Rights, Expires 10/02/00 * 9
-----------------
201
-----------------
INDONESIA - 0.0%
57,050 Bank Internasional Indonesia Warrants, Expires 4/16/02 * 165
-----------------
MALAYSIA - 0.0%
27,800 United Engineers Warrants, Expires 11/18/02 * 25,605
-----------------
THAILAND - 0.1%
71,000 Charoen Pokphand Foods Public Co Ltd Warrants, Expires 6/30/02 * 8,511
116,526 Telecomasia Corp Public Co Ltd Warrants, Expires 12/31/49 * 29,111
-----------------
37,622
-----------------
TOTAL RIGHTS & WARRANTS (Cost $333) 63,593
-----------------
SHORT-TERM INVESTMENTS - 3.3%
CASH EQUIVALENTS - 3.3%
$ 1,900,000 Banque Nationale Paribas (London) Time Deposit, 6.60%, due 9/01/00 1,900,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,900,000) 1,900,000
-----------------
TOTAL INVESTMENTS - 99.5%
(Cost $58,688,814) 57,441,703
Other Assets and Liabilities (net) - 0.5% 286,204
-----------------
TOTAL NET ASSETS - 100.0% $ 57,727,907
-----------------
-----------------
7
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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) Security is restricted as to public resale.
(c) Valued by management (Note 1).
144A Securities exempt from registration under Rule
144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
* Non-income producing security.
8
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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
INDUSTRY SECTOR
<TABLE>
<CAPTION>
<S> <C>
Telecommunications 17.0 %
Banking 11.3
Energy Services 8.7
Utilities 7.4
Electronic Equipment 7.0
Metals and Mining 6.8
Financial Services 6.2
Consumer Goods 5.8
Food and Beverage 5.7
Conglomerates 4.5
Communications 3.8
Construction 2.4
Chemicals 2.2
Automotive 2.1
Insurance 1.2
Paper and Allied Products 1.0
Transportation 0.8
Services 0.7
Health Care 0.5
Machinery 0.4
Real Estate 0.2
Computers 0.2
Retail Trade 0.1
Aerospace 0.1
Miscellaneous 3.9
-------------
100.0 %
-------------
-------------
</TABLE>
9
See accompanying notes to the financial statements.
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $58,688,814) (Note 1) $ 57,441,703
Foreign currency, at value (cost $106,247) (Note 1) 105,594
Cash 93,603
Dividends and interest receivable 235,675
Receivable for open forward contracts (Notes 1 and 6) 18,348
Receivable for expenses waived or borne by Manager (Note 2) 6,975
-------------------
Total assets 57,901,898
-------------------
LIABILITIES:
Payable for open swap contracts (Notes 1 and 6) 35,380
Accrued capital gain and repatriation taxes payable (Note 1) 17,722
Payable to affiliate for (Note 2):
Management fee 31,719
Shareholder service fee 7,332
Accrued expenses 81,838
-------------------
Total liabilities 173,991
-------------------
NET ASSETS $ 57,727,907
===================
NET ASSETS CONSIST OF:
Paid-in capital $ 58,089,439
Accumulated undistributed net investment income 401,768
Accumulated undistributed net realized gain 522,792
Net unrealized depreciation (1,286,092)
-------------------
$ 57,727,907
===================
NET ASSETS ATTRIBUTABLE TO CLASS III SHARES $ 57,727,907
===================
SHARES OUTSTANDING - CLASS III 5,704,087
===================
NET ASSET VALUE PER SHARE - CLASS III $ 10.12
===================
</TABLE>
10
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, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $88,644) $ 721,971
Interest 55,464
-----------------
Total income 777,435
-----------------
EXPENSES:
Management fee (Note 2) 195,791
Custodian fees 144,728
Audit fees 24,640
Transfer agent fees 14,100
Legal fees 1,596
Trustees fees (Note 2) 376
Registration fees 96
Miscellaneous 19,092
Fees waived or borne by Manager (Note 2) (40,756)
-----------------
359,663
Shareholder service fee - Class III (Note 2) 45,183
-----------------
Net expenses 404,846
-----------------
Net investment income 372,589
-----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 1,311,776
Closed swap contracts 366,783
Foreign currency, forward contracts and foreign
currency related transactions (93,306)
-----------------
Net realized gain 1,585,253
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (7,853,117)
Open swap contracts (334,993)
Foreign currency, forward contracts and foreign
currency related transactions 37,234
-----------------
Net unrealized loss (8,150,876)
-----------------
Net realized and unrealized loss (6,565,623)
-----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (6,193,034)
=================
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
-------------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 372,589 $ 280,232
Net realized gain 1,585,253 14,413,594
Change in net unrealized appreciation (depreciation) (8,150,876) 15,392,646
-------------------- --------------------
Net increase (decrease) in net assets resulting from operations (6,193,034) 30,086,472
-------------------- --------------------
Distributions to shareholders from:
Net investment income - Class III - -
Net realized gains - Class III (1,100,558) (56,869)
-------------------- --------------------
(1,100,558) (56,869)
-------------------- --------------------
Net share transactions - Class III (Note 5) (169,372) 3,442,979
-------------------- --------------------
Total increase (decrease) in net assets (7,462,964) 33,472,582
NET ASSETS:
Beginning of period 65,190,871 31,718,289
-------------------- --------------------
End of period (including accumulated undistributed
net investment income of $401,768 and
$29,179, respectively) $ 57,727,907 $ 65,190,871
-------------------- --------------------
-------------------- --------------------
</TABLE>
12 See accompanying notes to the 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 YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ----------------------------------------------------
(UNAUDITED) 2000 1999 1998 *
------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.41 $ 5.74 $ 8.61 $ 10.00
------------- ---------------- --------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.07 0.05 0.23 0.03 +
Net realized and unrealized gain (loss) (1.16) 5.63 (2.94) (1.42)
------------- ---------------- --------------- ---------------
Total from investment operations (1.09) 5.68 (2.71) (1.39)
------------- ---------------- --------------- ---------------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income - - (0.16) -
From net realized gains (0.20) (0.01) - -
------------- ---------------- --------------- ---------------
Total distributions (0.20) (0.01) (0.16) -
------------- ---------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 10.12 $ 11.41 $ 5.74 $ 8.61
============= ================ =============== ===============
TOTAL RETURN (a) (9.56%)*** 98.96% (31.60%) (13.90%)***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 57,728 $ 65,191 $ 31,718 $ 39,698
Net expenses to average
daily net assets 1.34% ** 1.28% 1.27% 1.65%**(b)
Net investment income to average
daily net assets 1.24% ** 0.54% 3.65% 0.78%**
Portfolio turnover rate 41% 157% 158% 56%
Fees and expenses voluntarily waived or
borne by the Manager consisted of
the following per share amounts: $ 0.01 $ 0.01 $ 0.02 $ 0.03
</TABLE>
+ Computed using average shares outstanding throughout the period.
* Period from August 29, 1997 (commencement of operations) to
February 28, 1998.
** Annualized.
*** Not 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. 13
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of
shares 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 benchmark is the IFC Investable Index.
The following is a summary of significant accounting policies which are
in conformity with accounting principles generally accepted in the
United States and which are consistently followed by the Fund in the
preparation of its financial statements. The preparation of financial
statements in accordance with accounting principles generally accepted
in the United States 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 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 quotations are
not 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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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,
14
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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 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, 2000.
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 future, security or currency transaction to
determine the realized gain or loss. The Fund as a writer of an option
has no control over whether the underlying future, security or currency
may be sold (call) or purchased (put) and as a result bears the market
risk of an unfavorable change in the price of the future, security or
currency 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, 2000, 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. Premuims paid for purchasing options which expire
are treated as realized losses. Premiums paid for purchasing options
which are exercised or closed are added to the amounts paid or offset
against the
15
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
proceeds on the transaction to determine the realized gain or loss. 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, 2000, 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, both based on notional amounts. 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.
Total return swaps are marked to market daily based upon quotations
from market makers and the change in value, 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
16
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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, 2000.
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 U.S. federal income tax purposes. Therefore, no
provision for U.S. 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 a
current tax liability of $1,402 for capital gains taxes and a deferred
tax liability in respect of unrealized appreciation on foreign
securities of $16,320 for capital gains and repatriation taxes. The
Fund has incurred $11,198 related to capital gain taxes which is
included in net realized gain in the Statement of Operations.
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. Distributions to shareholders are
recorded by the Fund on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ
from accounting principles generally accepted in the United States.
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, net of applicable withholding taxes, 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
17
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 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. For the six months ended August 31, 2000, the
Fund received $27,023 in purchase premiums and $11,723 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 purchases.
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.
18
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until June 30, 2001
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.
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, 2000, was $376.
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, 2000,
were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
---------- ------------
<S> <C> <C>
U.S. Government securities $ 233,885 $ 1,333,119
Investments (non-U.S. Government securities) 23,343,805 21,900,941
</TABLE>
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments
held were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<C> <C> <C> <C>
$58,688,814 $7,329,337 $8,576,448 $1,247,111
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 65% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
19
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000 February 29, 2000
------------------------ ------------------------
Class III: Shares Amount Shares Amount
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold 159,892 $ 1,688,950 905,894 $ 9,227,832
Shares issued to
shareholders in
reinvestment of
distributions 104,089 1,043,275 4,836 54,017
Shares
repurchased (274,297) (2,901,597) (723,935) (5,838,870)
---------- ------------ --------- ------------
Net increase
(decrease) (10,316) $ (169,372) 186,795 $ 3,442,979
========== ============ ========= ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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> <C>
Buy
11/15/00 THB 35,400,000 $ 868,907 $ (34,500)
----------------
Sale
11/15/00 THB 35,400,000 $ 868,907 $ 52,848
----------------
</TABLE>
Currency Abbreviations:
THB Thai Baht
20
<PAGE>
GMO EVOLVING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SWAP AGREEMENT
<TABLE>
<CAPTION>
Expiration Unrealized
Notional Amount Date Description Depreciation
----------------- ------------ ------------ ------------
<S> <C> <C> <C>
TOTAL RETURN SWAP
$225,000 6/08/01 Agreement with Lehman Brothers Special Financing $(35,380)
Inc. dated 6/13/00 to receive (pay) the notional
amount multiplied by the return on the KOPSI 200
Korean Index and to pay the notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread.
</TABLE>
21
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 93.3%
AUSTRALIA - 5.3%
792,300 Amcor Ltd 2,524,717
363,591 Australia and New Zealand Banking Group Ltd 2,737,380
548,362 British American Tobacco Berhad 3,833,807
501,000 Burswood Ltd 220,003
383,140 Capral Aluminum Ltd 478,177
1,085,900 CSR Ltd 2,760,705
551,992 Email Ltd 966,391
187,100 FH Faulding & Co Ltd * 994,579
490,510 Foodland Associated 2,097,283
2,232,929 Goodman Fielder Ltd 1,594,670
76,000 Lihir Gold Ltd ADR * 627,000
4,374,000 Lihir Gold Ltd * 1,668,016
3,204,100 Menzies Gold NL * 175,876
11,739,245 MIM Holdings Ltd 7,732,547
906,788 Newcrest Mining Ltd * 2,125,633
3,973,791 Oil Search Ltd * 3,880,335
1,569,200 Orogen Minerals Ltd 1,423,494
54,000 Orogen Minerals Ltd GDR 144A (a) 472,500
1 PaperlinX Ltd 2
6,561,371 Pasminco Ltd * 3,639,514
370,081 Publishing & Broadcasting Ltd 3,099,293
5,967,403 Qantas Airways Ltd 13,584,984
455,660 Western Mining Corp Holdings Ltd 2,148,104
813,047 Westpac Banking Corp 5,942,229
-----------------
64,727,239
-----------------
AUSTRIA - 0.2%
18,200 Erste Bank Der Oesterreichischen Sparkassen AG 810,654
4,827 Oesterreichische Brau Beteiligungs AG 214,572
10,242 RHI AG 217,625
4,264 VA Technologie AG (Bearer) 207,476
26,160 Wienerberger Baustoffindustrie AG 558,181
-----------------
2,008,508
-----------------
BELGIUM - 1.6%
18,144 Almanij NV 785,092
25,192 Cie Francois de Enterprises 4,221,825
10,627 Credit Commercial Dexia 1,494,663
17,668 Electrabel SA 3,777,710
96,135 Fortis 2,923,888
100,135 Fortis Strip * 890
17,437 GIB Holdings Ltd 701,017
5,649 Groupe Bruxelles Lambert NPV 1,469,006
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BELGIUM - CONTINUED
15,883 Kredietbank NPV 727,220
24,172 Solvay et Cie 1,575,226
62,409 UCB SA 2,379,185
-----------------
20,055,722
-----------------
BRAZIL - 1.1%
75,700 Petroleo Brasileiro SA (Petrobras) ADR * 2,408,206
244,866 Tele Norte Leste Participacoes SA ADR 6,244,083
109,800 Ultrapar Participacoes SA ADR 1,214,663
181,600 Votorantim Celulose e Papel SA ADR * 3,654,700
-----------------
13,521,652
-----------------
CANADA - 1.5%
26,100 Alcan Aluminum Ltd * 853,982
86,893 Alliance Forest Products Inc 144A (a) * 1,066,533
295,000 Boliden Ltd * 276,066
100,000 Cambior Inc * 33,906
63,000 Canadian Occidental Petroleum Ltd 1,653,341
73,264 Concord Pacific Group * 47,198
43,000 Falconbridge Ltd 555,488
20,300 Fletcher Challenge Ltd Class A 244,346
101,500 Iamgold (International African Mining Gold) * 189,282
90,000 Inco Ltd * 1,595,972
220,100 KAP Resources Ltd (e) * 1,493
79,000 Manulife Financial Corp 1,703,591
67,137 Oxford Properties Group * 764,861
109,000 Rothmans Inc 1,330,485
633,600 Semi-Tech Class A (e) * 4,297
173,000 Sun Life Financial Services of Canada Inc * 3,643,813
77,200 Teck Corp Class B * 552,307
143,300 Tembec Inc Class A * 1,481,928
154,000 TimberWest Forest Corp 1,138,304
82,740 Trizec Hahn Corp (Sub-Voting) 1,282,073
38,400 TVX Gold Inc * 78,120
-----------------
18,497,386
-----------------
FINLAND - 0.8%
337,400 Metso Oyj 4,079,530
340,150 Oyj Hartwall Abp 6,048,207
-----------------
10,127,737
-----------------
FRANCE - 7.3%
26,700 Accor SA * 1,151,275
113,565 Alcatel SA * 9,293,825
53,242 Aventis SA Class A 3,999,791
12,940 Axa SA 1,844,140
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FRANCE - CONTINUED
44,271 Banque Nationale de Paris 4,073,670
53,495 BIC SA 2,523,044
25,280 Bouygues * 1,590,119
5,882 Cap Gemini SA 1,228,907
5,442 Chargeurs International SA 297,550
22,520 Christian Dior SA * 1,237,323
15,281 Club Mediterranee SA 1,995,721
72,217 Compagnie Generale d'Industrie et de Participations 3,428,522
3,073 Elf Gabon 409,534
11,564 Eridania Beghin-Say SA 1,028,097
661,570 Eurotunnel SA Units (Bearer) * 594,051
16,107 France Telecom SA 1,840,111
13,356 Gaz et Eaux 871,563
13,578 Groupe Danone 1,856,600
11,495 Guyenne et Gascogne SA * 986,194
6,054 Imetal 699,700
9,780 Lafarge Coppee SA 725,155
20,276 Lagardere Groupe 1,446,617
52,384 Michelin SA Class B 1,536,876
26,833 Pechiney SA Class A 1,228,578
17,367 Pernod Ricard 912,512
19,292 Peugeot SA 3,565,808
9,740 Pinault Printemps Redoute 1,843,575
14,600 Renault SA 635,507
10,530 Saint-Gobain 1,402,382
5,565 Sidel (Bearer) 379,478
27,663 Sophia (EX-SFI) 701,169
33,065 SPIE Batignolles 2,439,904
65,320 Suez Lyonnaise des Eaux 9,692,341
20,719 Suez Lyonnaise des Eaux Strip * 184
8,830 Technip SA 1,146,931
62,544 Thomson CSF 2,591,181
101,283 Total Fina SA 15,046,628
93,950 Usinor Sacilor 1,006,491
31,410 Valeo SA 1,686,674
24,686 Worms et Compagnie SA 368,492
-----------------
89,306,220
-----------------
GERMANY - 8.1%
119,600 Adidas Salomon AG 6,432,988
128,500 Bankgesellschaft Berlin AG 1,839,311
43,990 Bayer AG 1,863,559
84,400 Bayerische Motoren Werke AG 2,731,304
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
GERMANY - CONTINUED
41,600 Bilfinger & Berger 517,783
33,300 Brau und Brunnen * 1,087,997
101,500 Celanese AG 1,669,414
128,000 Commerzbank AG 4,108,122
360,810 Continental AG 6,559,913
131,800 DaimlerChrysler AG 6,807,972
13,200 DePfa Deutsche Pfandbriefbank AG 1,114,869
124,775 Deutsche Bank AG 10,904,538
304,040 Dresdner Bank AG 13,731,584
49,100 Kiekert AG 1,532,198
33,310 Koelnische Rueckversicherungs Gesellschaft AG (New Shares) * 2,161,841
99,450 Koelnische Rueckversicherungs Gesellschaft AG (Registered) * 6,507,419
201,750 K&S AG 3,058,188
168,500 Lufthansa AG 3,737,633
79,200 Metallgesellschaft 951,276
55,000 Rheinmetall AG 625,891
152,460 RWE AG 5,672,540
117,000 Schmalbach-Lubeca AG 749,976
268,000 Stinnes AG 7,743,626
136,600 Veba AG 6,557,988
-----------------
98,667,930
-----------------
HONG KONG - 6.7%
7,460,882 Akai Holdings Ltd * 24,872
4,530,400 Amoy Properties Ltd 4,240,370
960,000 Beijing Enterprises Class H 1,126,255
1,588,000 China Unicom * 3,685,305
805,000 CLP Holdings Ltd 3,612,504
293,000 Goldlion Holdings Ltd 18,784
30,000 Great Eagle Holdings Ltd 49,620
1,580,800 Hang Lung Development Co Ltd 1,469,465
609,000 Henderson Land Development Co Ltd 3,381,034
3,655,800 HKR International Ltd 1,945,248
2,796,587 Hong Kong Electric Holdings Ltd 8,856,654
4,891,641 Hong Kong Land Holdings 9,783,282
2,917,894 Hysan Development Co Ltd 4,059,230
302,000 Jardine International Motor Holdings Ltd 163,598
120,559 Jardine Matheson Holdings Ltd 590,739
1,110,266 Liu Chong Hing Bank Ltd 1,174,425
4,355,000 New World Development Co Ltd 7,119,389
2,239,000 New World Infrastructure * 2,540,632
220,000 Orient Overseas International Ltd 110,010
3,704,073 Regal Hotels International Ltd * 132,979
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HONG KONG - CONTINUED
1,810,000 Shanghai Industrial Holdings 3,875,604
5,827,000 South China Morning Post Ltd 4,370,642
681,500 Swire Pacific Ltd Class A 4,674,811
3,311,500 Swire Pacific Ltd Class B 2,950,896
2,805,000 Wharf Holdings Ltd 6,671,464
5,411,000 Wheelock and Co Ltd 4,509,571
-----------------
81,137,383
-----------------
HUNGARY - 0.1%
48,000 Mol Magyar Olaj es Gazipari Rt (New Shares) 656,405
-----------------
INDIA - 0.5%
178,164 Asian Paints Ltd 1,011,880
385,000 Gas Authority of India Ltd GDR 2,598,750
21,200 ICICI Ltd ADR * 299,450
20,200 Mahanagar Telephone Nigam GDR 144A (a) 139,885
59,007 Mahindra & Mahindra GDR (Registered) 247,829
75,705 Oil & Natural Gas Corp Ltd 188,973
38,500 State Bank of India Ltd GDR 387,888
115,000 Videsh Sanchar Nigam Ltd GDR 144A (a) 1,256,375
-----------------
6,131,030
-----------------
INDONESIA - 0.1%
2,921,000 Indah Kiat Pulp & Paper * 511,131
2,982,000 Matahari Putra Prima Tbk 229,523
690,404 PT Daya Guna Samudera * 44,007
35,700 PT Indosat (Persero) Tbk Class B ADR 321,300
300,000 Tambang Timah Persero (Foreign Registered) 78,473
-----------------
1,184,434
-----------------
IRELAND - 0.4%
374,850 Allied Irish Banks Plc 3,089,324
240,900 Bank of Ireland * 1,434,953
80,000 Eircom Plc 166,430
-----------------
4,690,707
-----------------
ITALY - 4.6%
136,561 Assicurazioni Generali SPA 4,206,841
68,334 Banca Commerciale Italiana SPA 368,159
65,113 Banca di Legano SPA 341,543
428,990 Banca Intesa SPA 1,838,317
140,039 Banca Nazionale Del Lavoro SPA 520,417
236,958 Banca Toscana 798,430
416,369 Banco Ambrosiano Veneto SPA (Savings Shares) 1,016,125
159,857 Buzzi Unicem SPA 793,034
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ITALY - CONTINUED
758,012 Credito Italiano 3,922,160
168,447 Danieli and Co SPA (Savings Shares) 405,095
228,852 Edison SPA 2,274,693
535,700 Enel SPA 2,133,663
625,152 ENI SPA 3,651,549
27,984 Ericsson SPA 1,536,289
146,530 Falck Acciaierie and Ferriere Lombarde 1,328,779
88,190 Fiat SPA 2,185,940
2,907 Fiat SPA (Savings Shares) 38,509
75,316 Grouppo Editoriale L'Espresso 1,084,747
86,303 IFIL Finanziaria di Partecipazioni SPA (Savings Shares) 383,638
131,669 Immsi SPA * 189,052
650,940 Industriali Riunite SPA 2,459,552
305,204 Istituto Nazionale Delle Assicurazioni 724,482
171,866 Italcementi SPA * 669,253
630,722 Italgas SPA 2,899,043
76,677 La Rinascente SPA 457,419
76,801 Mediaset SPA 1,375,158
43,386 Mediobanca SPA 468,268
395,467 Olivetti and Co SPA 1,241,112
58,000 Pagnossin SPA 179,446
251,461 RAS SPA 2,944,304
53,792 San Paolo IMI SPA 955,519
230,000 Seat Pagine Gialle SPA 511,204
743,406 Telecom Italia Mobile SPA (Savings Shares) 3,701,181
413,392 Telecom Italia SPA 5,086,562
504,462 Telecom Italia SPA (Savings Shares) 3,000,411
-----------------
55,689,894
-----------------
JAPAN - 21.7%
52,760 Aiful Corp 4,551,688
243,000 Ajinomoto Co Inc 2,634,171
69,300 Arisawa Manufacturing 2,138,006
610,000 Asahi Bank 2,402,476
239,000 Asahi Breweries Ltd 2,185,156
451,000 Asahi Chemical Industry Co 2,820,865
94,000 Bandai Co 3,085,146
299,000 Canon Inc 13,374,250
150,800 Chubu Electric Power Co Inc 2,559,527
389,000 Chugai Pharmaceutical Co Ltd 6,930,795
93,200 Chugoku Electric Power Co Inc 1,450,788
45,580 Circle K Japan Co Ltd 1,637,016
255,900 Credit Saison Co 6,179,131
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN - CONTINUED
216,000 Daimaru Inc * 631,958
104,000 Dainippon Printing Co Ltd 1,637,434
891,000 Daiwa Securities Co Ltd 11,112,434
137 East Japan Railway Co 745,124
115,000 Fuji Photo Film Co Ltd 4,119,467
166,000 Fujitec Co 1,525,506
26,000 H I S Co Ltd 975,244
41,000 Hitachi Credit Corp 1,076,519
390,000 Honda Motor Co Ltd 14,262,941
187,000 Hosiden Corp 6,540,791
30,000 Hoya Corp 2,869,467
125,000 INAX Corp 676,341
72,000 Japan Airport Terminal Co Ltd 587,397
741,000 Kajima Corp 2,202,710
301,000 Kao Corp 8,270,161
569,000 Komatsu Ltd 3,676,303
452,000 Konica Corp 3,602,776
1,253,000 Marubeni Corp * 3,466,195
272,000 Matsushita Electric Industrial Co Ltd 7,447,862
594,000 Minebea Co Ltd 7,686,797
315,000 Mitsubishi Corp 2,304,014
413,000 Mitsubishi Electric Corp 3,853,479
205,000 Mitsui Mining & Smelting * 1,624,390
532,000 Mitsui Petrochemical Industries Ltd 2,698,912
442,000 Mitsui & Co 2,971,812
547,000 Nikko Securities 5,278,160
37,400 Nintendo Co Ltd 6,467,142
193,000 Nippon Meat Packers Inc 2,457,746
274,000 Nippon Mining & Metals Co Ltd 1,536,497
449 Nippon Telegraph & Telephone 5,347,243
111,000 NSK Ltd 852,485
385,000 Oki Electric Industry * 2,751,032
130,000 Onward Kashiyama Co Ltd 1,276,350
20,300 Orix Corp 2,703,113
168,000 Pioneer Electronics Corp 7,089,272
33,000 Rinnai Corp 676,153
44,100 Rohm Co Ltd 12,550,966
1,218,000 Sakura Bank Ltd 9,068,755
140,000 Sekisui House Ltd 1,420,480
66,000 Shimachu Co 1,086,797
750 Shin-Etsu Chemical Co Ltd 36,853
183,000 Shionogi and Co Ltd 3,226,182
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
JAPAN - CONTINUED
68,000 Showa Corp 411,290
194,000 Snow Brand Milk Products Co Ltd 734,959
123,000 Sumitomo Bakelite Co Ltd 1,626,313
474,000 Sumitomo Chemical Co Ltd * 2,204,651
298,000 Sumitomo Trust & Banking 2,101,425
177,000 Takeda Chemical Industries Ltd 10,473,275
223,000 Tanabe Seiyaku Co Ltd 1,578,817
77,000 Terumo Corp 2,130,064
159,000 The Bank of Fukuoka Ltd 1,012,387
383,000 Tokyu Corp * 2,000,478
76,000 Toppan Printing Co Ltd 742,611
112,000 Tsubaki Nakashima Co Ltd 1,451,463
156,000 Ushio Inc 4,000,938
580 West Japan Railway Co 2,327,832
185,000 Yamaha Corp 1,625,516
370,000 Yamanouchi Pharmaceutical Co Ltd 18,319,580
114,000 Yamato Kogyo Co 448,987
-----------------
265,530,861
-----------------
KOREA - 1.8%
509 Daehan Flour Mill * 17,491
16,890 Dongwon Securities Co 106,634
19,865 Hansol Paper Manufacturing Ltd 81,341
58,383 Hyundai Electronics Industries * 1,068,929
40,000 Hyundai Motor Co 606,088
91,044 Hyundai Motor Co GDR 691,934
152,928 Kookmin Bank GDR 144A (Registered) (a) 1,865,722
68 Korea Trust * 312,800
115,400 LG Cable & Machinery Ltd * 1,592,442
90,440 LG Electronics Co 2,300,255
27,393 Nhong Shim * 988,248
93,790 Pacific Chemical Corp 2,317,787
327,000 Samsung Corp * 2,964,014
21,120 Samsung Display Devices 942,900
109,340 Samsung Fire & Marine Insurance 2,919,021
25,000 Samsung Securities 509,583
178,373 Shinhan Bank 1,946,619
14,880 Sindoricom Co Ltd 367,722
-----------------
21,599,530
-----------------
MALAYSIA - 0.4%
700,800 Genting Berhad 1,973,305
315,000 New Straits Times 667,303
407,000 Resorts World Berhad 840,776
477,000 Tanjong 1,035,592
-----------------
4,516,976
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEXICO - 0.3%
1,540,000 Controladora Comercial Mexicana SA de CV Classes B and C 1,974,037
145,000 Grupo Iusacell SA de CV ADR * 1,848,750
-----------------
3,822,787
-----------------
NETHERLANDS - 4.5%
137,263 ABN Amro Holdings NV 3,416,943
102,712 Aegon NV 4,008,777
90,712 Akzo Nobel NV 4,017,052
14,410 Bam Groep 698,211
95,422 Elsevier NV 1,155,452
13,329 Fugro NV 746,559
56,682 Hal Trust Class B 1,058,256
66,932 Hal Trust (Participating Certificates) 1,249,624
55,860 ING Groep NV 3,744,540
44,664 Kon Bolswessanen 500,327
168,462 Koninklijke Philips Electronics NV 8,207,459
89,911 Koninklijke Philips Electronics NV ADR * 4,433,736
83,507 Koninklijke Volker Wessels 1,466,277
161,930 Laurus NV 1,554,810
1,376 Moeara Enim Petroleum 2,568,999
96,376 Royal Dutch Petroleum 5,869,291
90,086 Royal KPN NV * 2,403,530
62,692 TNT Post Group NV 1,466,423
25,083 Unilever NV 1,188,592
36,181 Van Ommeren Vopak 765,568
88,242 Vendex NV 1,145,393
100,000 Wegener Arcade NV 1,333,575
29,107 Wereldhave NV 1,343,046
-----------------
54,342,440
-----------------
NEW ZEALAND - 1.4%
461,000 Air New Zealand Class B 485,548
2,771,587 Carter Holt Harvey Ltd 2,183,445
224,448 Fisher and Paykel Industries Ltd 715,926
1,431,354 Fletcher Challenge Buildings 1,360,492
1,328,807 Fletcher Challenge Energy 5,091,912
2,173,877 Telecom Corp of New Zealand 6,059,153
7,039,327 Trans Tasman Properties Ltd * 560,583
485,082 Wrightson Ltd 118,382
-----------------
16,575,441
-----------------
NORWAY - 1.0%
349,200 DET Sondenfjeld-Norske * 1,520,034
385,300 Petroleum Geo-Services * 7,345,599
189,000 Prosafe ASA * 3,061,690
-----------------
11,927,323
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PORTUGAL - 0.2%
193,000 Portugal Telecom SA 2,010,996
-----------------
SINGAPORE - 0.8%
586,000 Allgreen Properties Ltd * 469,808
6,853,617 Brierley Investments Ltd * 1,214,404
3,019,546 Dairy Farm International Holdings Ltd 1,388,991
798,663 Jardine Strategic Holdings 2,276,190
755,000 Singapore Land Ltd 1,736,943
5,473,000 SMRT Corp Ltd * 2,130,314
-----------------
9,216,650
-----------------
SOUTH AFRICA - 1.0%
263,000 Allied Technologies Ltd 754,392
65,300 Anglo Gold Ltd 2,547,379
1,232,606 Goldfields Ltd 4,543,273
329,753 Liberty Life Association of Africa Ltd 3,074,069
1,065,539 Sun International Ltd 275,076
125,700 Trencor Ltd * 66,703
290,500 Western Areas Gold Mining Co Ltd * 649,953
-----------------
11,910,845
-----------------
SPAIN - 2.2%
25,500 ACS, Actividades de Construccion y Servicios SA 629,114
200,532 Banco Bilbao Vizcaya SA 2,979,109
28,230 Banco Popular Espanol 839,524
298,692 Banco Santander Central Hispano 3,213,181
186,548 Endesa 3,640,418
119,580 FENOSA SA 2,222,996
186,643 Iberdrola SA 2,148,858
205,780 Repsol SA 4,079,756
91,700 Tabacalera SA Class A 1,316,643
256,164 Telefonica de Espana SA * 4,919,240
125,536 Transportes Azkar SA * 1,004,470
-----------------
26,993,309
-----------------
SWEDEN - 0.6%
215,700 Autoliv Inc SDR 4,914,481
209,400 Getinge Industrier AB Class B 1,886,187
-----------------
6,800,668
-----------------
SWITZERLAND - 3.1%
2,298 Banque Cantonale Vaudoise (Bearer) 791,254
2,186 Belimo Automation AG 940,863
379 Bobst AG (Bearer) 616,605
28,852 Credit Suisse Holdings (Registered) 6,026,873
1,825 Fischer (Georg) AG (Registered) 540,415
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWITZERLAND - CONTINUED
3,197 Forbo Holdings AG (Registered) 1,398,017
5,230 Geberit International AG 1,569,705
19,660 Hero AG 2,335,439
847 Holderbank Financiere Glarus AG (Bearer) 999,844
3,526 Jelmoli (Registered) 878,187
6,545 Kraftwerk Laufenberg (Bearer) 1,053,555
2,149 Merkur Holding AG (Registered) 533,997
1,781 Nestle AG (Registered) 3,836,833
2,696 Novartis AG (Registered) 4,075,214
416 Societe Generale de Surveillance Holding SA (Bearer) 747,227
1,554 Sulzer Gebrueder AG (Registered) 1,128,123
2,368 Sulzer Medica AG 676,746
2,832 Swatch Group AG (Bearer) 4,022,381
168 Swiss Insurance Co 277,180
627 Swiss Reinsurance (Bearer) 1,286,707
2,910 Unique Zurich Airport * 551,089
3,835 Zellweger Luwa AG (Bearer) 2,332,846
2,591 Zurich Allied 1,333,751
-----------------
37,952,851
-----------------
TAIWAN - 0.0%
609,500 Standard Foods Taiwan Ltd * 255,000
-----------------
THAILAND - 0.3%
428,900 First Bangkok City (Foreign Registered) (e) * 105
1,291,800 Jasmine International Public Co (Foreign Registered) * 306,556
388,000 PTT Exploration and Production Public Co Ltd (Foreign Registered) 2,411,058
487,700 Thai Telephone & Telecommunications (Foreign Registered) * 64,430
204,800 Total Access Communication * 815,104
-----------------
3,597,253
-----------------
UNITED KINGDOM - 15.1%
162,900 Abbey National Plc 1,976,675
327,541 Allied Domecq Plc 1,524,978
163,777 Anglian Water Plc * 1,332,026
435,488 BAA 3,484,873
145,277 Barclays Plc 3,635,577
200,170 Bass Plc 1,957,115
101,613 Berkley Group 830,132
714,086 BG Group Plc 4,457,136
658,000 Billiton Plc 2,594,438
135,200 Boots Co 999,283
1,064,998 BP Amoco Plc 9,769,716
226,953 BPB Industries Plc 1,030,240
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM - CONTINUED
533,530 British Aerospace 3,330,153
104,859 British Airways Plc 496,216
399,350 British Energy Plc 1,347,999
501,600 British Energy Plc (Deferred Shares) (d) * -
762,155 British Telecom Plc 9,702,852
650,468 BTR Siebe Plc 2,545,812
241,008 Cable & Wireless 4,463,833
133,375 Capital Shopping Centres Plc 815,997
958,074 Centrica Plc 3,136,387
359,936 Commercial Union Plc 5,551,102
847,532 Cookson Group 2,891,659
1,241,250 Corus Group Plc * 1,273,199
515,523 Diageo Plc 4,410,354
205,042 Dixons Group Plc (New Shares) 712,253
292,000 Enterprise Oil 2,330,277
315,000 FKI Plc 1,054,111
777,000 Gallaher Group Plc 4,284,580
129,591 Glaxo Wellcome Plc 3,735,144
103,864 Granada Compass Plc * 1,282,227
51,800 Granada Media * 489,882
410,586 Great Portland Estates Plc 1,341,123
473,439 Great Universal Stores Plc 3,361,491
234,408 Hanson Plc 1,391,492
261,347 HSBC Holdings Plc 3,768,246
220,136 Imperial Chemical Industries Plc 1,489,334
312,116 Imperial Tobacco Group Plc 2,847,290
71,700 Johnson Matthey 1,074,495
652,060 Ladbroke Group 2,068,198
1,536,700 Lasmo Plc 3,398,449
618,000 Legal & General Group Plc 1,591,512
211,000 Lloyds TSB Group Plc 1,989,324
41,200 Lonrho Plc 523,910
249,810 Marconi Plc 4,441,494
472,500 Marks & Spencer 1,426,487
369,600 National Power 2,532,800
119,000 Nycomed Amersham Plc 1,068,776
711,000 Old Mutual Plc 1,779,412
160,107 Peninsular & Oriental Steam Navigation Co 1,437,287
404,786 Powergen Plc 3,439,429
121,100 Prudential Corp 1,589,274
105,630 Railtrack Group Plc 1,512,274
322,500 Rank Group Plc 788,292
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM - CONTINUED
210,000 Reed International Plc 1,802,683
411,000 Rentokil Initial Plc * 962,755
175,899 Reuters Holdings Plc 3,531,755
107,641 RMC Group 1,010,149
761,450 Rolls-Royce 2,116,035
415,661 Royal & Sun Alliance Insurance Group 2,902,877
154,000 Sainsbury (J) 799,902
195,000 Scottish Hydro-Electric Plc 1,583,131
350,000 Scottish Power Plc 2,673,471
330,971 Scottish & Newcastle Plc 2,219,928
254,693 Severn Trent Plc 2,501,318
1,045,000 Shell Transport & Trading (Registered) 8,940,086
350,000 Smith (David S.) Holdings Plc 852,964
113,924 Smithkline Beecham Plc 1,487,640
5,000 SSL International Plc 58,162
996,000 Stagecoach Holdings Plc 1,072,356
118,482 Standard Chartered 1,644,556
190,763 Thames Water Plc 2,317,548
226,228 TI Group Plc 1,152,026
303,348 Tomkins Plc 957,743
167,347 Trinity Mirror Plc 1,269,756
379,642 Unilever Plc 2,383,434
76,300 United News & Media Plc 965,810
194,904 United Utilities 1,814,884
271,030 Viglen Technology Plc (Entitlement Letters) * -
164,000 Viridian Group Plc 1,655,966
211,000 Whitbread Plc Class A 1,528,832
488,162 Williams Plc 2,734,467
119,146 Wolseley 660,469
-----------------
185,907,318
-----------------
UNITED STATES - 0.6%
116,000 Freeport-McMoran Copper & Gold * 1,138,250
262,400 Royal Caribbean Cruises Ltd 5,797,761
-----------------
6,936,011
-----------------
TOTAL COMMON STOCKS (Cost $1,000,561,316) 1,136,298,506
-----------------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT FUNDS - 1.4%
INDIA - 1.4%
1,555,504 GMO Mauritius Fund - Foreign Cell (f) * 16,317,241
-----------------
KOREA - 0.0%
38,500 Korea Investment Fund * 238,219
-----------------
TOTAL INVESTMENT FUNDS (Cost $16,127,839) 16,555,460
-----------------
PREFERRED STOCKS - 1.3%
BRAZIL - 0.2%
146,879,058 Gerdau SA 0.00% 2,106,921
-----------------
GERMANY - 0.8%
158,500 Bayerische Motoren Werke AG 1.45% 2,606,917
170,844 Rheinmetall AG 5.47% 1,503,700
51,500 Villeroy & Boch AG (Non Voting) 5.23% 469,307
201,000 Volkswagen AG 0.00% 5,235,882
-----------------
9,815,806
-----------------
ITALY - 0.2%
81,123 Fiat SPA 0.00% 1,226,802
34,631 IFI-Istituto Finanziario 2.85% 1,046,815
61,098 Societa Assicuratrice Industriale SPA (SAI) 4.07% * 481,811
-----------------
2,755,428
-----------------
KOREA - 0.0%
27,310 Dongwon Securities Co 0.00% 98,033
15,020 Dongwon Securities Co Class 2 0.00% * 48,768
46,976 Hyundai Motor Co GDR 144A 0.00% (a) 100,059
25,220 Hyundai Motor Co 0.00% * 129,654
68,540 Jinro Ltd 0.00% * 111,271
-----------------
487,785
-----------------
THAILAND - 0.1%
2,300,000 Siam Commercial Bank Ltd 0.00% * 1,012,844
-----------------
TOTAL PREFERRED STOCKS (Cost $19,669,033) 16,178,784
-----------------
CONVERTIBLE BONDS - 0.3%
HONG KONG - 0.1%
USD 860,000 Sino Land Co 144A, 5.00%, due 2/26/01 (a) 924,500
-----------------
JAPAN - 0.2%
JPY 384,000,000 Internet Initiative 144A, 1.75%, due 3/31/05 (a) 2,736,684
-----------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
KOREA - 0.0%
KRW 19,462 Shinhan Bank, 15.00%, due 12/02/48 (b) 249,254
-----------------
MEXICO - 0.0%
USD 870,000 Grupo Financiero Invermexico, 7.50%, due 6/16/01 43,500
-----------------
TOTAL CONVERTIBLE BONDS (Cost $4,709,411) 3,953,938
-----------------
DEBT OBLIGATIONS - 0.0%
UNITED KINGDOM - 0.0%
GBP 102,000 BG Transco Holdings Plc Index Linked, 4.186%, due 12/14/22 141,177
GBP 102,000 BG Transco Holdings Plc, 7.00%, due 12/16/24 140,836
GBP 102,000 BG Transco Holdings Plc, 7.273%, Variable Rate, due 12/14/09 148,903
GBP 35,888 British Aerospace Plc, 7.45%, due 11/30/03 50,649
-----------------
481,565
-----------------
TOTAL DEBT OBLIGATIONS (Cost $433,564) 481,565
-----------------
RIGHTS & WARRANTS - 0.0%
ITALY - 0.0%
68,334 Banca Intesa SPA Warrants, Expires 11/15/02 * 82,016
-----------------
THAILAND - 0.0%
2,300,000 Siam Commercial Bank Ltd Warrants, Expires 5/10/02 * 196,942
-----------------
TOTAL RIGHTS & WARRANTS (Cost $51,799) 278,958
-----------------
SHORT-TERM INVESTMENTS - 3.6%
CASH EQUIVALENTS - 3.6%
USD 16,400,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 16,400,000
27,663,400 The Boston Global Investment Trust (c) 27,663,400
-----------------
44,063,400
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $44,063,400) 44,063,400
-----------------
TOTAL INVESTMENTS - 99.9%
(Cost $1,085,616,362) 1,217,810,611
Other Assets and Liabilities (net) - 0.1% 818,914
-----------------
TOTAL NET ASSETS - 100.0% $ 1,218,629,525
-----------------
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
<C> <S>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
GDR Global Depository Receipt
GBP British Pound
JPY Japanese Yen
KRW Korean Won
USD United States Dollar
(a) Security is restricted as to public resale. The
aggregate market value of restricted securities is
$8,562,258 or .70% of net assets.
(b) Warrants included in position of security.
(c) Represents investment of security lending collateral (Note 1).
(d) Bankrupt issuer.
(e) Valued by management (Note 1).
(f) Fund's investment in GMO Mauritius Fund - Foreign
Cell is comprised of the following underlying
securities:
<CAPTION>
SHARES SECURITY DESCRIPTION MARKET VALUE
<C> <S> <C>
248,950 Bharat Heavy Electricals Ltd $725,572
156,100 Bharat Petroleum Corporation 599,795
5,300,000 Banque Nationale Paribas, 6.60%, due 9/01/00 5,300,000
254,000 Container Corporation of India 693,433
792,650 Corporation Bank 1,341,128
290,069 Grasim Industries 1,739,274
273,157 Hindustan Petroleum 726,948
562,771 Indo Gulf Corporation 450,905
100,000 Maars Software Intl Ltd 204,345
90,000 NIIT Ltd 3,735,885
186,000 State Bank of India 799,956
---------------------------------
$16,317,241
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.
</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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
INDUSTRY SECTOR
Banking 9.7%
Consumer Goods 8.1
Energy Services 7.0
Utilities 5.9
Telecommunications 5.8
Health Care 4.7
Insurance 4.4
Conglomerates 4.4
Services 4.4
Machinery 4.4
Electronic Equipment 4.0
Metals and Mining 3.9
Financial Services 3.7
Automotive 3.6
Real Estate 3.5
Transportation 3.3
Chemicals 3.1
Food and Beverage 3.0
Construction 2.7
Retail Trade 2.0
Paper and Allied Products 1.7
Communications 1.5
Computers 1.3
Aerospace 0.9
Textiles 0.2
Miscellaneous 2.8
-------------
100.0%
-------------
-------------
See accompanying notes to the financial statements. 17
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $1,085,616,362) (Note 1) $ 1,217,810,611
Foreign currency, at value (cost $19,617,859) (Note 1) 19,384,838
Cash 94,016
Receivable for investments sold 10,080,159
Dividends and interest receivable 3,002,639
Foreign withholding taxes receivable 773,971
Receivable for expenses waived or borne by Manager (Note 2) 102,300
------------------
Total assets 1,251,248,534
------------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 27,663,400
Payable for investments purchased 3,933,606
Accrued capital gains taxes payable (Note 1) 48,411
Payable to affiliate for (Note 2):
Management fee 623,224
Shareholder service fee 152,195
Accrued expenses 198,173
------------------
Total liabilities 32,619,009
------------------
NET ASSETS $ 1,218,629,525
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 1,002,617,593
Distributions in excess of net investment income (6,006,374)
Accumulated undistributed net realized gain 90,251,292
Net unrealized appreciation 131,767,014
------------------
$ 1,218,629,525
------------------
------------------
Net assets attributable to:
Class II Shares $ 62,641,609
------------------
------------------
Class III Shares $ 1,011,959,085
------------------
------------------
Class IV Shares $ 144,028,831
------------------
------------------
Shares outstanding:
Class II 4,861,408
------------------
------------------
Class III 78,430,468
------------------
------------------
Class IV 11,158,426
------------------
------------------
NET ASSET VALUE PER SHARE:
Class II $ 12.89
------------------
------------------
Class III $ 12.90
------------------
------------------
Class IV $ 12.91
------------------
------------------
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $1,560,575) $ 17,694,334
Interest (including security lending income of $285,017) 1,266,610
-----------------
Total income 18,960,944
-----------------
EXPENSES:
Management fee (Note 2) 3,710,480
Custodian fees 491,372
Legal fees 31,556
Audit fees 25,944
Transfer agent fees 24,472
Trustees fees (Note 2) 7,820
Miscellaneous 24,865
Fees waived or borne by Manager (Note 2) (588,800)
-----------------
3,727,709
Shareholder service fee (Note 2)
Class II 68,144
Class III 773,219
Class IV 64,759
-----------------
Net expenses 4,633,831
-----------------
Net investment income 14,327,113
-----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 94,929,804
Foreign currency, forward contracts and foreign currency
related transactions (3,147,274)
-----------------
Net realized gain 91,782,530
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (76,499,077)
Foreign currency, forward contracts and foreign currency
related transactions 867,388
-----------------
-----------------
Net unrealized loss (75,631,689)
-----------------
Net realized and unrealized gain 16,150,841
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 30,477,954
-----------------
-----------------
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
INCREASE (DECREASE) IN NET ASSETS: AUGUST 31, 2000 YEAR ENDED
Operations: (UNAUDITED) FEBRUARY 29, 2000
-------------------- --------------------
<S> <C> <C>
Net investment income $ 14,327,113 $ 17,868,303
Net realized gain 91,782,530 148,181,152
Change in net unrealized appreciation (depreciation) (75,631,689) 106,542,390
-------------------- --------------------
Net increase in net assets resulting from operations 30,477,954 272,591,845
-------------------- --------------------
Distributions to shareholders from:
Net investment income
Class II (740,299) (821,414)
Class III (12,121,780) (15,074,302)
Class IV (1,730,177) (2,182,701)
-------------------- --------------------
Total distributions from net investment income (14,592,256) (18,078,417)
-------------------- --------------------
Distributions to shareholders from:
Net realized gains
Class II (2,065,294) (5,886,575)
Class III (33,392,072) (106,929,723)
Class IV (4,706,941) (14,634,521)
-------------------- --------------------
Total distributions from net realized gains (40,164,307) (127,450,819)
-------------------- --------------------
Net share transactions: (Note 4)
Class II 3,632,074 22,900,809
Class III 9,669,409 (12,766,551)
Class IV 5,654,660 (4,892,649)
-------------------- --------------------
Increase in net assets resulting from net share transactions 18,956,143 5,241,609
-------------------- --------------------
Total increase (decrease) in net assets (5,322,466) 132,304,218
NET ASSETS:
Beginning of period 1,223,951,991 1,091,647,773
-------------------- --------------------
End of period (including distributions in excess of net
investment income of $6,006,374 and $5,741,231,
respectively) $ 1,218,629,525 $ 1,223,951,991
-------------------- --------------------
-------------------- --------------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.14 $ 11.79 $ 12.09 $ 10.65 $ 10.02
-------- -------- -------- --------- --------
Income from investment operations:
Net investment income 0.15 (c) 0.17 (c) 0.20 (c) 0.18 (c) 0.06
Net realized and unrealized gain (loss) 0.20 2.89 (0.14) 1.48 0.65
-------- -------- -------- --------- --------
Total from investment operations 0.35 3.06 0.06 1.66 0.71
-------- -------- -------- --------- --------
Less distributions to shareholders from:
Net investment income (0.16) (0.21) (0.25) (0.22) (0.08)
Net realized gains (0.44) (1.50) (0.11) (0.00)(d) -
-------- -------- -------- --------- --------
Total distributions (0.60) (1.71) (0.36) (0.22) (0.08)
-------- -------- -------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 12.89 $ 13.14 $ 11.79 $ 12.09 $ 10.65
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
TOTAL RETURN (a) 2.57%*** 25.63% 0.36% 15.94% 7.08%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 62,642 $ 60,278 $ 33,780 $ 53,949 $ 21,957
Net expenses to average
daily net assets 0.82%** 0.82% 0.82% 0.82% 0.84%**(b)
Net investment income to average
daily net assets 2.24%** 1.28% 1.64% 1.60% 0.83%**
Portfolio turnover rate 22% 35% 27% 19% 13%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.01 $ 0.03 $ 0.03 $ 0.02
</TABLE>
* Period from September 30, 1996 (commencement of operations) to
February 28, 1997.
** Annualized.
*** Not 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.
See accompanying notes to the financial statements. 21
<PAGE>
GMO FOREIGN 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, 2000 -------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.16 $ 11.81 $ 12.10 $ 10.66 $ 10.00
-------- -------- -------- --------- --------
Income from investment operations:
Net investment income 0.15 (c) 0.20 (c) 0.20 (c) 0.21 (c) 0.08
Net realized and unrealized gain (loss) 0.19 2.86 (0.12) 1.45 0.66
-------- -------- -------- --------- --------
Total from investment operations 0.34 3.06 0.08 1.66 0.74
-------- -------- -------- --------- --------
Less distributions to shareholders from:
Net investment income (0.16) (0.21) (0.26) (0.22) (0.08)
Net realized gains (0.44) (1.50) (0.11) (0.00)(d) -
-------- -------- -------- --------- --------
Total distributions (0.60) (1.71) (0.37) (0.22) (0.08)
-------- -------- -------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 12.90 $ 13.16 $ 11.81 $ 12.10 $ 10.66
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
TOTAL RETURN (a) 2.50%*** 25.65% 0.48% 15.95% 7.37%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,011,959 $1,022,498 $927,108 $847,427 $671,829
Net expenses to average
daily net assets 0.75%** 0.75% 0.75% 0.75% 0.76%**(b)
Net investment income to average
daily net assets 2.31%** 1.48% 1.60% 1.80% 1.24%**
Portfolio turnover rate 22% 35% 27% 19% 13%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.01 $ 0.03 $ 0.03 $ 0.02
</TABLE>
* Period from June 28, 1996 (commencement of operations) to
February 28, 1997.
** Annualized.
*** Not 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.
22 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -----------------------------------------------------
(UNAUDITED) 2000 1999 1998*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.16 $ 11.81 $ 12.11 $ 10.90
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.16 (d) 0.21 (d) 0.22 (d) - (b)
Net realized and unrealized gain (loss) 0.19 2.86 (0.15) 1.21
-------- -------- -------- --------
Total from investment operations 0.35 3.07 0.07 1.21
-------- -------- -------- --------
Less distributions to shareholders from:
Net investment income (0.16) (0.22) (0.26) -
Net realized gains (0.44) (1.50) (0.11) -
-------- -------- -------- --------
Total distributions (0.60) (1.72) (0.37) -
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.91 $ 13.16 $ 11.81 $ 12.11
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN (a) 2.60% *** 25.74% 0.53% 11.10% ***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 144,029 $ 141,175 $ 130,760 $ 219,785
Net expenses to average
daily net assets 0.69% ** 0.69% 0.69% 0.69% **
Net investment income to average
daily net assets 2.37% ** 1.55% 1.81% 0.26% **
Portfolio turnover rate 22% 35% 27% 19%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.01 $ 0.03 $ 0.00 (c)
</TABLE>
* Period from January 9, 1998 (commencement of operations) to
February 28, 1998.
** Annualized.
*** Not 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.
See accompanying notes to the financial statements. 23
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 benchmark is the Morgan
Stanley Capital International EAFE Index.
The Fund offers three classes of shares: Class II, Class III and Class
IV. 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 accounting principles generally accepted in the
United States and which are consistently followed by the Fund in the
preparation of its financial statements. The preparation of financial
statements in accordance with accounting principles generally accepted
in the United States 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 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 quotations are
not readily available are valued at fair value as determined in good
faith by the Trustees or other persons acting at their direction.
Shares of an investment fund are valued at their net asset value as
reported on each business day.
Certain 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 FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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, 2000.
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 future, security or currency transaction to
determine the realized gain or loss. The Fund as a writer of an option
has no control over whether the underlying future, security or currency
may be sold (call) or purchased (put) and as a result bears the market
risk of an unfavorable change in the price of the future, security or
currency underlying the written option. There is the risk the Fund may
not be able
25
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
to enter into a closing transaction because of an illiquid market. At
August 31, 2000 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. Premuims paid for purchasing options which expire
are treated as realized losses. Premiums paid for purchasing options
which are exercised or closed are added to the amounts paid or offset
against the proceeds on the transaction to determine the realized gain
or loss. 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, 2000, there were no outstanding futures contracts.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The
loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on
loan. As with other extensions of credit, the Fund may bear the risk
of delay in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 2000, the Fund
loaned securities having a market value of $26,116,862 collateralized
by cash in the amount of $27,663,400 which was invested in a short-term
instrument.
26
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). The Fund intends to distribute substantially all of its
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss
carryover for U. S. federal income tax purposes. Therefore, no
provision for U. S. 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 a
deferred tax liability in respect of unrealized appreciation on foreign
securities of $48,411 for potential capital gains taxes at August 31,
2000. The accrual for capital gains taxes is included in net
unrealized loss in the Statement of Operations.
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.
Distributions to shareholders are recorded by the Fund on the
ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ
from accounting principles generally accepted in the United States.
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, net of applicable withholding taxes, 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.
27
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2001
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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $7,820. 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, 2000
aggregated $259,798,152 and $286,808,924, respectively.
28
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000 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
-------------- ---------------- ---------------- --------------
$1,085,616,362 $240,525,767 $108,331,518 $132,194,249
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
----------------------- -------------------------
Class II: Shares Amount Shares Amount
-------- ----------- --------- ------------
Shares sold 267,773 $ 3,520,171 1,357,706 $ 17,980,116
Shares issued to
shareholders in
reinvestment of
distributions 212,591 2,774,318 490,326 6,671,247
Shares repurchased (205,659) (2,662,415) (125,595) (1,750,554)
-------- ----------- --------- ------------
Net increase 274,705 $ 3,632,074 1,722,437 $ 22,900,809
-------- ----------- --------- ------------
-------- ----------- --------- ------------
29
<PAGE>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
SHARE TRANSACTIONS - CONTINUED
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
----------------------- -------------------------
Class III: Shares Amount Shares Amount
-------- ----------- --------- ------------
Shares sold 976,821 $13,118,844 3,202,401 $ 42,410,128
Shares issued to
shareholders in
reinvestment of
distributions 3,074,504 40,183,771 8,451,999 115,039,709
Shares repurchased (3,323,349) (43,633,206) (12,483,507) (170,216,388)
----------- ------------- ------------ --------------
Net increase
(decrease) 727,976 $ 9,669,409 (829,107) $(12,766,551)
----------- ------------- ------------ --------------
----------- ------------- ------------ --------------
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
----------------------- -------------------------
Class IV: Shares Amount Shares Amount
-------- ----------- --------- ------------
Shares sold 34,559 $ 470,000 3,174,497 $ 41,207,751
Shares issued to
shareholders in
reinvestment of
distributions 411,986 5,384,660 1,137,658 15,485,345
Shares repurchased (14,970) (200,000) (4,657,696) (61,585,745)
----------- ------------- ------------ --------------
Net increase
(decrease) 431,575 $ 5,654,660 (345,541) $ (4,892,649)
----------- ------------- ------------ --------------
----------- ------------- ------------ --------------
30
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 92.0%
AUSTRALIA - 6.2%
120,000 Burswood Ltd 52,695
480,797 Consolidated Rutile Ltd * 227,800
41,349 Email Ltd 72,391
35,000 FH Faulding & Co Ltd * 186,052
275,000 Frucor Beverages Group Ltd * 253,144
6,000 Lihir Gold Ltd ADR * 49,500
506,100 Menzies Gold NL * 27,780
449,303 MIM Holdings Ltd 295,952
371,000 Oil Search Ltd * 362,275
25,000 Orogen Minerals Ltd 22,679
5,000 Orogen Minerals Ltd GDR 144A 43,750
525,000 Pasminco Ltd * 291,211
500,000 Western Metals Ltd * 76,559
34,000 Westpac Banking Corp 248,492
-----------------
2,210,280
-----------------
BELGIUM - 0.7%
167 Cie Francois de Enterprises 27,987
3,300 Unibra SA * 237,643
-----------------
265,630
-----------------
BRAZIL - 1.3%
35,000 Tele Centro Oeste Celular SA ADR 446,250
-----------------
CANADA - 2.9%
5,000 Alliance Forest Products Inc * 61,370
525,000 Atacama Minerals Corp * 242,091
15,000 Boliden Ltd * 14,037
46,172 Concord Pacific Group * 29,745
16,000 Iamgold (International African Mining Gold) * 29,838
90,600 KAP Resources Ltd * 614
17,397 Oxford Properties Group * 198,196
14,000 Rothmans Inc 170,888
70,000 Semi-Tech Class A * 475
30,000 TimberWest Forest Corp 221,748
21,000 TVX Gold Inc * 42,722
-----------------
1,011,724
-----------------
FINLAND - 1.9%
19,500 Jaakko Poyry Group * 346,730
19,000 Oyj Hartwall Abp 337,839
-----------------
684,569
-----------------
FRANCE - 9.4%
800 Bail-Investissement * 82,077
2,200 Christian Dalloz * 141,803
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE - CONTINUED
1,520 Christian Dior SA * 83,514
2,100 Compagnie Fonciere Klepierre * 188,568
2,550 Damart SA 174,565
550 Essilor International 152,561
130,000 Eurotunnel SA Units (Bearer) * 116,732
2,200 Gaumont SA * 121,462
9,200 GFI Industries SA * 201,292
1,260 Groupe Partouche * 74,662
3,000 Guyenne et Gascogne SA * 257,380
6,000 M6-Metropole Television * 378,735
5,500 Metaleurop SA * 36,869
1,351 SAGA * 45,642
6,500 Seb SA 362,332
578 Societe Eurafrance 298,045
7,050 Sophia (EX-SFI) 178,695
3,300 Virbac SA (Societe) * 239,110
850 Zodiac SA * 182,878
-----------------
3,316,922
-----------------
GERMANY - 3.3%
5,000 Bilfinger & Berger 62,234
2,650 Brau und Brunnen * 86,582
2,000 Commerzbank AG 64,189
2,000 DePfa Deutsche Pfandbriefbank AG 168,920
30,000 Gildemeister AG * 268,049
20,000 K&S AG 303,166
3,000 Leirheit AG 86,682
10,000 Rheinmetall AG 113,798
-----------------
1,153,620
-----------------
HONG KONG - 7.4%
843,401 Akai Holdings Ltd * 2,812
800,000 Amoy Properties Ltd 748,785
1,080,000 Goldlion Holdings Ltd 69,237
110,000 Great Eagle Holdings Ltd 181,939
40,000 Hang Lung Development Co Ltd 37,183
470,000 HKR International Ltd 250,087
107,200 Hong Kong Aircraft Engineering Co Ltd 193,115
45,150 Hysan Development Co Ltd 62,810
30,000 Jardine International Motor Holdings Ltd 16,251
680 Jardine Matheson Holdings Ltd 3,332
190,000 Liu Chong Hing Bank Ltd 200,980
380,000 New World Development Co Ltd 621,210
50,000 Orient Overseas International Ltd 25,002
268,000 South China Morning Post Ltd 201,018
-----------------
2,613,761
-----------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IRELAND - 1.7%
245,812 Anglo Irish Bank Corp * 486,396
135,000 Fyffes Plc * 124,726
-----------------
611,122
-----------------
ISRAEL - 0.7%
25,000 BATM Advanced Communications * 263,710
-----------------
ITALY - 1.3%
3,400 Ericsson SPA 186,656
2,216 Grouppo Editoriale L'Espresso 31,916
185,000 Locazione Attrezzature SPA * 166,119
30,000 Pagnossin SPA 92,817
-----------------
477,508
-----------------
JAPAN - 24.6%
11,310 H I S Co Ltd 424,231
100,000 Hitachi Construction Machinery Co Ltd * 447,299
50,000 Kanamoto Co Ltd * 335,709
50,000 Kissei Pharmaceutical Co Ltd 984,621
75,000 KOA Corp * 2,292,761
21,000 Kose Corp * 630,157
100,000 Marusan Securities * 597,337
31,000 MKC-Stat Corp * 764,535
55,000 Sanyo Chemical Industries * 467,789
100,000 The Dai-Tokyo Fire & Marine Insurance Co * 354,464
40,000 Yamaguchi Bank Ltd * 259,190
44,000 Yamaichi Electronics Co Ltd * 1,196,549
-----------------
8,754,642
-----------------
KOREA - 0.9%
3,000 Lotte Confectionery Co 305,750
-----------------
NETHERLANDS - 2.5%
5,200 ASR Verzekeringsgroep NV * 286,398
360 Fugro NV 20,164
6,504 Geveke * 271,772
6,250 Telegraaf Holding MIJ NV * 133,080
12,363 Wegener Arcade NV 164,870
-----------------
876,284
-----------------
NEW ZEALAND - 0.5%
800,000 Evergreen Forests Ltd * 178,110
100,000 Trans Tasman Properties Ltd * 7,963
-----------------
186,073
-----------------
NORWAY - 0.7%
200,000 Navis ASA * 249,052
-----------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE - 1.2%
250,000 Allgreen Properties Ltd * 200,430
22,000 Singapore Land Ltd 50,613
200,000 United Overseas Land 188,230
-----------------
439,273
-----------------
SOUTH AFRICA - 1.3%
371,000 Allan Gray Property Trust * 107,482
641,100 Marriott Property Fund * 159,068
145,500 Trencor Ltd * 77,210
49,700 Western Areas Gold Mining Co Ltd * 111,197
-----------------
454,957
-----------------
SPAIN - 0.5%
21,450 Transportes Azkar SA * 171,631
-----------------
SWEDEN - 0.9%
35,000 Getinge Industrier AB Class B 315,265
-----------------
SWITZERLAND - 7.4%
1,000 Belimo Automation AG 430,404
165 Bobst AG (Bearer) 268,443
280 Eichhof Holding AG * 211,299
500 Forbo Holdings AG (Registered) 218,645
1,600 Hero AG 190,066
1,300 Jelmoli (Registered) 323,778
1,000 Merkur Holding AG (Registered) 248,486
1,000 Schaffner Holding AG (Registered) * 262,833
500 Sika Finanz AG (Bearer) 148,059
1,000 Unique Zurich Airport * 189,378
330 Valiant Holding * 129,155
-----------------
2,620,546
-----------------
UNITED KINGDOM - 14.7%
229,796 Aggregate Industries Plc * 237,383
37,500 Bodycote International Plc * 112,122
10,000 Bristol Water Holdings Plc * 119,306
20,000 Celltech Group Plc * 424,845
100,000 Cookson Group 341,186
62,500 Costain Group * 11,367
195,924 Crest Nicholson * 346,347
138,210 FKI Plc 462,504
25,000 Freeserve Plc * 98,209
110,000 Jarvis Plc * 283,679
100,044 Kier Group Plc * 427,216
25,000 Kingston Communications Plc * 183,324
19,258 Lonrho Plc 244,890
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - CONTINUED
200,000 Senior Plc * 148,405
150,000 Skyepharma Plc * 189,871
100,000 Smith (David S.) Holdings Plc 243,704
40,000 Smith (WH) Group Plc 210,095
40,000 SSL International Plc 465,293
15,000 Trinity Mirror Plc 113,813
115,000 TT Group Plc * 247,632
30,000 Viridian Group Plc 302,920
-----------------
5,214,111
-----------------
TOTAL COMMON STOCKS (Cost $32,927,179) 32,642,680
-----------------
PREFERRED STOCKS - 1.3%
GERMANY - 1.3%
15,686 Koegel Fahrzeugwerke AG 7.21% * 113,657
19,326 Rheinmetall AG 0.00% 170,100
10,000 Villeroy & Boch AG (Non Voting) 5.23% 91,128
8,000 Wuerttemebergische Metallwarenfabrik AG 8.12% * 96,729
-----------------
471,614
-----------------
TOTAL PREFERRED STOCKS (Cost $502,608) 471,614
-----------------
CONVERTIBLE BONDS - 0.2%
NEW ZEALAND - 0.2%
$ 133,333 Evergreen Forests Ltd, Zero Coupon, due 3/19/09 62,224
-----------------
TOTAL CONVERTIBLE BONDS (Cost $65,603) 62,224
-----------------
RIGHTS & WARRANTS - 0.1%
SINGAPORE - 0.1%
60,000 United Overseas Land Warrants, Expires 6/12/04 * 20,566
-----------------
TOTAL RIGHTS & WARRANTS (Cost $18,234) 20,566
-----------------
SHORT-TERM INVESTMENTS - 5.1%
CASH EQUIVALENTS - 5.1%
$ 1,800,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 1,800,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,800,000) 1,800,000
-----------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS - 98.7%
(Cost $35,313,624) 34,997,084
Other Assets and Liabilities (net) - 1.3% 447,206
-----------------
TOTAL NET ASSETS - 100.0% $ 35,444,290
-----------------
-----------------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
ADR American Depositary Receipt
GDR Global Depository Receipt
144A Securities exempt from registration under rule
144A of the Securities Act of 1933. These
securities may be resold in transactions
exempt from registration, normally to
qualified institutional buyers.
*Non-income producing security.
6 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 2000 (Unaudited)
-------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
INDUSTRY SECTOR
<S> <C>
Electronic Equipment 16.6 %
Real Estate 10.1
Health Care 8.9
Construction 6.1
Consumer Goods 5.9
Machinery 5.2
Services 5.1
Banking 4.7
Retail Trade 4.6
Paper and Allied Products 3.4
Financial Services 3.2
Food and Beverage 3.2
Chemicals 3.1
Communications 3.1
Metals and Mining 3.0
Conglomerates 2.6
Aerospace 2.0
Energy Services 2.0
Insurance 1.9
Telecommunications 1.9
Utilities 1.3
Transportation 0.9
Automotive 0.3
Textiles 0.3
Miscellaneous 0.6
-------------
100.0 %
-------------
-------------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments, at value (cost $35,313,624) (Note 1) $ 34,997,084
Foreign currency, at value (cost $457,822) (Note 1) 447,914
Cash 63,594
Dividends receivable 47,352
Foreign withholding taxes receivable 2,183
Receivable for expenses waived or borne by Manager (Note 2) 16,399
------------------
Total assets 35,574,526
------------------
LIABILITIES:
Payable for investments purchased 72,104
Payable to affiliate for (Note 2):
Management fee 20,866
Shareholder service fee 4,471
Accrued expenses 32,795
------------------
Total liabilities 130,236
------------------
NET ASSETS $ 35,444,290
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 35,712,263
Accumulated undistributed net investment income 29,170
Accumulated undistributed net realized gain 30,601
Net unrealized depreciation (327,744)
------------------
$ 35,444,290
------------------
------------------
NET ASSETS $ 35,444,290
------------------
------------------
SHARES OUTSTANDING 3,571,429
------------------
------------------
NET ASSET VALUE PER SHARE $ 9.92
------------------
------------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS
PERIOD FROM JUNE 30, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH AUGUST 31, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $6,391) $ 57,162
Interest 22,678
-----------------
Total income 79,840
-----------------
EXPENSES:
Management fee (Note 2) 41,638
Custodian fees 16,384
Audit fees 11,470
Transfer agent fees 4,650
Legal fees 434
Trustees fees (Note 2) 62
Miscellaneous 310
Fees waived or borne by Manager (Note 2) (33,310)
-----------------
41,638
Shareholder service fee (Note 2) 9,032
-----------------
Net expenses 50,670
-----------------
Net investment income 29,170
-----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 26,769
Foreign currency, forward contracts and foreign
currency related transactions 3,832
-----------------
Net realized gain 30,601
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (316,540)
Foreign currency, forward contracts and foreign
currency related transactions (11,204)
-----------------
Net unrealized loss (327,744)
-----------------
Net realized and unrealized loss (297,143)
-----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (267,973)
-----------------
-----------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 30, 2000
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 2000
(UNAUDITED)
------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 29,170
Net realized gain 30,601
Change in net unrealized appreciation (depreciation) (327,744)
------------------------
Net decrease in net assets resulting from operations (267,973)
------------------------
Net share transactions (Note 5) 35,712,263
------------------------
Total increase in net assets 35,444,290
NET ASSETS:
Beginning of period -
------------------------
End of period (including accumulated
undistributed net investment income of $29,170) $ 35,444,290
------------------------
------------------------
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 30, 2000
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 2000
(UNAUDITED)
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain (loss) (0.09)
-------------------------
Total from investment operations (0.08)
-------------------------
NET ASSET VALUE, END OF PERIOD $ 9.92
-------------------------
-------------------------
TOTAL RETURN (a) (0.80%)**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 35,444
Net expenses to average
daily net assets 0.84%*
Net investment income to average
daily net assets 0.48%*
Portfolio turnover rate 3%
Fees and expenses voluntarily waived or
borne by the Manager consisted of
the following per share amount: $ 0.01
</TABLE>
* Annualized
** Not annualized
(a) The total return would have been lower had certain expenses not been waived
during the period shown.
See accompanying notes to the financial statements. 11
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Foreign Small Companies Fund (the "Fund"), which commenced operations
on June 30, 2000, 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 a diversified
portfolio of equity securities of non-U.S. issuers. The Fund's 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current 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
12
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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, 2000.
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 future, security or currency
transaction to determine the realized gain or loss. The Fund as a writer of
an option has no control over whether the underlying future, security or
currency may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the future, security
or currency 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, 2000 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.
Premuims paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the
13
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
amounts paid or offset against the proceeds on the transaction to determine
the realized gain or loss. The risk associated with purchasing put and call
options is limited to the premium paid.
FUTURES CONTRACTS
The Fund may purchase or 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 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, 2000, there were no outstanding futures contracts.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund 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, both based on notional amounts. 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. 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, 2000, there were no open swap agreements.
14
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000, the Fund had no securities on loan.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its 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 U.
S. federal income tax purposes. Therefore, no provision for U. S. 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. For the period ended August 31,
2000, the Fund did not incur any capital gains or repatriation taxes.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable withholding taxes, is recorded on the ex-dividend
date, or when the Fund is informed of the ex-
15
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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.
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 .70% 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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 2000, was $62. 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, 2000 aggregated
$1,674,044 and $1,105,457, respectively.
16
<PAGE>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000 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>
$35,313,624 $1,523,729 $1,840,269 $316,540
</TABLE>
4. PRINCIPAL SHAREHOLDER
At August 31, 2000, 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 June 30, 2000
(commencement of operations)
through August 31, 2000
----------------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold 7,168,132 $ 71,967,030
Shares issued to
shareholders in
reinvestment of
distributions - -
Shares repurchased (3,596,703) (36,254,767)
---------- ------------
Net increase 3,571,429 $ 35,712,263
========== ============
</TABLE>
The Fund was formed with a $2,542,158 purchase and an initial contribution of
securities in-kind, which had a market value of $33,424,873 on the date of
contribution.
17
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE($) DESCRIPTION VALUE ($)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS - 86.2%
UNITED STATES - 86.2%
282,077 GMO Emerging Markets Fund 2,894,113
266,228 GMO Evolving Countries Fund 2,694,225
721,530 GMO International Core Fund 15,642,776
101,908 GMO International Small Companies Fund 1,164,808
308,469 GMO REIT Fund 2,985,978
301,238 GMO Small Cap Value Fund 4,000,447
927,460 GMO U.S. Core Fund 16,035,792
-----------------
45,418,139
-----------------
TOTAL MUTUAL FUNDS (Cost $45,789,840) 45,418,139
-----------------
COMMON STOCKS - 0.0%
ITALY - 0.0%
12,500 Grassetto SPA (a) * 111
-----------------
UNITED KINGDOM - 0.0%
17,870 Viglen Technology Plc (Entitlement Letters) * -
-----------------
TOTAL COMMON STOCKS (Cost $7,040) 111
-----------------
DEBT OBLIGATIONS - 3.5%
U.S. GOVERNMENT AGENCY - 3.5%
$1,900,000 Federal Farm Credit Bank Floating Rate Note, CPI + 3.00%, 5.72%, due 2/14/02 1,850,904
-----------------
TOTAL DEBT OBLIGATIONS (Cost $1,867,492) 1,850,904
-----------------
SHORT-TERM INVESTMENTS - 7.7%
CASH EQUIVALENTS - 4.9%
$2,600,000 Banque Nationale Paribas (London) Time Deposit, 6.60%, due 9/01/00 2,600,000
-----------------
U.S. GOVERNMENT - 2.8%
$1,500,000 U.S. Treasury Bill, 4.91%, due 1/04/01 (b) 1,468,385
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $4,070,418) 4,068,385
-----------------
TOTAL INVESTMENTS - 97.4%
(Cost $51,734,790) 51,337,539
Other Assets and Liabilities (net) - 2.6% 1,377,526
-----------------
TOTAL NET ASSETS - 100.0% $ 52,715,065
-----------------
-----------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS
CPI - Consumer Price Index
(a) Valued by management (Note 1).
(b) All or a portion of this security is held as collateral for
open futures contracts (Note 6).
* Non-income producing security.
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (cost $51,734,790) (Note 1) $ 51,337,539
Foreign currency, at value (cost $46,244) (Note 1) 43,162
Cash 10,646
Net receivable for open forward foreign currency contracts (Notes 1 and 6) 1,695,378
Interest receivable 9,643
Receivable for expenses waived or borne by Manager (Note 2) 23,447
------------------
Total assets 53,119,815
------------------
LIABILITIES:
Payable for variation margin on open futures contracts (Notes 1 and 6) 343,710
Payable to affiliate for (Note 2):
Management fee 22,434
Shareholder service fee 997
Accrued expenses 37,609
------------------
Total liabilities 404,750
------------------
NET ASSETS $ 52,715,065
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 87,520,299
Distributions in excess of net investment income (844,529)
Accumulated net realized loss (34,992,062)
Net unrealized appreciation 1,031,357
------------------
$ 52,715,065
------------------
------------------
NET ASSETS ATTRIBUTABLE TO CLASS III SHARES $ 52,715,065
------------------
------------------
SHARES OUTSTANDING - CLASS III 6,627,483
------------------
------------------
NET ASSET VALUE PER SHARE - CLASS III $ 7.95
------------------
------------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 267,085
Interest 221,036
-------------------
Total income 488,121
-------------------
EXPENSES:
Management fee (Note 2) 122,814
Custodian fees 33,856
Audit fees 14,536
Transfer agent fees 13,708
Legal fees 1,288
Trustees fees (Note 2) 276
Miscellaneous 829
Fees waived or borne by Manager (Note 2) (129,251)
-------------------
58,056
Shareholder service fee - Class III (Note 2) 5,567
-------------------
Net expenses 63,623
-------------------
Net investment income 424,498
-------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 474,615
Realized gain distributions from investment company shares 1,672,857
Closed futures contracts (1,356,024)
Foreign currency, forward contracts and foreign currency related
transactions 752,592
-------------------
Net realized gain 1,544,040
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments 796,787
Open futures contracts 106,838
Foreign currency, forward contracts and foreign currency related
transactions 354,254
----------------
Net unrealized gain 1,257,879
-------------------
Net realized and unrealized gain 2,801,919
-------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,226,417
-------------------
-------------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
-------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 424,498 $ 957,251
Net realized gain (loss) 1,544,040 (5,784,984)
Change in net unrealized appreciation (depreciation) 1,257,879 7,152,159
-------------------- ----------------------
Net increase in net assets resulting from operations 3,226,417 2,324,426
-------------------- ----------------------
Distributions to shareholders from:
Net investment income - Class III (1,720,679) (1,419,125)
-------------------- ----------------------
Net share transactions - Class III (Note 5) 4,490,896 (4,857,572)
-------------------- ----------------------
Total increase (decrease) in net assets 5,996,634 (3,952,271)
NET ASSETS:
Beginning of period 46,718,431 50,670,702
-------------------- ----------------------
End of period (including distributions in excess of net
investment income of $844,529 and accumulated undistributed
net investment income of $451,652, respectively) $ 52,715,065 $ 46,718,431
-------------------- ----------------------
-------------------- ----------------------
</TABLE>
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, 2000 ----------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.72 $ 7.59 $ 8.72 $ 10.69 $ 10.64 $ 10.12
------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income (e) 0.09 0.16 0.17 (c) 0.35 0.24 0.21
Net realized and unrealized gain (loss) 0.43 0.20 (0.88) (0.52) 0.01 0.55
------- ------- ------- ------- ------- --------
Total from investment operations 0.52 0.36 (0.71) (0.17) 0.25 0.76
------- ------- ------- ------- ------- --------
Less distributions to shareholders:
From net investment income (0.29) (0.23) (0.21) (0.35) (0.20) (0.24)
In excess of net investment income - - (0.21) - - -
From net realized gains - - - (1.05) - -
In excess of net realized gains - - - (0.40) - -
------- ------- ------- ------- ------- --------
Total distributions (0.29) (0.23) (0.42) (1.80) (0.20) (0.24)
------- ------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 7.95 $ 7.72 $ 7.59 $ 8.72 $ 10.69 $ 10.64
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
TOTAL RETURN (a) 6.80% *** 4.74% (8.13%) (1.63%) 2.34% 7.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $52,715 $46,718 $50,671 $170,706 $296,702 $382,934
Net expenses to average
daily net assets (d) 0.26% * 0.21% 0.17% 0.58% 0.91% (b) 0.78%
Net investment income to average
daily net assets (e) 1.73% * 1.89% 1.99% 2.93% 1.99% 2.44%
Portfolio turnover rate 8% 13% 21% 277% 463% 214%
Fees and expenses voluntarily waived or
borne by the Manager consisted of
the following per share amounts: $ 0.03 $ 0.04 $ 0.05 $ 0.04 $ 0.02 $ 0.005
</TABLE>
* Annualized
** Not 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, 2000 (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 of shares 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 benchmark is Salomon Smith Barney 3 Month T-Bill Index.
The financial statements of the underlying funds 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies
7
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------
are translated at current 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, 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.
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, 2000.
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 future, security or currency
transaction to determine the realized gain or loss. The Fund as a writer of
an option has no control over whether the underlying future, security or
currency may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the future, security
or currency 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, 2000 there were no open written option contracts.
8
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amount paid or offset against the proceeds on the
transaction to determine the realized gain or loss. The risk associated
with purchasing put and call options is limited to the premium 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, 2000.
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, both based on notional amounts. 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. Total return swaps are marked to market daily based upon
quotations from market makers and the change in value, 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, 2000 (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, 2000.
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
U.S. federal income tax purposes. Therefore, no provision for U.S. 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 29, 2000, the Fund had a capital
loss carryforward available to offset future gains, if any, of $10,447,067
and $21,237,637, expiring in 2007 and 2008, respectively. The value of the
capital loss carryforward may be limited due to significant shareholder
activity.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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, net
of applicable withholding taxes 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
10
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------
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 .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. For the six months ended August 31, 2000, the Fund received
$20,264 in purchase premiums and $1,845 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 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 .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, 2001 to
reimburse the Fund to the extent that the Fund's total annual operating
expenses (excluding shareholder service fees, custodial fees, and the
following expenses: brokerage commissions, and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses and transfer taxes ("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
11
<PAGE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
------------------------------------------------------------------------------
vary, the operating expenses (excluding shareholder service fees and fund
expenses) incurred indirectly by the Fund through investment in underlying
funds may exceed .50% of the Fund's average daily net assets. For the six
months ended August 31, 2000, operating expenses (excluding shareholder
service fees and fund expenses) incurred indirectly by the Fund were .49%
of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $276. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2000 aggregated
$7,246,450 and $3,256,499, respectively.
At August 31, 2000, 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>
$51,734,790 $840,745 $1,237,996 $397,251
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 57.5% 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, 2000 (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 were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
---------------------------- ---------------------------
Class III: Shares Amount Shares Amount
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Shares sold 508,404 $ 3,973,379 48,487 $ 386,191
Shares issued to
shareholders in
reinvestment of
distributions 174,605 1,360,169 144,170 1,121,673
Shares repurchased (106,800) (842,652) (820,134) (6,365,436)
--------------- -------------- -------------- -------------
Net increase
(decrease) 576,209 $4,490,896 (627,477) $(4,857,572)
--------------- -------------- -------------- -------------
--------------- -------------- -------------- -------------
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------ ---------------- --------------- ---------------- --------------
Sales
<S> <C> <C> <C> <C> <C>
15 ALL ORDS September 2000 $ 713,511 $ (8,768)
45 MATIF CAC 40 September 2000 2,653,681 13,872
12 DAX September 2000 1,936,351 6,476
5 HANG SENG September 2000 550,049 (660)
7 IBEX 35 September 2000 677,381 21,582
6 MIB 30 September 2000 1,279,725 (34,901)
49 FTSE 100 September 2000 4,768,045 (135,053)
43 OML September 2000 613,513 (7,491)
14 OMX September 2000 185,858 (3,421)
67 S&P 500 September 2000 25,480,100 (430,560)
44 TSE TOPIX September 2000 6,222,056 315,450
--------------
$ (263,474)
--------------
--------------
</TABLE>
At August 31, 2000, 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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ------------------- ------------ --------- ---------------
Buys
<S> <C> <C> <C> <C>
09/08/00 CHF 1,944,633 $ 1,116,292 $ (9,127)
09/08/00 DKK 1,413,740 168,594 (2,148)
09/08/00 EUR 8,402,467 7,471,438 (38,440)
09/08/00 GBP 3,211,656 4,673,081 (117,008)
03/23/01 GBP 170,950 249,425 533
10/13/00 JPY 50,635,000 477,963 (22,037)
09/08/00 NOK 790,000 87,056 (1,134)
09/08/00 SEK 5,907,678 626,185 (3,414)
-------------
$ (192,775)
-------------
-------------
Sales
10/13/00 AUD 967,558 $ 559,211 $ 25,471
09/08/00 CHF 1,944,633 1,116,292 101,846
03/23/01 CHF 1,873,508 1,093,347 6,860
09/08/00 DKK 1,413,740 168,594 21,578
03/23/01 DKK 1,413,740 169,538 2,164
09/08/00 EUR 8,402,467 7,471,438 957,853
03/23/01 EUR 7,983,004 7,163,123 23,539
09/08/00 GBP 3,211,656 4,673,081 339,223
03/23/01 GBP 2,774,925 4,048,750 71,738
10/13/00 HKD 3,255,139 417,509 710
10/13/00 JPY 603,360,710 5,695,353 261,793
09/08/00 NOK 790,000 87,056 9,203
03/23/01 NOK 790,000 86,810 1,163
09/08/00 SEK 5,907,678 626,185 57,466
03/23/01 SEK 5,907,678 634,566 3,387
10/13/00 SGD 341,040 198,962 4,159
-------------
$ 1,888,153
-------------
-------------
</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 INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 94.2%
AUSTRALIA - 1.2%
428,000 Amcor Ltd 1,363,851
126,975 Australia and New Zealand Banking Group Ltd 955,961
265,969 Caltex Australia Ltd 437,979
874,796 CSR Ltd 2,224,011
1,140,531 Goodman Fielder Ltd 814,523
166,000 Jupiters Ltd 324,192
63,073 National Food Ltd 73,616
834,600 National Mutual Holdings 1,297,204
142,666 PaperlinX Ltd 296,757
388,921 PMP Communications Ltd 440,448
1,894,179 Qantas Airways Ltd 4,312,159
977,139 Schroders Property 1,321,143
707,667 Western Mining Corp Holdings Ltd 3,336,133
1,611,908 Westfield Trust Units 2,961,726
-----------------
20,159,703
-----------------
AUSTRIA - 3.4%
72,573 Austria Tabakwerke AG 2,790,534
117,144 Austrian Airlines 1,359,117
5,944 Bau Holdings AG 182,316
164,269 Boehler Uddeholm (Bearer) 5,244,417
82,962 Brau Union AG 3,606,735
18,385 EA-Generali AG 2,958,478
69,063 Energie-Versorgung Niederoesterreich AG 2,161,296
167,454 Erste Bank Der Oesterreichischen Sparkassen AG 7,458,636
86,113 Flughafen Wien AG 2,955,934
29,934 Mayr-Melnhof Karton AG (Bearer) 1,357,254
44,545 Oesterreichische Brau Beteiligungs AG 1,980,137
4,098 Oesterreichische Elektrizitaetswirtschafts AG 382,549
72,913 OMV AG 5,413,394
194,941 RHI AG 4,142,164
633,289 Voest-Alpine Stahl AG 16,750,011
-----------------
58,742,972
-----------------
BELGIUM - 0.2%
6,000 Arbed SA 432,078
5,050 Bekaert SA 228,975
1,100 Compagnie Maritime Belge SA 66,012
14,100 Electrafina NPV 2,118,517
2,200 Glaverbel NPV 158,429
-----------------
3,004,011
-----------------
See accompanying notes to the financial statements. 1
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CANADA - 0.8%
45,200 Bank of Montreal 1,851,341
17,100 Emera Inc 182,057
40,807 Fletcher Challenge Ltd Class A 491,184
98,010 Hudsons Bay Co 1,026,857
180 Methanex Corp * 1,068
41,720 PanCanadian Petroleum Ltd 983,128
28,500 Potash Corp of Saskatchewan 1,509,409
45,100 Quebecor Inc Class B 1,200,403
48,254 Rogers Wireless Communications Inc * 1,456,144
83,960 Stelco Inc Class A 404,242
322,074 Transcanada Pipelines Ltd 3,123,221
98,600 Westcoast Energy Inc 1,905,605
-----------------
14,134,659
-----------------
DENMARK - 0.6%
58,260 Den Danske Bank 7,294,266
56,020 Kapital Holding AS 1,563,079
3,020 Novo-Nordisk A/S Class B * 613,979
34,400 Topdanmark AS * 648,093
-----------------
10,119,417
-----------------
FINLAND - 1.0%
34,500 Amer Group Class A 786,743
181,900 Enso Oyj Class R 1,665,697
82,500 Finnair Class A 315,390
194,200 Fortum Oyj 685,434
21,838 Instrumentarium Oyj 523,236
171,800 Kesko Oyj 1,573,210
16,950 Kone Oyj 1,103,080
25,200 Metra AB Class A 457,043
26,500 Outokumpu Class A 263,870
83,800 Partek Oyj 990,882
163,554 Rautaruukki Oyj 668,875
56,000 Sampo Insurance Co Ltd Class A 2,277,746
6,687 Sanitec Oyj 57,073
41,050 Stockmann AB Class A 620,424
17,000 Stockmann AB Class B 226,708
22,000 Stora Enso Oyj Class A 205,371
207,600 UPM-Kymmene Oyj 5,250,925
-----------------
17,671,707
-----------------
FRANCE - 11.1%
105,120 Air France * 2,017,735
262,660 Alcatel SA * 21,495,320
186,101 Assurances Generales de France (Bearer) 9,397,736
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE - CONTINUED
236,120 Aventis SA Class A 17,738,450
188,524 Banque Nationale de Paris 17,347,352
4,427 Bongrain 1,149,654
159,108 Christian Dior SA * 8,741,917
57,984 Compagnie Generale d'Industrie et de Participations 2,752,806
388,531 Credit Lyonnais SA 15,716,769
32,472 Dexia Strip * 1,443
110,775 Eridania Beghin-Say SA 9,848,451
1,004 Fromageries Bel SA 482,007
21,810 Imetal 2,520,723
7,825 Lagardere Groupe 558,285
34,950 Michelin SA Class B 1,025,386
109,569 Pernod Ricard 5,757,068
54,790 Peugeot SA 10,127,027
87,741 Remy Cointreau SA 2,847,224
392,860 Renault SA 17,100,366
67,917 Saint-Gobain 9,045,165
4,410 Seb SA 245,829
5,390 Skis Rossignol 75,713
14,283 Societe Eurafrance 7,365,015
467,922 Societe Generale Class A * 27,747,604
241,316 Usinor Sacilor 2,585,231
-----------------
193,690,276
-----------------
GERMANY - 7.3%
113,545 AGIV AG 1,120,514
51,300 Bankgesellschaft Berlin AG 734,293
459,150 BASF AG 17,226,348
357,549 Bayer AG 15,146,931
9,400 Bayerische Hypotheken und Wechsel-Bank AG 208,927
17,487 Bayerische Vereinsbank 1,022,203
176,780 Berliner Kraft & Licht AG Class A 1,933,145
207,550 Commerzbank AG 6,661,256
288,397 Continental AG 5,243,367
184,250 DaimlerChrysler AG 9,517,214
84,306 Deutsche Bank AG 7,367,806
249,484 Deutsche Telekom 9,648,463
93,600 Douglas Holdings AG 3,037,350
13,449 Dresdner Bank AG 607,407
44,328 FAG Kugelfischer 293,603
3,300 Fresenius Medical Care AG 285,465
79,697 Heidelberg Port-Zement 4,392,986
175,363 Klockner Humboldt Deutz * 650,130
See accompanying notes to the financial statements. 3
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - CONTINUED
1,500 Leirheit AG 43,341
73,000 Linde AG 3,082,781
100,250 MAN AG 2,807,509
28,077 Schering AG 1,500,208
10,900 Schwarz Pharma AG 261,841
66,071 Siemens AG 10,661,387
253,349 SKW Trostberg 1,592,446
24,700 Suedzucker AG 265,710
472,070 Thyssen Krupp AG 7,218,734
326,152 Veba AG 15,658,134
-----------------
128,189,499
-----------------
HONG KONG - 3.6%
972,000 Cathay Pacific Airways Ltd 1,888,093
328,000 Cheung Kong Holdings 4,289,616
1,114,122 Chinese Estates Holdings Ltd * 171,419
1,084,000 CLP Holdings Ltd 4,864,539
300 Dao Heng Bank 1,519
766 Dickson Concept International Ltd 683
300 Elec & Eltek International Holdings Ltd 42
363,128 Great Eagle Holdings Ltd 600,612
200,700 Guoco Group 514,662
2,030,700 Hang Lung Development Co Ltd 1,887,679
1,790 Henderson Cyber * 239
2,358,000 Henderson Investment Ltd 1,557,024
763,000 Henderson Land Development Co Ltd 4,236,008
1,073,200 Hong Kong Aircraft Engineering Co Ltd 1,933,309
1,146,800 Hong Kong Electric Holdings Ltd 3,631,859
579,700 Hong Kong Ferry Co Ltd 497,992
2,004,021 Jardine Matheson Holdings Ltd 9,819,703
622 Kumagai Gumi Ltd * 128
700 Lai Sun Garment International Ltd * 24
2 Leading Spirit Holdings * -
2,332,462 Mandarin Oriental ADR 1,446,126
5,559,000 New Asia Realty & Trust Co Class A * 1,354,237
200 Paul Y ITC Construction Holdings Ltd 15
28,973,371 Regal Hotels International Ltd * 1,040,163
462,000 Sino Land 247,311
584,000 South China Morning Post Ltd 438,039
1,486,000 Sun Hung Kai Properties Ltd 14,003,949
793,000 Swire Pacific Ltd Class A 5,439,655
336,000 Wharf Holdings Ltd 799,149
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - CONTINUED
1,904,800 Wheelock and Co Ltd 1,587,476
4 Wing Lung Bank 15
467,200 Yue Yuen Industrial Holdings 1,081,246
-----------------
63,332,531
-----------------
ITALY - 2.6%
4,630,000 Banca di Roma 5,701,078
154,000 Banca Popolare di Bergamo Credit 2,793,039
472,000 Banca Popolare di Milano 3,315,090
2,142,000 Banco Ambrosiano Veneto SPA (Savings Shares) 5,227,427
950,000 Banco di Napoli 973,821
1,126,700 Dalmine SPA * 341,577
535,000 ENI SPA 3,124,966
195,600 Falck Acciaierie and Ferriere Lombarde 1,773,761
202,390 Fiat SPA 5,016,583
159,672 Fiat SPA (Savings Shares) 2,115,150
588,000 Grassetto SPA (d) * 5,228
165,500 IFIL Finanziaria di Partecipazioni SPA 1,356,610
332,925 IFIL Finanziaria di Partecipazioni SPA (Savings Shares) 1,479,935
215,000 Immsi SPA * 308,700
18,800 Industrie Natuzzi SPA ADR 186,825
231,636 Italcementi SPA * 902,000
37,300 Italmobiliare SPA 968,318
1,010,000 Parmalat Finanziaria SPA 1,378,339
683,975 Pirelli & Co 1,754,334
436,332 RAS SPA 5,108,919
215,000 Sirti SPA 314,435
982,472 SMI (Societa Metallurgica Italy) 637,631
411,000 SNIA BPD SPA 457,480
-----------------
45,241,246
-----------------
JAPAN - 26.3%
310,000 Amada Co Ltd 2,659,884
1,149,000 Asahi Bank 4,525,319
29,000 Asahi Breweries Ltd 265,144
183,000 Ashikaga Bank Ltd * 344,927
37,000 Autobacs Seven 1,065,173
53,200 Bandai Co 1,746,062
609,000 Bank of Yokohama 2,678,366
72,000 Best Denki Co Ltd 479,370
86,000 Brother Industries Ltd 199,194
225,000 Canon Sales Co Inc 3,829,473
209,000 Chiba Bank 854,501
200,800 Chubu Electric Power Co Inc 3,408,177
See accompanying notes to the financial statements. 5
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
44,000 Chudenko Corp 533,908
129,400 Chugoku Electric Power Co Inc 2,014,291
1,502,000 Cosmo Oil Co Ltd 3,028,226
656,000 Daicel Chemical Industries Ltd 1,851,613
329,000 Daido Steel Co Ltd 866,926
501,000 Dai-Ichi Kangyo Bank 3,800,722
208,000 Daiichi Pharmaceuticals Co Ltd 4,915,229
200,000 Dainippon Pharmaceutical Co Ltd 2,625,656
132,000 Dainippon Printing Co Ltd 2,078,282
107,000 Daio Paper Corp 1,079,632
44,000 Daishowa Paper Manufacturing * 169,167
124,600 Daito Trust Construction Co Ltd 2,091,467
3,963,000 Daiwa Bank 9,959,527
1,167,000 Daiwa House Industry Co Ltd 7,660,353
105,000 Daiwa Kosho Lease Co Ltd 316,063
151,000 Daiwa Securities Co Ltd 1,883,252
260,000 Ezaki Glico Co Ltd 1,560,390
1,430,000 Fuji Bank 10,875,188
229,600 Fuji Photo Film Co Ltd 8,224,606
955,000 Fujita Corp * 349,259
216,000 Fukuyama Transporting Co Ltd 1,209,227
95,555 General Sekiyu (KK) 469,531
219,000 Gunze Ltd 696,183
98,100 Heiwa Corp 2,005,420
229,000 Hino Motors * 916,945
1,455,300 Hitachi Ltd 17,235,971
409,000 Hitachi Metals Ltd 2,949,372
183,200 Hokkaido Electric Power 2,571,740
72,000 Hokuriku Bank * 158,665
231,000 Honda Motor Co Ltd 8,448,050
221,000 House Foods Corp 3,046,418
6,000 Hyogo Bank Ltd (c) (d) * 1
92,000 INAX Corp 497,787
411,000 Industrial Bank of Japan 3,117,958
772,000 Ishikawajima-Harima Heavy Industries * 1,129,332
381,000 Itochu Corp * 1,679,201
98,000 Itoham Foods Inc 385,971
42,000 JACCS Co 157,539
107,000 Japan Airport Terminal Co Ltd 872,937
150,000 Japan Radio Co 1,447,393
173,000 Japan Securities Finance Co 1,004,192
127,000 Japan Synthetic Rubber Co Ltd 820,546
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
1,345 Japan Tobacco Inc 10,317,048
313,000 JGC Corp 1,496,905
51,000 Jusco Co Ltd 958,880
574,000 Kajima Corp 1,706,283
237,000 Kamigumi Co Ltd 1,122,327
188,000 Kandenko Co 1,003,113
65,700 Kansai Electric Power 1,078,160
4,000 Katokichi Co Ltd 99,400
1,055,000 Kawasaki Heavy Industries Ltd * 1,216,851
133,000 Kawasaki Kisen 246,943
581,000 Keio Teito Electric Railway Co Ltd 2,315,501
76,000 Kinden Corp 488,185
157,000 Kissei Pharmaceutical Co Ltd 3,091,710
2,718,000 Kobe Steel Ltd * 1,707,671
157,000 Kokusai Electric 1,776,997
593,000 Komatsu Ltd 3,831,367
934,000 Kubota Corp 3,012,903
508,800 Kyushu Electric Power Co Inc 7,991,748
452,000 Maeda Corp 1,725,094
110,000 Maeda Road Construction 508,533
102,000 Makita Corp 822,581
2,264,000 Marubeni Corp * 6,262,941
28,000 Marui Co Ltd 441,373
32,000 Maruichi Steel Tube 459,715
114,000 Matsushita Electric Industrial Co Ltd 3,121,530
44,000 Misawa Homes 140,285
443,000 Mitsubishi Corp 3,240,248
179,000 Mitsubishi Gas Chemical Co Inc 545,527
4,654,000 Mitsubishi Heavy Industries 16,365,810
853,000 Mitsubishi Material 2,679,623
810,000 Mitsubishi Motors * 2,582,521
102,000 Mitsubishi Paper Mills Ltd 233,383
260,000 Mitsubishi Trust & Banking 1,999,250
764,000 Mitsui Petrochemical Industries Ltd 3,875,881
58,000 Mitsui-Soko 112,584
630,000 Mycal Corp 1,831,395
49,000 Nagase & Co 266,504
138,000 Nagoya Railroad Co Ltd 395,987
38,000 National House Industrial 248,012
150,000 New Japan Securities Co Ltd 551,388
189,000 New Oji Paper Co Ltd 1,256,574
38,000 Nichiei Co Ltd (Kyoto) 445,424
See accompanying notes to the financial statements. 7
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
323,000 Nichirei 1,211,553
448,000 Nippon Express Co Ltd 2,516,429
66,000 Nippon Hodo Co 291,504
326,000 Nippon Light Metal 342,386
78,000 Nippon Meat Packers Inc 993,286
3,295,975 Nippon Oil Co Ltd 18,729,940
54,000 Nippon Paint Co 170,143
576,000 Nippon Shinpan Co 1,220,705
232,000 Nippon Suisan Kaisha Ltd 411,178
447,000 Nishimatsu Construction 1,450,319
4,581,000 Nissan Motor Co * 23,025,281
271,000 Nisshin Oil Mills Ltd 856,405
588,000 Nisshin Steel Co Ltd 523,818
1,001,000 Nisshinbo Industries Inc 4,655,814
2,373,000 Nissho Iwai Corp * 2,447,768
6,755,000 NKK Corp * 4,307,389
306,000 Obayashi Corp 1,222,393
339,000 Okumura Corp 1,128,517
96,000 Omron Corp 2,385,596
44,000 Ono Pharmaceutical Co Ltd 1,753,563
650,000 Onoda Cement Co Ltd 1,048,387
98,000 Onward Kashiyama Co Ltd 962,172
448,000 Orient Corp * 1,823,256
93,000 Promise Co 6,479,651
200,000 Q.P. Corp 1,687,922
900,000 Renown Inc * 911,478
58,500 Rinnai Corp 1,198,636
166,000 Royal Co Ltd 1,579,989
83,000 Ryosan Co 1,790,135
204,000 Sagami Railway Co Ltd 566,242
3,643,000 Sakura Bank Ltd 27,124,362
261,000 Sankyo Co Ltd 6,045,293
83,000 Sanwa Shutter Corp 253,732
168,000 Sanyo Electric Co 1,425,731
636,000 Seino Transportation Co Ltd 3,381,583
929,000 Sekisui Chemical 3,249,409
1,460,000 Sekisui House Ltd 14,813,578
326,200 Shikoku Electric Power 4,756,574
478,000 Shimizu Corp 1,411,947
182,000 Shionogi and Co Ltd 3,208,552
280,000 Showa Denko * 393,848
383,000 Showa Shell Sekiyu 1,889,141
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
306,000 Snow Brand Milk Products Co Ltd 1,159,265
144,000 Stanley Electric Co Ltd 1,741,935
415,000 Sumitomo Corp 3,619,186
116,000 Sumitomo Forestry Co Ltd 865,866
2,519,000 Sumitomo Metal Industries * 1,511,778
101,000 Sumitomo Realty and Development Co Ltd 438,513
1,547,000 Sumitomo Trust & Banking 10,909,077
350,000 Suzuki Motor Corp 3,712,022
959,000 Taisei Corp 1,402,888
123,000 Takara Standard Co 461,365
163,000 Takuma Corp 1,180,008
329,000 Tanabe Seiyaku Co Ltd 2,329,285
1,140,000 Teikoku Oil Co Ltd 4,051,575
197,000 Toagosei Co Ltd 432,277
422,700 Tohoku Electric Power Co Inc 6,044,800
1,142,000 Tokai Bank 5,782,821
264,000 Tokyo Electric Co Ltd 1,237,809
352,000 Tokyo Gas Co 904,426
145,000 Tokyo Ink Manufacturing Co Ltd 286,900
384,400 Tokyo Steel Manufacturing Co 1,730,233
71,000 Tokyo Style Co Ltd 633,168
207,000 Toppan Printing Co Ltd 2,022,637
418,000 Toray Industries Inc 1,528,695
92,000 Tostem Corp 1,336,347
259,000 Toyo Seikan Kaisha 4,444,580
126,000 Toyo Suisan Kaisha 1,190,998
563,000 Toyo Trust & Banking Co Ltd 1,963,953
984,000 Toyobo Co Ltd 1,799,325
90,000 Victor Co of Japan Ltd * 759,565
92,000 Wacoal Corp 777,307
81,000 Yamaha Corp 711,712
188,000 Yamazaki Baking Co Ltd 1,523,181
4,313,000 Yasuda Trust & Banking 5,055,561
200 Yoshitomi Pharmaceutical Industries Ltd 1,521
-----------------
461,530,065
-----------------
MALAYSIA - 0.0%
511,000 MBF Holdings Berhad (d) * 6,724
751,000 Promet Berhad (d) * 1,976
36,540 Silverstone (d) * 96
234,000 Westmont Industries Berhad (d) * 616
-----------------
9,412
-----------------
See accompanying notes to the financial statements. 9
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS - 3.6%
269,700 ABN Amro Holdings NV 6,713,750
74,200 Buhrmann NV Maastricht 2,107,662
138,500 DSM NV 4,235,790
203,500 Fortis (NL) NV 6,272,554
7,100 Gamma Holdings NV 274,583
187,100 ING Groep NV 12,542,131
142,150 KLM-Konin Luchtvaart Mij NV * 3,557,554
279,350 Kon Bolswessanen 3,129,287
27,100 Koninklijke Volker Wessels 475,842
42,100 Nedlloyd NV * 788,255
322,500 Royal Dutch Petroleum 19,640,226
109,950 Royal KPN NV * 2,933,509
45,700 Stork NV 495,681
18,800 VIB NV 451,282
4,200 Wereldhave NV 193,795
-----------------
63,811,901
-----------------
NEW ZEALAND - 0.1%
224,600 Air New Zealand Class B 236,560
902,200 Carter Holt Harvey Ltd 710,750
334,100 Lion Nathan Ltd 666,589
-----------------
1,613,899
-----------------
NORWAY - 5.6%
226,900 Bergesen d.y. ASA Class A 5,000,882
104,000 Bergesen d.y. ASA Class B 2,097,329
1,104,000 Christiania Bank OG Kreditkasse 5,791,061
4,321,837 Den Norske Bank Class A 19,622,199
94,700 Elkem AS Class A 1,669,752
383,000 Fred Olsen Energy * 3,629,772
74,150 Kvaerner ASA Class B * 841,648
450,750 Kvaerner ASA * 6,035,234
112,200 Leif Hoegh and Co AS * 1,205,534
373,800 Merkantildata ASA * 2,409,779
536,150 Norsk Hydro AS 23,042,681
127,800 Norske Skogindustrier ASA Class A 4,492,661
47,000 Norske Skogindustrier ASA Class B 1,357,004
203,000 Orkla ASA 3,612,856
638,800 Petroleum Geo-Services * 12,178,480
243,800 SAS Norge ASA Class B 2,095,610
41,200 Smedvig ASA Class A 830,865
110,500 Storebrand 785,424
531,500 Tandberg Data ASA * 972,285
-----------------
97,671,056
-----------------
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PORTUGAL - 0.5%
83,084 Banco Espirito Santo e Commercial de Lisboa (Registered) 1,351,006
2,254,360 Electricidade de Portugal SA * 7,315,471
-----------------
8,666,477
-----------------
SINGAPORE - 4.8%
1,784,200 Brierley Investments Ltd * 316,145
226,000 Cerebos Pacific Ltd 446,407
308,000 City Developments Ltd 1,529,890
3,234,000 Comfort Group 1,719,113
228,500 Creative Technology Ltd 4,964,794
360,748 DBS Group Holdings Ltd 4,359,239
4,243,096 DBS Land Ltd 6,852,848
1,067,203 Haw Par Brothers International Ltd 1,909,595
1,434,104 Hotel Properties Ltd 1,241,396
3,092,911 Jardine Strategic Holdings 8,814,796
634,000 Keppel Bank Ltd 1,163,911
532,000 Keppel Land Ltd 825,214
556 Neptune Orient Lines Ltd * 607
702,850 Oversea-Chinese Banking Corp 4,859,069
1,848,776 Overseas Union Bank 9,344,304
508 Prima Ltd 1,234
308 Robinson and Co Ltd 904
166 Shangri-La Asia Ltd 168
2,867,000 Singapore Airlines Ltd (Registered) 27,648,986
651,000 Singapore Land Ltd 1,497,682
799 Singapore Press Holdings 12,858
2,263,801 Straits Trading Co Ltd 1,933,299
4,270,960 United Industrial Corp Ltd 2,034,618
64,400 United Overseas Bank 505,083
830,000 United Overseas Land 781,154
1,629,800 Wing Tai Holdings 1,439,201
-----------------
84,202,515
-----------------
SPAIN - 1.0%
385,100 Endesa 7,515,091
501,453 Repsol SA 9,941,714
-----------------
17,456,805
-----------------
SWEDEN - 5.5%
272,083 Assi Doman 4,108,708
913,758 Avesta Sheffield AB 3,001,801
5,100 Custos AB * 144,301
53,788 Esselte AB Class A 313,500
181,400 Esselte AB Class B 1,076,501
357,700 Foreningssparbanken AB Class A 5,325,793
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN - CONTINUED
510,929 Gambro AB Class A 4,223,225
467,818 Gambro AB Class B 3,916,454
528,223 Mo Och Domsjo AB Class B 12,174,906
2,460,200 Nordbanken Holdings AB 17,076,575
9,600 PerBio Science AB * 91,559
19,200 Perstorp AB Class B 235,002
932,500 Skandinaviska Enskilda Banken Class A 11,166,481
54,246 Skanska AB Class B 1,856,775
41,200 SKF AB Class B 598,146
267,900 SSAB Swedish Steel Class A 2,299,571
57,200 SSAB Swedish Steel Class B 484,926
262,763 Stena Line AB Class B * 194,918
243,206 Svenska Cellulosa Class B 4,613,350
603,700 Svenska Handelsbanken Class A 9,980,099
112,400 Svenska Kullagerfabriken AB 1,524,633
716,582 Trelleborg AB Class B 4,897,954
91,350 Volvo AB Class A 1,461,755
309,600 Volvo AB Class B 5,134,573
-----------------
95,901,506
-----------------
SWITZERLAND - 2.1%
290 Ascom Holding AG (Bearer) 1,081,748
3,240 Baloise Holdings 3,287,320
1,850 Banque Cantonale Vaudoise (Bearer) 636,998
15,990 BK Vision AG (Bearer) * 4,046,707
400 Helvetia Patria Holding 347,996
570 Jelmoli (Bearer) 718,981
6,220 Merkur Holding AG (Registered) 1,545,585
1,610 Pargesa Holdings SA (Bearer) 3,862,041
4,690 Pharma Vision * 3,087,102
18,610 SAir Group (Registered) 2,878,193
680 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 456,182
7,500 Schweizerische Lebensversicherungs-und Rentenanstalt 5,771,714
1,130 Sika Finanz AG (Bearer) 334,613
13,970 UBS AG (New Shares) (Registered) * 2,032,306
12,570 Zurich Allied 6,470,569
-----------------
36,558,055
-----------------
UNITED KINGDOM - 12.9%
86,100 Allied Zurich Plc 1,056,662
429,280 AMEC 1,758,195
420,400 Anglian Water Plc * 3,419,185
918,257 Associated British Food 5,040,128
570,500 BAA 4,565,269
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
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<S> <C> <C>
UNITED KINGDOM - CONTINUED
215,050 Barclays Plc 5,381,656
299,221 Barratt Development 970,834
657,344 Bass Plc 6,427,026
774,000 Beazer Holmes Plc 1,362,619
934,897 BG Group Plc 5,835,380
148,500 Boots Co 1,097,585
1,542,744 British Airways Plc 7,300,611
683,100 British American Tobacco 4,402,872
224,544 British Energy Plc 757,945
511,082 British Energy Plc (Deferred Shares) (c) * -
85,300 Christian Salvesen Plc 201,054
2,305,693 Coats Viyella 1,702,494
2,074,075 Corus Group Plc * 2,127,461
126,282 De Vere Group Plc 558,551
1,775,700 Eurotunnel SA Units (Registered) * 1,634,098
238,200 Halifax Group Plc 1,864,542
143,430 HSBC Holdings Plc 2,068,053
335,499 Inchcape Plc 1,439,996
97,600 Laird Group 362,108
451,820 Land Securities 5,413,487
4,001,500 Marks & Spencer 12,080,613
131,133 Mothercare Plc * 268,063
2,724,225 National Power 18,668,609
1,506,400 Northern Foods Plc 2,334,200
974,040 Powergen Plc 8,276,328
53,042 RMC Group 497,769
810,511 Royal & Sun Alliance Insurance Group 5,660,414
4,147,400 Sainsbury (J) 21,542,307
927,688 Scottish Hydro-Electric Plc 7,531,547
2,643,405 Scottish Power Plc 20,191,616
451,500 Scottish & Newcastle Plc 3,028,355
757,915 Severn Trent Plc 7,443,417
63,800 Slough Estates 362,949
521,500 Somerfield Plc 588,036
172,600 Southwest Water 1,561,994
259,700 Tate & Lyle 963,519
1,349,091 Taylor Woodrow Plc 3,199,462
3,891,500 Tesco 12,272,250
764,087 Thames Water Plc 9,282,765
337,156 Thistle Hotels Plc 615,634
210,200 Unigate Plc (New Shares) * 749,285
1,275,695 United Utilities 11,878,864
See accompanying notes to the financial statements. 13
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
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<S> <C> <C>
UNITED KINGDOM - CONTINUED
723,310 Viglen Technology Plc (Entitlement Letters) * -
139,534 Whitbread Plc Class A 1,011,015
127,500 Wilson (Connolly) Holdings 286,607
1,827,400 Wimpey (George) 3,150,649
1,249,643 Yorkshire Water 6,122,681
-----------------
226,316,759
-----------------
TOTAL COMMON STOCKS (Cost $1,744,039,424) 1,648,024,471
-----------------
INVESTMENT FUNDS - 1.4%
HONG KONG - 1.4%
11,000,000 Tracker Fund of Hong Kong 24,470,145
-----------------
TOTAL INVESTMENT FUNDS (Cost $18,414,247) 24,470,145
-----------------
PREFERRED STOCKS - 0.9%
AUSTRIA - 0.0%
3,288 Allgemeine Baugesellschaft AG 2.42% 133,882
-----------------
GERMANY - 0.5%
36,650 Henkel KGAA 2.01% 2,355,800
31,500 MAN AG 0.00% 632,915
121,900 RWE AG 0.00% 3,657,663
35,100 Volkswagen AG 0.00% 914,326
-----------------
7,560,704
-----------------
ITALY - 0.4%
295,170 Fiat SPA 0.00% 4,463,779
78,700 IFI-Istituto Finanziario 2.85% 2,378,920
43,999 Societa Assicuratrice Industriale SPA (SAI) 0.00% * 346,971
-----------------
7,189,670
-----------------
TOTAL PREFERRED STOCKS (Cost $15,999,003) 14,884,256
-----------------
RIGHTS & WARRANTS - 0.0%
FRANCE - 0.0%
1,096,728 Eurotunnel SA Paris Warrants, Expires 10/31/01 * 19,501
1,096,728 Eurotunnel SA Paris Warrants, Expires 10/31/03 * 48,752
24,647 Generale des Eaux Warrants, Expires 5/02/01 * 80,419
-----------------
148,672
-----------------
GERMANY - 0.0%
24,700 Suedzucker AG Rights, Expires 9/13/00 * 1,098
-----------------
14 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES /
PAR VALUE ($) DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - 0.0%
104,212 Chinese Estates Holdings Ltd Warrants, Expires 11/24/00 * 3,100
40 Paul Y ITC Construction Holdings Ltd Warrants, Expires 12/22/00 * -
-----------------
3,100
-----------------
ITALY - 0.0%
262,655 Banca Intesa SPA Warrants, Expires 11/15/02 * 315,243
-----------------
SINGAPORE - 0.0%
101,959 Asia Food & Properties Ltd Warrants, Expires 7/12/02 * 8,293
139,475 Haw Par Brothers International Ltd Warrants, Expires 7/18/01 * 100,476
-----------------
108,769
-----------------
UNITED KINGDOM - 0.0%
4,622,000 Eurotunnel SA Warrants, Expires 10/31/03 * 168,120
-----------------
TOTAL RIGHTS & WARRANTS (Cost $1,062,707) 745,002
-----------------
SHORT-TERM INVESTMENTS - 8.3%
CASH EQUIVALENTS - 7.6%
$ 66,700,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 66,700,000
65,556,316 The Boston Global Investment Trust (b) 65,556,316
-----------------
132,256,316
-----------------
U.S. GOVERNMENT - 0.7%
$ 13,000,000 U.S. Treasury Bill, 4.91%, due 1/04/01 (a) 12,726,007
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $144,999,946) 144,982,323
-----------------
TOTAL INVESTMENTS - 104.8%
(COST $1,924,515,327) 1,833,106,197
Other Assets and Liabilities (net) - (4.8%) (83,806,430)
-----------------
TOTAL NET ASSETS - 100.0% $ 1,749,299,767
-----------------
-----------------
</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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) All or a portion of this security is held as collateral
for open futures contracts (Note 5).
(b) Represents investment of security lending collateral
(Note 1).
(c) Bankrupt issuer.
(d) Valued by management (Note 1).
* Non-income producing security.
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, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
INDUSTRY SECTOR
<S> <C>
Banking 18.7 %
Utilities 9.1
Energy Services 6.5
Conglomerates 5.9
Automotive 5.5
Transportation 4.4
Chemicals 4.1
Construction 3.9
Services 3.9
Metals and Mining 3.7
Machinery 3.7
Electronic Equipment 3.6
Retail Trade 3.5
Consumer Goods 3.5
Insurance 3.4
Real Estate 3.0
Paper and Allied Products 2.5
Financial Services 2.0
Food and Beverage 1.9
Health Care 1.6
Textiles 1.2
Telecommunications 0.8
Computers 0.3
Communications 0.1
Aerospace 0.1
Miscellaneous 3.1
-------------
100.0 %
-------------
-------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $1,924,515,327) (Note 1) $ 1,833,106,197
Foreign currency, at value (cost $1,603,894) (Note 1) 1,598,887
Cash 55,108
Receivable for Fund shares sold 95,109
Receivable for investments sold 55,861
Receivable for variation margin on open futures contracts (Notes 1 and 5) 209,567
Dividends and interest receivable 3,559,413
Foreign withholding taxes receivable 2,288,544
Receivable for expenses waived or borne by Manager (Note 2) 116,281
--------------------
Total assets 1,841,084,967
--------------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 65,556,316
Net payable for open forward foreign currency contracts (Notes 1 and 5) 18,603,272
Payable for Fund shares repurchased 6,046,400
Payable to affiliate for (Note 2):
Management fee 831,176
Shareholder service fee 222,397
Accrued expenses 525,639
--------------------
Total liabilities 91,785,200
--------------------
NET ASSETS $ 1,749,299,767
--------------------
--------------------
Net assets consist of:
Paid-in capital $ 1,755,727,808
Accumulated undistributed net investment income 33,443,505
Accumulated undistributed net realized gain 71,344,068
Net unrealized depreciation (111,215,614)
--------------------
$ 1,749,299,767
--------------------
--------------------
NET ASSETS ATTRIBUTABLE TO:
Class II Shares $ 17,807,431
--------------------
--------------------
Class III Shares $ 1,546,312,162
--------------------
--------------------
Class IV Shares $ 185,180,174
--------------------
--------------------
SHARES OUTSTANDING:
Class II 824,069
--------------------
--------------------
Class III 71,314,555
--------------------
--------------------
Class IV 8,541,261
--------------------
--------------------
NET ASSET VALUE PER SHARE:
Class II $ 21.61
--------------------
--------------------
Class III $ 21.68
--------------------
--------------------
Class IV $ 21.68
--------------------
--------------------
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $4,290,532) $ 36,587,821
Interest (including securities lending income of $400,782) 2,739,516
-------------------
Total income 39,327,337
-------------------
EXPENSES:
Management fee (Note 2) 5,549,667
Custodian fees 799,112
Legal fees 55,200
Audit fees 38,916
Transfer agent fees 28,244
Trustees fees (Note 2) 13,248
Registration fees 728
Miscellaneous 14,812
Fees waived or borne by Manager (Note 2) (950,260)
-------------------
5,549,667
Shareholder service fee (Note 2)
Class II 20,398
Class III 1,350,345
Class IV 106,392
-------------------
Net expenses 7,026,803
-------------------
Net investment income 32,300,534
-------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 107,855,307
Closed futures contracts (6,624,311)
Foreign currency, forward contracts and foreign
currency related transactions (18,981,227)
-------------------
Net realized gain 82,249,769
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments 8,481,617
Open futures contracts (7,155,163)
Foreign currency, forward contracts and foreign
currency related transactions 645,558
-------------------
Net unrealized gain 1,972,012
-------------------
Net realized and unrealized gain 84,221,781
-------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 116,522,315
-------------------
-------------------
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
-------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 32,300,534 $ 53,306,966
Net realized gain 82,249,769 66,992,223
Change in net unrealized appreciation (depreciation) 1,972,012 99,958,178
-------------------- ---------------------
Net increase in net assets resulting from operations 116,522,315 220,257,367
-------------------- ---------------------
Distributions to shareholders from:
Net investment income
Class II - (710,851)
Class III - (49,153,936)
Class IV - (7,672,181)
-------------------- ---------------------
Total distributions from net investment income - (57,536,968)
-------------------- ---------------------
Net realized gains
Class II (334,558) (705,987)
Class III (33,392,236) (57,973,177)
Class IV (3,405,965) (9,597,437)
-------------------- ---------------------
Total distributions from net realized gains (37,132,759) (68,276,601)
-------------------- ---------------------
Net share transactions: (Note 4)
Class II (4,041,161) 2,707,570
Class III (320,211,006) (257,158,300)
Class IV (118,822,712) (310,969,560)
-------------------- ---------------------
Decrease in net assets from net fund share transactions (443,074,879) (565,420,290)
-------------------- ---------------------
Total decrease in net assets (363,685,323) (470,976,492)
NET ASSETS:
Beginning of period 2,112,985,090 2,583,961,582
-------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $33,443,505 and
$1,142,971, respectively) $ 1,749,299,767 $ 2,112,985,090
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 ------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997*
---------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.85 $ 20.33 $ 23.16 $ 24.36 $ 24.60
---------- -------- -------- -------- ---------
Income (loss) from investment operations:
Net investment income 0.33(c) 0.41(c) 0.39(c) 0.52(c) 0.14
Net realized and unrealized gain (loss) 0.84 1.33 (0.46) 1.94 0.96
---------- -------- -------- -------- ---------
Total from investment operations 1.17 1.74 (0.07) 2.46 1.10
---------- -------- -------- -------- ---------
Less distributions to shareholders:
From net investment income - (0.56) (0.24) (0.74) (0.27)
In excess of net investment income - - (0.24) - -
From net realized gains (0.41) (0.66) (2.28) (2.92) (1.07)
---------- -------- -------- -------- ---------
Total distributions (0.41) (1.22) (2.76) (3.66) (1.34)
---------- -------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 21.61 $ 20.85 $ 20.33 $ 23.16 $ 24.36
========== ======== ======== ======== =========
TOTAL RETURN (a) 5.53%*** 8.09% (0.76%) 11.60% 4.51%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 17,807 $ 21,162 $ 18,295 $ 12,500 $ 25,302
Net expenses to average
daily net assets 0.76%** 0.76% 0.76% 0.76% 0.80%**(b)
Net investment income to average
daily net assets 2.98%** 1.84% 1.71% 2.14% 0.98%**
Portfolio turnover rate 11% 53% 60% 68% 97%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02 $ 0.06 $ 0.07 $ 0.05
</TABLE>
* Period from September 26, 1996 (commencement of operations) to
February 28, 1997.
** Annualized
*** Not 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.
See accompanying notes to the financial statements. 21
<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, 2000 ---------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.91 $ 20.38 $ 23.20 $ 24.37 $ 24.62 $ 22.32
--------- --------- ---------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.34(c) 0.47(c) 0.42(c) 0.54(c) 0.59 0.36
Net realized and unrealized gain (loss) 0.84 1.28 (0.47) 1.96 1.02 3.09
--------- --------- --------- --------- --------- --------
Total from investment operations 1.18 1.75 (0.05) 2.50 1.61 3.45
--------- --------- --------- --------- --------- --------
Less distributions to shareholders:
From net investment income - (0.56) (0.25) (0.75) (0.33) (0.39)
In excess of net investment income - - (0.24) - - -
From net realized gains (0.41) (0.66) (2.28) (2.92) (1.53) (0.76)
--------- --------- --------- --------- --------- --------
Total distributions (0.41) (1.22) (2.77) (3.67) (1.86) (1.15)
--------- --------- --------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 21.68 $ 20.91 $ 20.38 $ 23.20 $ 24.37 $ 24.62
--------- --------- --------- --------- -------- ---------
--------- --------- --------- --------- -------- ---------
TOTAL RETURN (a) 5.56%** 8.20% (0.68%) 11.71% 6.72% 15.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,546,312 $1,799,929 $1,998,447 $3,046,510 $4,232,937 $4,538,036
Net expenses to average
daily net assets 0.69%* 0.69% 0.69% 0.69% 0.71%(b) 0.71%(b)
Net investment income to average
daily net assets 3.12%* 2.09% 1.84% 2.19% 2.34% 1.93%
Portfolio turnover rate 11% 53% 60% 68% 97% 14%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02 $ 0.06 $ 0.07 $ 0.06 $ 0.03
</TABLE>
* Annualized
** Not 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.
22 See accompanying notes to the financial statements.
<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 YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 --------------------------------
(UNAUDITED) 2000 1999 1998*
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.90 $ 20.37 $ 23.19 $ 20.61
---------------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 0.36(b) 0.55(b) 0.42(b) 0.02(b)
Net realized and unrealized gain (loss) 0.82 1.21 (0.46) 2.56
---------------- ------- ------- -------
Total from investment operations 1.19 1.76 (0.04) 2.58
---------------- ------- ------- -------
Less distributions to shareholders:
From net investment income - (0.57) (0.25) -
In excess of net investment income - - (0.25) -
From net realized gains (0.41) (0.66) (2.28) -
---------------- ------- ------- -------
Total distributions (0.41) (1.23) (2.78) -
---------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 21.68 $ 20.90 $ 20.37 $ 23.19
---------------- ------- ------- -------
---------------- ------- ------- -------
TOTAL RETURN (a) 5.61%*** 8.18% (0.60%) 12.52%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 185,180 $291,894 $567,219 $682,952
Net expenses to average
daily net assets 0.63%** 0.63% 0.63% 0.63%**
Net investment income to average
daily net assets 3.32%** 2.47% 1.85% 0.68%**
Portfolio turnover rate 11% 53% 60% 68%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02 $ 0.06 $ 0.01
</TABLE>
* Period from January 9, 1998 (commencement of operations) to
February 28, 1998.
** Annualized
*** Not 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.
See accompanying notes to the financial statements. 23
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in equity securities of
non-U.S. issuers. The Fund's benchmark is the MSCI EAFE Index.
The Fund offers three classes of shares: Class II, Class III and Class IV.
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
described in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current 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
24
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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.
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, 2000.
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 future, security or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security or currency 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, 2000 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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against
25
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
the proceeds on the transaction to determine the realized gain or loss. The
risk associated with purchasing put and call options is limited to the
premium 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, 2000.
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, both based on notional amounts. 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. Total return swaps are marked to market daily based upon
quotations from market makers and the change in value, 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, 2000, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in
26
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
the collateral should the borrower of the securities fail financially. The
Fund receives compensation for lending its securities. At August 31, 2000,
the Fund loaned securities having a market value of $62,043,459
collateralized by cash in the amount of $65,556,316 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
U.S. federal income tax purposes. Therefore, no provision for U. S. 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. For the six months ended August 31,
2000, the Fund did not incur any capital gains or repatriation taxes.
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. Distributions to shareholders
are recorded by the Fund on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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, net
of applicable withholding taxes, 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.
27
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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.
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. For the six months ended August 31,
2000, the fund received $302,329 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 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 .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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $13,248. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
28
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000,
aggregated $219,396,441 and $687,822,689, respectively. At August 31, 2000,
the cost for Federal income tax purposes and gross unrealized appreciation
and depreciation in the value of investments held were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$1,924,515,327 $164,587,176 $255,996,306 $91,409,130
</TABLE>
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------ ----------------------
<S> <C> <C> <C> <C>
Class II: Shares Amount Shares Amount
-------- ------------ ------- ------------
Shares sold - $ - 363,778 $ 8,290,170
Shares issued to
shareholders in
reinvestment of
distributions 12,230 272,844 54,505 1,232,211
Shares
repurchased (203,316) (4,314,005) (303,144) (6,814,811)
-------- ----------- ------- -----------
Net increase
(decrease) (191,086) $ (4,041,161) 115,139 $ 2,707,570
======== =========== ======= ===========
</TABLE>
29
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
SHARE TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------------ -----------------------------
Class III: Shares Amount Shares Amount
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 3,695,894 $ 80,922,596 10,362,129 $ 236,178,961
Shares issued to
shareholders in
reinvestment of
distributions 1,492,057 33,392,236 4,170,163 94,366,903
Shares
repurchased (19,960,403) (434,525,838) (26,508,769) (587,704,164)
----------- ------------- ----------- ------------
Net decrease (14,772,452) $ (320,211,006) (11,976,477) $(257,158,300)
=========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------------ -----------------------------
Class IV: Shares Amount Shares Amount
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold - $ - 5,114,795 $ 114,594,859
Shares issued to
shareholders in
reinvestment of
distributions 152,185 3,405,965 750,125 16,972,648
Shares
repurchased (5,579,107) (122,228,677) (19,746,552) (442,537,067)
----------- ------------- ----------- ------------
Net decrease (5,426,922) $ (118,822,712) (13,881,632) $(310,969,560)
=========== ============= =========== ============
</TABLE>
30
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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
10/13/00 AUD 39,403,405 $ 22,773,645 $ (603,171)
10/13/00 CAD 102,236,007 69,397,659 (991,351)
09/08/00 CHF 144,970,482 83,218,495 (4,847,658)
03/23/01 CHF 58,280,800 34,011,664 (447,660)
09/08/00 DKK 145,011,864 17,293,198 (1,414,149)
03/23/01 DKK 82,396,136 9,881,077 (83,190)
09/08/00 EUR 580,489,679 516,168,935 (34,235,559)
03/23/01 EUR 234,726,079 210,618,928 (1,583,586)
09/08/00 GBP 176,983,589 257,517,822 (11,549,945)
03/23/01 GBP 48,488,216 70,746,650 (613,727)
10/13/00 HKD 319,370,000 40,962,902 (37,098)
10/13/00 JPY 11,391,279,440 107,526,644 (2,276,188)
09/08/00 NOK 923,705,232 101,789,786 (3,556,113)
03/23/01 NOK 105,333,745 11,574,720 (39,999)
10/13/00 NZD 48,531,486 20,780,778 (3,512,994)
09/08/00 SEK 1,027,236,712 108,882,039 (5,515,502)
03/23/01 SEK 327,924,081 35,223,579 (37,075)
10/13/00 SGD 11,932,900 6,961,613 (38,387)
-------------
$ (71,383,352)
=============
Sales
10/13/00 AUD 60,926,854 $ 35,213,366 $ 1,688,438
10/13/00 CAD 26,257,312 17,823,427 16,573
09/08/00 CHF 144,970,482 83,218,495 3,209,728
03/23/01 CHF 16,351,362 9,542,371 60,337
09/08/00 DKK 145,011,864 17,293,198 292,879
09/08/00 EUR 580,489,679 516,168,935 16,103,203
03/23/01 EUR 31,133,309 27,935,815 348,797
09/08/00 GBP 176,983,589 257,517,822 11,325,759
03/23/01 GBP 41,180,266 60,083,998 1,046,602
10/13/00 HKD 962,714,502 123,479,288 221,987
10/13/00 JPY 23,792,647,573 224,587,901 6,450,822
31
<PAGE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS - CONTINUED
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
----------------- ----------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Sales - continued
09/08/00 NOK 923,705,232 $ 101,789,786 $ 5,762,184
03/23/01 NOK 383,838,987 42,178,589 443,362
10/13/00 NZD 9,714,669 4,159,740 340,260
09/08/00 SEK 1,027,236,712 108,882,039 5,122,280
03/23/01 SEK 310,509,758 33,353,040 320,278
10/13/00 SGD 14,695,680 8,573,409 26,591
------------
$ 52,780,080
============
</TABLE>
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 Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------ ------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Buys
38 ALL ORDS September 2000 $ 1,807,560 $ (17,944)
357 DAX September 2000 57,606,446 270,880
21 HANG SENG September 2000 2,310,207 (3,446)
9 MIB 30 September 2000 1,919,588 (19,219)
49 TOPIX September 2000 6,929,107 (272,021)
---------------
$ (41,750)
===============
Sales
15 CAC 40 September 2000 $ 884,560 $ (28,006)
228 FTSE 100 September 2000 22,186,004 (1,105,162)
114 IBEX 35 September 2000 11,031,627 351,478
---------------
$ (781,690)
===============
</TABLE>
At August 31, 2000, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
32
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 93.5%
AUSTRIA - 5.0%
747 Allgemeine Baugesellschaft AG 57,181
48,709 Austrian Airlines 565,127
2,500 Bau Holdings AG 76,681
53,856 Boehler Uddeholm (Bearer) 1,719,395
8,918 Brau Union AG 387,706
28,390 BWT AG 954,077
40,968 Flughafen Wien AG 1,406,277
22,463 Mayr-Melnhof Karton AG (Bearer) 1,018,507
4,987 Oesterreichische Brau Beteiligungs AG 221,685
32,043 RHI AG 680,859
13,727 VA Technologie AG (Bearer) 667,924
8,694 Voest-Alpine Stahl AG 229,950
226 Wiener Allianz Versicherungs AG 23,086
10,093 Wolford AG 244,519
-----------------
8,252,974
-----------------
BELGIUM - 0.6%
4,750 Colruyt SA * 186,445
5,600 Delhaize-Le Lion 313,159
300 D'ieteren NV 73,373
475 Dolmen Computer Applications * 8,108
5,400 GIB Holdings Ltd 217,095
2,850 Tessenderlo Chemie 104,620
3,700 Union Miniere NPV 131,053
-----------------
1,033,853
-----------------
CANADA - 0.1%
17,360 Cott Corp * 86,526
58,000 Echo Bay Mines Ltd * 46,804
8,414 TVX Gold Inc * 17,117
-----------------
150,447
-----------------
DENMARK - 0.0%
800 Hafnia Holdings (Registered) Class A (c) (d) * 1
-----------------
FINLAND - 1.8%
8,700 Amer Group Class A 198,396
14,200 Asko Oyj * 250,218
14,000 Finnair Class A 53,521
4,900 Finnilines * 91,483
See accompanying notes to the financial statements. 1
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINLAND - CONTINUED
4,700 Huhtamaki Oyj Class I * 136,847
6,600 Instrumentarium Oyj 158,135
11,000 Kemira Oyj 58,580
8,500 Kesko Oyj 77,836
1,560 Kone Oyj 101,522
2,400 Metra AB Class A 43,528
12,400 Metra AB Class B 231,509
19,600 Metso Oyj 236,985
1,800 Orion-Yhtyma Oyj Class A * 33,606
6,200 Orion-Yhtyma Oyj Class B * 115,754
15,100 Outokumpu Class A 150,356
16,400 Oyj Hartwall Abp 291,608
4,500 Pohjola Group Insurance Class B 170,231
97,400 Raisio Group Plc Class V 157,600
20,099 Rautaruukki Oyj 82,197
600 Sampo Insurance Co Ltd Class A 24,404
49,600 Sponda Oyj * 183,443
2,000 Stockmann AB Class A 30,228
747 Stockmann AB Class B 9,962
-----------------
2,887,949
-----------------
FRANCE - 8.5%
11,510 Alstom * 258,382
5,720 Atos SA * 584,817
7,620 BIC SA 359,390
8,820 Club Mediterranee SA 1,151,905
13,893 Compagnie Generale d'Industrie et de Participations 659,574
3,280 Compagnie Parisienne de Reescompte * 127,579
2,132 Dexia Strip * 95
4,400 Eridania Beghin-Say SA 391,182
4,770 Essilor International 1,323,120
4,387 Gaz et Eaux 286,279
730 Groupe Andre 85,474
2,530 Hermes International 346,617
4,330 Imetal 500,446
3,770 Legrand SA 827,874
11,190 Moulinex * 44,868
9,660 Pechiney SA Class A 442,293
21,505 Pernod Ricard 1,129,934
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE - CONTINUED
12,880 SCOR SA 567,968
2,210 Seb SA 123,193
3,550 Simco Union Habit (Registered) 241,286
838 Societe Eurafrance 432,114
10,810 Sodexho Alliance 1,695,315
5,140 Technip SA 667,636
24,200 Thomson CSF 1,002,599
1,749 Unibail (Bearer) 265,896
46,270 Usinor Sacilor 495,693
-----------------
14,011,529
-----------------
GERMANY - 9.4%
23,780 Adidas Salomon AG 1,279,067
93,000 AGIV AG 917,766
14,640 Altana AG 1,394,631
750 AMB Aachener & Muenchener Beteiligungs AG 60,678
1,310 Ava Allgemeine Handelsgesellschaft der Verbraucher AG 559,151
7,750 Axa Colonia Konzern AG 720,708
290 Axel Springer Verlag AG 281,029
30,370 Bankgesellschaft Berlin AG 434,707
24,150 Bayerische Hypotheken und Wechsel-Bank AG 536,764
32,470 Berliner Kraft & Licht AG Class A 355,070
6,350 Bilfinger & Berger 79,037
26,810 Buderus AG 436,188
46,180 Continental AG 839,602
11,670 DBV-Winterthur Holding 413,971
12,890 Douglas Holdings AG 418,285
12,240 FAG Kugelfischer 81,071
19,460 Gehe AG 716,258
3,700 Hannover Rueckversicherungs 299,376
6,695 Heidelberg Port-Zement 369,036
9,580 Hochtief AG 232,091
18,130 Holzmann (Philipp) * 350,093
7,700 IKB Deutsche Industriebank AG * 115,008
16,170 IWKA AG 196,950
17,300 Karstadt Quelle AG 529,860
16,100 Kloeckner-Werke AG 302,019
3,800 Linde AG 160,474
32,050 MAN AG 897,563
See accompanying notes to the financial statements. 3
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - CONTINUED
54,690 Metallgesellschaft 656,885
3,500 Puma AG Rudolf Dassler Sport 43,875
20,020 Schmalbach-Lubeca AG 128,329
6,320 Schwarz Pharma AG 151,820
7,120 SGL Carbon AG * 493,743
47,336 SKW Trostberg 297,534
18,720 Suedzucker AG 201,380
7,910 Takkt AG 66,808
7,720 Vereins Und Westbank 209,336
9,590 Wella AG 289,884
-----------------
15,516,047
-----------------
HONG KONG - 5.3%
151,000 Asia Satellite Telecom 442,392
328,000 Chinese Estates Holdings Ltd * 50,466
66,000 Cross Harbour Tunnel Co Ltd 29,618
170,000 Dah Sing Financial Services 793,405
4,152,000 Denway Investment Ltd * 681,415
555,000 Elec & Eltek International Holdings Ltd 76,853
872,000 Giordano International Ltd 489,146
234,000 Goldlion Holdings Ltd 15,001
92,000 Great Eagle Holdings Ltd 152,168
3,892,000 Guangdong Investment Ltd * 533,950
312,000 Guoco Group 800,072
281,000 Hang Lung Development Co Ltd 261,209
1,745 Henderson Cyber * 233
349,000 Henderson Investment Ltd 230,450
411,200 HKR International Ltd 218,799
85,500 Hong Kong Aircraft Engineering Co Ltd 154,023
147,000 Hong Kong & Shanghai Hotels 91,412
292,000 Hopewell Holdings Ltd 136,653
442,000 Hysan Development Co Ltd 614,889
14,800 Kowloon Motor Bus Holdings Ltd 34,726
298,000 Kumagai Gumi Ltd * 61,134
3,378,000 Lippo China Resources Ltd * 108,279
98,000 Mandarin Oriental ADR 60,760
551,000 New World Infrastructure * 625,229
6,284,000 Pearl Oriental Cyberforce Ltd * 129,720
500 Realty Development Corp ClassA * 144
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - CONTINUED
728,000 Shun Tak Holdings Ltd 112,943
1,662,000 Sino Land 889,676
900,000 South China Morning Post Ltd 675,061
3,146,000 Top Glory International Holdings * 242,022
101 Tsim Sha Tsui Properties Ltd 66
37,000 Yue Yuen Industrial Holdings 85,629
-----------------
8,797,543
-----------------
ITALY - 0.4%
102,000 Fornara SPA (d) * -
213,400 Grassetto SPA (d) * 1,897
3,500 Recordati Industria Chimica e Farmaceutica SPA 56,632
51,140 Recordati Industria Chimica e Farmaceutica SPA (Savings Shares) 435,564
69,713 Reno de Medici SPA 146,269
-----------------
640,362
-----------------
JAPAN - 22.6%
89,000 Amada Co Ltd 763,644
23,000 Amano Corp 238,325
10,000 Anritsu Corp 247,562
20,800 Aoyama Trading 276,189
8,000 Asatsu-DK Inc 299,325
14,000 Bandai Co 459,490
46,000 Canon Sales Co Inc 782,914
34,000 Casio Computer Co Ltd * 395,987
2,000 Chudenko Corp 24,269
26,100 Chuo Mitsui Trust & Banking Co Ltd * 100,347
205,000 Citizen Watch Co 2,237,622
202,000 Cosmo Oil Co Ltd 407,258
43,000 Daicel Chemical Industries Ltd 121,371
90,000 Daido Steel Co Ltd 237,153
133,000 Daiei Inc * 381,639
34,000 Dainippon Pharmaceutical Co Ltd 446,362
22,000 Daio Paper Corp 221,981
46,900 Daito Trust Construction Co Ltd 787,237
139,000 Denki Kagaku Kogyo 560,484
3,000 Denny's Japan Co Ltd 59,359
43,000 Ezaki Glico Co Ltd 258,065
23,000 Fujitec Co 211,365
61,000 Fukuyama Transporting Co Ltd 341,495
See accompanying notes to the financial statements. 5
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
32,962 General Sekiyu (KK) 161,966
44,000 Hankyu Department Stores Inc 231,058
8,000 Hanwa Co Ltd * 7,877
165,000 Haseko Corp * 57,249
37,000 Hitachi Maxell Ltd 950,675
114,000 Hitachi Metals Ltd 822,074
27,000 Hokuetsu Paper Mills 221,033
17,000 House Foods Corp 234,340
25,000 Hyogo Bank Ltd (c) (d) * 2
66,000 INAX Corp 357,108
19,000 Itoham Foods Inc 74,831
28,000 Izumiya Co Ltd 223,443
22,000 Japan Airport Terminal Co Ltd 179,482
64,000 Japan Steel Works Ltd * 71,418
99,000 Japan Synthetic Rubber Co Ltd 639,638
46,000 JGC Corp 219,993
25,000 Kamigumi Co Ltd 118,389
34,000 Kandenko Co 181,414
11,000 Katokichi Co Ltd 273,350
155,000 Keihin Electric Express Railway Co Ltd 581,395
194,000 Keio Teito Electric Railway Co Ltd 773,162
23,000 Kikkoman Corp 169,524
15,000 Kissei Pharmaceutical Co Ltd 295,386
5,000 Kokuyo Co Ltd 86,318
22,000 Komori Corp 303,057
25,000 Konica Corp 199,269
48,000 Koyo Seiko Co Ltd 368,192
207,000 Kureha Chemical Industry Co Ltd 578,451
10,000 Kyowa Exeo Corp 112,528
6,000 Kyudenko Corp 24,081
77,000 Lion Corp 282,324
55,000 Maeda Corp 209,912
35,000 Maeda Road Construction 161,806
51,000 Makino Milling Machine Co Ltd 432,811
45,000 Makita Corp 362,903
93,000 Meiji Seika Kaisha Ltd 533,721
152,000 Mitsubishi Gas Chemical Co Inc 463,241
77,000 Mitsui OSK Lines Ltd 156,686
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
42,000 Mitsukoshi Ltd * 144,542
5,000 Mitsumi Electric Co Ltd * 188,016
27,000 Mori Seiki Co Ltd 359,527
12,000 Nagase & Co 65,266
36,000 Nagoya Railroad Co Ltd 103,301
34,000 Nankai Electric Railway Co Ltd 135,503
102,000 New Japan Securities Co Ltd 374,944
23,000 Nichicon Corp 644,880
33,000 Nippon Hodo Co 145,752
50,000 Nippon Meat Packers Inc 636,722
900 Nippon Oil Co Ltd 5,114
23,000 Nippon Paint Co 72,468
22,000 Nippon Shokubai Corp 111,197
68,000 Nippon Suisan Kaisha Ltd 120,518
38,000 Nissan Fire & Marine Insurance Co Ltd 130,064
38,000 Nisshin Oil Mills Ltd 120,086
259,000 Nisshin Steel Co Ltd 230,730
41,000 Nisshinbo Industries Inc 190,698
55,000 Nitto Boseki Co Ltd 70,143
35,000 Okamoto Industries Inc 89,272
255,600 Onoda Cement Co Ltd 412,258
51,000 Onward Kashiyama Co Ltd 500,722
27,000 Orient Corp * 109,884
2,000 Oyo Corp 25,881
26,000 Q.P. Corp 219,430
273,000 Renown Inc * 276,482
5,000 Rinnai Corp 102,447
45,000 Royal Co Ltd 428,310
5,000 Ryosan Co 107,839
20,000 Sanden Corp 121,905
69,000 Sankyo Aluminum Industry Co Ltd * 56,939
27,000 Santen Pharmaceutical 607,652
145,000 Sanyo Securities Co Ltd (d) * 1,360
47,000 Seino Transportation Co Ltd 249,897
6,000 Shimachu Co 98,800
325,000 Showa Denko * 457,146
124,000 Showa Shell Sekiyu 611,628
61,000 Stanley Electric Co Ltd 737,903
See accompanying notes to the financial statements. 7
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
58,000 Sumitomo Bakelite Co Ltd 766,879
27,895 Takara Standard Co 104,632
65,000 Tanabe Seiyaku Co Ltd 460,193
69,000 Teikoku Oil Co Ltd 245,227
95,000 Toda Corp 400,881
52,000 Tokai Carbon Co Ltd 136,047
42,000 Tokuyama Corp 250,094
76,000 Tokyo Electric Co Ltd 356,339
88,000 Tokyo Ink Manufacturing Co Ltd 174,119
30,000 Tokyo Style Co Ltd 267,536
10,000 Toyo Suisan Kaisha 94,524
36,000 Tsubakimoto Chain 145,161
162,000 Victor Co of Japan Ltd * 1,367,217
49,000 Wacoal Corp 414,000
93,000 Yakult Honsha Co Ltd 941,860
19,000 Yamaha Corp 166,945
10,000 Yamatake Honeywell 123,500
62,000 Yodogawa Steel Works 168,023
34,000 Yokogawa Electric Corp 351,032
89,000 Yokohama Rubber Co 211,150
-----------------
37,190,135
-----------------
MALAYSIA - 0.0%
357,000 Promet Berhad (d) * 939
312,000 Rekapacific Berhad (d) * 821
-----------------
1,760
-----------------
NORWAY - 0.0%
1 SAS Norge ASA Class B 9
-----------------
538,000 Asia Food & Properties Ltd * 103,143
152,000 Aztech Systems Ltd 29,141
26,000 Cerebos Pacific Ltd 51,357
238,000 Comfort Group 126,515
117,000 Cycle & Carriage Ltd 258,293
192,600 Dairy Farm International Holdings Ltd 88,596
38,000 Elec & Eltek International Co Ltd 101,080
82,000 First Capital Corp Ltd 79,556
172,000 Fraser & Neave 639,517
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE - CONTINUED
385,000 Goldtron * 41,379
23,000 Haw Par Brothers International Ltd 41,155
566,000 Hotel Properties Ltd 489,944
106,500 Keppel FELS Energy & Infrastructure 63,728
658,000 Keppel Land Ltd 1,020,659
85,000 Marco Polo Developments Ltd 90,368
177,000 Neptune Orient Lines Ltd * 193,319
203,000 Parkway Holdings Ltd 516,551
270,000 Sembcorp Marine Ltd 105,879
66,000 Singapore Land Ltd 151,839
31,200 Straits Trading Co Ltd 26,645
456,000 United Industrial Corp Ltd 217,231
64,000 United Overseas Land 60,234
251,000 Van Der Horst Ltd (d) * 6,489
320,000 Want Want Holdings 313,600
608,200 Wing Tai Holdings 537,073
-----------------
5,353,291
-----------------
SWEDEN - 4.3%
9,932 Assi Doman 149,983
41,657 Gambro AB Class A 344,327
51,050 Gambro AB Class B 427,378
39,034 Industrivarden AB Class A 1,046,532
28,310 Kinnevik Investment Class B 735,013
630 Metro International SA Class A ADR * 5,942
1,470 Metro International SA Class B * 15,734
33,670 Mo Och Domsjo AB Class B 776,053
2,100 Modern Times Group AB * 59,752
7,200 OM Gruppen AB * 360,897
12,400 Perstorp AB Class B 151,772
10,200 SAAB AB Class B * 82,149
13,300 Skanska AB Class B 455,243
22,800 SKF AB Class B 331,013
6,570 SSAB Swedish Steel Class A 56,395
233,084 Stena Line AB Class B * 172,902
16,219 Svedala Industries 297,344
13,535 Svenska Kullagerfabriken AB 183,593
57,000 Swedish Match AB 184,231
See accompanying notes to the financial statements. 9
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN - CONTINUED
40,488 Sydkraft AB Class C 652,167
26,000 Trelleborg AB Class B 177,714
71,000 WM-Data AB Class B * 398,771
-----------------
7,064,905
-----------------
SWITZERLAND - 7.0%
90 Ascom Holding AG (Bearer) 335,715
60 Baloise Holdings 60,876
610 Banque Cantonale Vaudoise (Bearer) 210,037
3,190 BK Vision AG (Bearer) * 807,317
40 Bobst AG (Bearer) 65,077
60 Bobst AG (Registered) 48,377
8,430 CIBA Specialty Chemicals Holdings (Registered) 494,659
50 Ems-Chemie Holding AG (Bearer) * 215,202
190 Forbo Holdings AG (Registered) 83,085
240 Helvetia Patria Holding 208,797
280 Hilti AG (Participating Certificate) 246,971
180 Intershop Holdings AG (Bearer) 97,099
120 Jelmoli (Bearer) 151,364
190 Jelmoli (Registered) 47,321
610 Julius Baer Holdings (Bearer) 3,010,531
495 Kuoni Reisen Holdings AG (Registered) 222,424
50 Motor-Columbus (Bearer) 78,907
140 Movenpick Holdings (Bearer) 57,846
3,340 Oerlikon-Buhrle (Registered) * 822,278
120 Pargesa Holdings SA (Bearer) 287,854
900 Pharma Vision * 592,408
660 Rieter Holding AG (Registered) * 221,572
5,340 SAir Group (Registered) 825,876
100 Saurer Group Holdings (Registered) * 61,060
70 Schindler-Holding AG (Participating Certificates) 114,688
100 Schindler-Holding AG (Registered) 171,473
170 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 114,046
380 Sika Finanz AG (Bearer) 112,525
80 Societe Generale de Surveillance Holding SA (Bearer) 143,697
150 Societe Generale de Surveillance Holding SA (Registered) 60,257
1,000 Sulzer Gebrueder AG (Registered) 725,948
1,550 Verwalt & Privat-Bank AG * 311,325
150 Vontobel Holding AG Class B 400,275
60 Zellweger Luwa AG (Bearer) 36,498
-----------------
11,443,385
-----------------
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, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - 25.2%
61,100 Airtours Plc 245,357
140,600 AMEC 575,853
41,200 Anglian Water Plc * 335,087
163,660 Associated British Ports 783,405
111,540 Barratt Development 361,896
124,200 Beazer Holmes Plc 218,653
87,052 Berisford International 271,678
217,900 BICC Group 337,641
69,390 Blue Circle Industries 398,788
131,240 BPB Industries Plc 595,757
14,000 Britannic Plc 234,960
244,100 British Energy Plc 823,956
129,790 British Land Co 806,338
184,825 Bunzl Co 1,042,031
204,000 Caradon Plc 532,774
140,660 Carillion Plc 215,909
25,900 Cattle's Plc 97,034
23,870 Charter Plc (Registered) 140,655
43,710 Christian Salvesen Plc 103,025
47,908 Cobham Group Plc 754,543
41,621 De Vere Group Plc 184,092
132,331 Debenhams Plc 389,883
65,330 Delta Plc 128,320
180,450 Electrocomponents Plc 2,126,620
213,574 Elementis Plc 240,823
44,900 Enterprise Oil 358,320
51,962 Express Dairies Plc 54,056
109,600 Gallaher Group Plc 604,363
46,170 Glynwed International 134,350
79,810 Great Portland Estates Plc 260,688
127,896 Hammerson Plc 809,458
102,310 Hazlewood Foods 133,226
91,670 Hepworth Plc 278,087
66,100 Imperial Tobacco Group Plc 603,000
29,069 Inchcape Plc 124,767
109,820 Johnson Matthey 1,645,761
98,387 Ladbroke Group 312,063
46,130 Laird Group 171,148
See accompanying notes to the financial statements. 11
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
SHARES DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - CONTINUED
627,117 Lasmo Plc 1,386,884
73,980 Lex Service 437,545
176,000 Lonrho Africa Plc * 58,896
150,146 Lonrho Plc 1,909,296
260,260 MFI Furniture Group 223,413
120,430 Morgan Crucible 420,527
34,457 Mothercare Plc * 70,437
259,097 New Securicor Plc 533,417
68,400 Next Plc 619,006
156,725 Northern Foods Plc 242,849
63,500 Northern Rock Plc 362,166
125,600 Nycomed Amersham Plc 1,126,603
56,262 Ocean Group Plc 961,836
164,220 Pilkington 218,623
112,130 Premier Farnell Plc 876,896
123,055 Provident Financial Plc 1,484,232
94,900 Rank Group Plc 231,966
148,911 Rexam Plc 606,643
121,400 Safeway Plc 466,306
157,000 Scottish & Newcastle Plc 1,053,049
88,100 Severn Trent Plc 865,222
58,960 Slough Estates 335,415
113,890 Smith & Nephew Plc * 468,115
131,810 Smith (WH) Group Plc 692,315
80,800 Somerfield Plc 91,109
69,436 Southwest Water 628,381
206,130 Spirent Plc * 1,616,509
74,917 St James's Place Capital 337,901
93,070 Tate & Lyle 345,301
622,980 Taylor Woodrow Plc 1,477,440
129,016 Thames Water Plc 1,567,394
56,199 Transport Development Group Plc 181,522
78,790 Unigate Plc (New Shares) * 280,857
96,926 Viglen Technology Plc (Entitlement Letters) * -
110,760 Wilson (Connolly) Holdings 248,977
402,435 Wimpey (George) 693,844
166,480 Yorkshire Water 815,676
-----------------
41,370,933
-----------------
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, 2000 (UNAUDITED)
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES - 0.0%
2,125 Ultramar Diamond Shamrock Corp 49,805
-----------------
TOTAL COMMON STOCKS (Cost $173,614,837) 153,764,928
-----------------
PREFERRED STOCKS - 2.6%
GERMANY - 2.6%
6,890 Fresenius Medical Care AG (Non Voting) 0.72% 1,623,272
300 Hugo Boss AG 2.08% 63,745
9,750 MAN AG 0.00% 195,902
220 Porsche AG (Non Voting) 0.46% 758,893
9,300 Prosieben Media AG 1.32% 1,380,784
8,700 Wella AG 1.08% 300,108
-----------------
4,322,704
-----------------
TOTAL PREFERRED STOCKS (Cost $3,372,578) 4,322,704
-----------------
RIGHTS & WARRANTS - 0.0%
GERMANY - 0.0%
18,720 Suedzucker AG Rights, Expires 9/13/00 * 832
-----------------
SINGAPORE - 0.0%
1,650 Haw Par Brothers International Ltd Warrants, Expires 7/18/01 * 1,189
-----------------
TOTAL RIGHTS & WARRANTS (Cost $6,047) 2,021
-----------------
SHORT-TERM INVESTMENTS - 5.1%
CASH EQUIVALENTS - 3.3%
$ 3,900,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 3,900,000
1,578,957 The Boston Global Investment Trust (a) 1,578,957
-----------------
5,478,957
-----------------
U.S. GOVERNMENT - 1.8%
$ 3,000,000 U.S. Treasury Bill, 4.91%, due 1/04/01 (b) 2,936,771
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $8,419,794) 8,415,728
-----------------
See accompanying notes to the financial statements. 13
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<CAPTION>
VALUE ($)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS - 101.2%
(Cost $185,413,256) 166,505,381
Other Assets and Liabilities (net) - (1.2%) (1,909,679)
-----------------
TOTAL NET ASSETS - 100.0% $ 164,595,702
=================
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) Represents investment of security lending collateral (Note 1).
(b) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
(c) Bankrupt issuer.
(d) Valued by management (Note 1).
* 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
INDUSTRY SECTOR
<S> <C> <C>
Services 9.6 %
Consumer Goods 9.5
Machinery 7.7
Conglomerates 7.5
Construction 7.3
Health Care 6.2
Electronic Equipment 6.0
Financial Services 5.7
Retail Trade 4.4
Real Estate 4.1
Chemicals 3.6
Metals and Mining 3.5
Transportation 2.9
Food and Beverage 2.5
Banking 2.4
Energy Services 2.0
Insurance 1.9
Aerospace 1.8
Paper and Allied Products 1.6
Communications 1.5
Textiles 1.3
Automotive 1.2
Utilities 1.2
Computers 0.8
Telecommunications 0.3
Miscellaneous 3.5
-------------
100.0 %
=============
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $185,413,256) (Note 1) $ 166,505,381
Foreign currency, at value (cost $526,260) (Note 1) 520,329
Cash 34,417
Dividends and interest receivable 276,288
Foreign withholding taxes receivable 154,553
Receivable for expenses waived or borne by Manager (Note 2) 22,715
-------------------
Total assets 167,513,683
-------------------
LIABILITIES:
Net payable for open forward foreign currency contracts (Notes 1 and 6) 627,393
Payable upon return of securities loaned (Note 1) 1,578,957
Payable for Fund shares repurchased 345,021
Payable for variation margin on open futures contracts (Notes 1 and 6) 189,307
Payable to affiliate for (Note 2):
Management fee 85,283
Shareholder service fee 21,322
Accrued expenses and other liabilities 70,698
-------------------
Total liabilities 2,917,981
-------------------
NET ASSETS $ 164,595,702
===================
NET ASSETS CONSIST OF:
Paid-in capital $ 182,567,179
Accumulated undistributed net investment income 2,541,713
Accumulated net realized loss (1,310,995)
Net unrealized depreciation (19,202,195)
-------------------
$ 164,595,702
===================
NET ASSETS ATTRIBUTABLE TO CLASS III SHARES $ 164,595,702
===================
SHARES OUTSTANDING - CLASS III 14,397,285
===================
NET ASSET VALUE PER SHARE - CLASS III $ 11.43
===================
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $373,179) $ 3,189,928
Interest (including securities lending income of $16,294) 325,390
-------------------
Total income 3,515,318
-------------------
EXPENSES:
Management fee (Note 2) 521,095
Custodian fees 103,684
Audit fees 26,956
Transfer agent fees 14,076
Legal fees 4,324
Trustees fees (Note 2) 1,104
Registration fees 92
Miscellaneous 1,840
Fees waived or borne by Manager (Note 2) (152,076)
-------------------
521,095
Shareholder service fee - Class III (Note 2) 130,274
-------------------
Net expenses 651,369
-------------------
Net investment income 2,863,949
-------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 1,265,067
Closed futures contracts (207,201)
Foreign currency, forward contracts and foreign
currency related transactions (2,410,420)
-------------------
Net realized loss (1,352,554)
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments 9,443,217
Open futures contracts (694,976)
Foreign currency, forward contracts and foreign
currency related transactions 984,782
-------------------
Net unrealized gain 9,733,023
-------------------
Net realized and unrealized gain 8,380,469
-------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 11,244,418
===================
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 2000 Year Ended
(Unaudited) February 29, 2000
---------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,863,949 $ 3,650,079
Net realized gain (loss) (1,352,554) 15,652,117
Change in net unrealized appreciation,(depreciation)mmencement 9,733,023 (6,737,020)
---------------------- ---------------------
Net increase in net assets resulting from operations 11,244,418 12,565,176
---------------------- ---------------------
Distributions to shareholders from:
Net investment income - Class III (3,536,779) (1,936,570)
Net realized gains - Class III (9,668,164) (5,554,088)
---------------------- ---------------------
(13,204,943) (7,490,658)
---------------------- ---------------------
Net share transactions - Class III (Note 5) (6,805,535) 10,145,710
---------------------- ---------------------
Total increase (decrease) in net assets (8,766,060) 15,220,228
NET ASSETS:
Beginning of period 173,361,762 158,141,534
---------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $2,541,713 and
$3,214,543, respectively) $ 164,595,702 $ 173,361,762
===================== =====================
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 2000 Year Ended February 28/29,
-------------------------------------------------------
(Unaudited) 2000 1999 1998 1997 1996
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.54 $ 11.02 $ 12.22 $ 13.46 $ 12.95 $ 11.95
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.21 0.25 0.55 0.27 0.23 0.18
Net realized and unrealized gain (loss) 0.59 0.83 (1.15) 0.42 0.55 1.16
-------- -------- -------- -------- -------- --------
Total from investment operations 0.80 1.08 (0.60) 0.69 0.78 1.34
-------- -------- -------- -------- -------- --------
Less distributions to shareholders from:
Net investment income (0.24) (0.15) (0.21) (0.26) (0.07) (0.17)
In excess of net investment income - - - - - (0.02)
Net realized gains (0.67) (0.41) (0.39) (1.67) (0.20) (0.15)
In excess of net realized gains - - - - (0.00) -
-------- -------- -------- -------- -------- --------
Total distributions (0.91) (0.56) (0.60) (1.93) (0.27) (0.34)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 11.43 $ 11.54 $ 11.02 $ 12.22 $ 13.46 $ 12.95
======== ======== ======== ======== ======== ========
TOTAL RETURN (a) 6.83% ** 9.62% (5.06%) 6.92% 5.99% 11.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 164,596 $ 173,362 $ 158,142 $ 234,155 $ 235,653 $ 218,964
Net expenses to average
daily net assets 0.75% * 0.75% 0.75% 0.75% 0.76% (b) 0.76% (b)
Net investment income to average
daily net assets 3.30% * 2.19% 1.67% 1.93% 1.75% 1.84%
Portfolio turnover rate 17% 55% 8% 79% 13% 13%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ 0.01 $ 0.03 $ 0.27 $ 0.12 $ 0.10 $ 0.07
</TABLE>
* Annualized
** Not 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
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Small Companies Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in equity securities
of non-U.S. issuers. The Fund's 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not
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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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.
20
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Fund's portfolio securities. A forward
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange
rates. Forward currency contracts are marked to market daily and the
change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain
or loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to sell is shown under Note 6, and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 2000.
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 future,
security or currency transaction to determine the realized gain or loss.
The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency 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, 2000 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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the
transaction to determine the realized gain or loss. The risk associated
with purchasing put and call options is limited to the premium paid.
21
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may purchase and sell stock index futures contracts. Stock index
futures contracts represent commitments for future delivery of cash based
upon the level of a specified index of equity securities at a 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, 2000.
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, both based on notional amounts.
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. 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, 2000, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for
lending its securities. At August 31, 2000, the Fund loaned securities
having a market value of $1,497,664 collateralized by cash in the amount
of $1,578,957, which was invested in a short-term instrument.
22
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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
U.S. federal income tax purposes. Therefore, no provision for U.S. 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. For the six months ended August 31,
2000, the Fund did not incur any capital gains or repatriation taxes.
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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable withholding taxes, 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.
23
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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. For the six months ended August
31, 2000, the Fund received $64,740 in purchase premiums and $145,306 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
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 .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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $1,104. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
24
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, 2000,
aggregated $27,883,840 and $39,417,517, respectively.
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
$185,413,256 $18,117,697 $37,025,572 $18,907,875
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 55.4% 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.
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, 2000 February 29, 2000
------------------------------------- ----------------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 527,176 $ 6,474,000 4,151,532 $ 51,077,290
Shares issued to
shareholders in
reinvestment of
distributions 942,944 10,938,134 557,607 6,666,063
Shares repurchased (2,095,782) (24,217,669) (4,031,520) (47,597,643)
--------------- --------------- --------------- ---------------
Net increase (decrease) (625,662) $ (6,805,535) 677,619 $ 10,145,710
=============== =============== =============== ===============
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 is as follows:
FORWARD CURRENCY CONTRACTS
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Buys
10/13/00 AUD 10,816,187 $ 6,251,338 $ (291,187)
10/13/00 CAD 25,228,960 17,125,383 (256,295)
09/08/00 CHF 31,668,729 18,179,039 (780,040)
03/23/01 CHF 7,055,768 4,117,624 (18,363)
09/08/00 DKK 16,809,000 2,004,535 (144,479)
03/23/01 DKK 8,502,600 1,019,645 (5,295)
09/08/00 EUR 72,797,602 64,731,316 (4,277,854)
03/23/01 EUR 29,268,102 26,262,170 (289,973)
09/08/00 GBP 35,926,365 52,274,220 (1,904,363)
03/23/01 GBP 12,959,859 18,909,060 (237,352)
10/13/00 HKD 24,895,820 3,193,177 (4,878)
10/13/00 JPY 1,763,117,684 16,642,742 (545,282)
09/08/00 NOK 124,888,961 13,762,421 (947,671)
03/23/01 NOK 77,343,309 8,498,959 (81,528)
10/13/00 NZD 3,426,980 1,467,404 (243,772)
09/08/00 SEK 130,679,458 13,851,380 (806,722)
03/23/01 SEK 38,233,825 4,106,841 (36,558)
10/13/00 SGD 2,572,400 1,500,729 730
------------------
$ (10,870,882)
==================
Sales
10/13/00 AUD 8,646,074 $ 4,997,096 $ 158,044
10/13/00 CAD 6,345,552 4,307,352 45,231
09/08/00 CHF 31,668,729 18,179,039 1,083,544
03/23/01 CHF 16,118,442 9,406,443 121,736
09/08/00 DKK 16,809,000 2,004,535 132,314
03/23/01 DKK 8,306,400 996,117 12,713
09/08/00 EUR 72,797,602 64,731,316 3,145,056
03/23/01 EUR 16,179,945 14,518,211 56,500
09/08/00 GBP 35,926,365 52,274,220 3,439,028
</TABLE>
26
<PAGE>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS - CONTINUED
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sales - continued
03/23/01 GBP 20,575,158 $ 30,020,150 $ 72,645
10/13/00 HKD 70,492,358 9,041,462 13,096
10/13/00 JPY 2,468,702,285 23,303,025 720,068
09/08/00 NOK 124,888,961 13,762,421 594,044
03/23/01 NOK 44,560,214 4,896,550 40,855
09/08/00 SEK 130,679,458 13,851,380 608,210
03/23/01 SEK 12,329,473 1,324,356 (3,304)
10/13/00 SGD 2,050,560 1,196,290 3,709
-----------------
$ 10,243,489
=================
</TABLE>
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 Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Buys
88 ALL ORDS September 2000 $ 4,185,929 $ 92,859
5 DAX September 2000 806,813 15,534
36 SGX September 2000 1,164,097 (32,211)
59 S&P/TSE 60 September 2000 5,493,304 688,961
29 TSE TOPIX September 2000 4,100,900 (109,950)
----------------
$ 655,193
================
Sales
48 CAC 40 September 2000 $ 2,830,593 $ (9,363)
98 NEW FTSE 100 September 2000 9,536,089 (282,365)
----------------
$ (291,728)
================
</TABLE>
At August 31, 2000, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts. 27
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 89.3%
AUTOMOTIVE - 7.7%
3,000 Fuji Heavy Industries Ltd 19,861
2,000 Honda Motor Co Ltd 73,143
7,000 Mitsubishi Motors * 22,318
18,000 Nissan Motor Co * 90,473
1,000 Suzuki Motor Corp 10,606
-----------------
216,401
-----------------
BANKING - 11.8%
4,000 Asahi Bank 15,754
5,000 Bank of Yokohama 21,990
1,000 Dai-Ichi Kangyo Bank 7,586
14,000 Daiwa Bank 35,184
5,000 Fuji Bank 38,025
1,000 Industrial Bank of Japan 7,586
1,000 Mitsubishi Trust & Banking 7,689
11,000 Sakura Bank Ltd 81,902
2,000 Sanwa Bank Ltd 18,923
4,000 Sumitomo Trust & Banking 28,207
600 The Chuo Mitsui Trust & Banking Co Ltd * 2,307
4,000 Tokai Bank 20,255
5,000 Toyo Trust & Banking Co Ltd 17,442
29,000 Yasuda Trust & Banking 33,993
-----------------
336,843
-----------------
CHEMICALS - 2.0%
4,000 Daicel Chemical Industries Ltd 11,290
4,000 Dainippon Ink & Chemicals Inc 14,066
2,000 Mitsui Petrochemical Industries Ltd 10,146
6,000 Sekisui Chemical 20,987
-----------------
56,489
-----------------
CONSTRUCTION - 9.6%
800 Daito Trust Construction Co Ltd 13,428
3,000 Daiwa House Industry Co Ltd 19,692
1,000 INAX Corp 5,411
4,000 JGC Corp 19,130
7,000 Kajima Corp 20,808
6,000 Maeda Corp 22,900
See accompanying notes to the financial statements. 1
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - CONTINUED
10,000 Marubeni Corp * 27,663
4,000 Nishimatsu Construction 12,978
3,000 Obayashi Corp 11,984
4,000 Okumura Corp 13,316
11,000 Onoda Cement Co Ltd 17,742
3,000 Sekisui House Ltd 30,439
6,000 Shimizu Corp 17,723
4,000 Sumitomo Realty and Development Co Ltd 17,367
15,000 Taisei Corp 21,943
-----------------
272,524
-----------------
CONSUMER GOODS - 5.1%
1,000 Citizen Watch Co 10,915
4,000 Ezaki Glico Co Ltd 24,006
1,700 Fuji Photo Film Co Ltd 60,897
3,000 Itochu Corp * 13,222
200 Nintendo Co Ltd 34,584
-----------------
143,624
-----------------
ELECTRIC - 1.5%
3,000 Mitsubishi Electric Corp 27,991
2,000 Oki Electric Industry * 14,291
-----------------
42,282
-----------------
ELECTRONICS - 2.1%
4,000 Fuji Electric Co * 14,966
100 Rohm Co Ltd 28,460
2,000 Sanyo Electric Co 16,973
-----------------
60,399
-----------------
FINANCIAL SERVICES - 6.7%
400 Acom Ltd 34,096
800 Credit Saison Co 19,317
2,000 Daiwa Securities Co Ltd 24,944
4,000 New Japan Securities Co Ltd 14,704
1,000 Nichiei Co Ltd (Kyoto) 11,722
7,000 Orient Corp * 28,488
100 Orix Corp 13,316
600 Promise Co 41,804
-----------------
188,391
-----------------
2 See accompanying notes to the financial statements.
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD AND BEVERAGE - 1.6%
1,000 Asahi Breweries Ltd 9,143
1,000 House Foods Corp 13,785
700 Q.P. Corp 5,908
4,000 Snow Brand Milk Products Co Ltd 15,154
-----------------
43,990
-----------------
HEALTH CARE - 1.6%
2,000 Sankyo Co Ltd 46,324
-----------------
LEISURE - 0.7%
900 Heiwa Corp 18,398
-----------------
MACHINERY - 4.6%
2,000 Amada Co Ltd 17,161
12,000 Ishikawajima-Harima Heavy Industries * 17,554
12,000 Kawasaki Heavy Industries Ltd * 13,841
2,000 Komatsu Ltd 12,922
5,000 Kubota Corp 16,129
14,000 Mitsubishi Heavy Industries 49,231
1,000 NHK Spring Co Ltd 3,798
-----------------
130,636
-----------------
MANUFACTURING - 0.6%
1,000 Toyo Seikan Kaisha 17,161
-----------------
METALS AND MINING - 5.1%
2,000 Fujikara Ltd 17,254
2,000 Hitachi Metals Ltd 14,422
33,000 Kobe Steel Ltd * 20,733
6,000 Mitsubishi Material 18,849
32,000 NKK Corp * 20,405
19,000 Sumitomo Metal Industries * 11,403
38,500 Tomen Corp * 41,157
-----------------
144,223
-----------------
OIL AND GAS - 5.0%
15,000 Cosmo Oil Co Ltd 30,242
10,900 Nippon Oil Co Ltd 61,941
4,600 Showa Shell Sekiyu 22,690
2,000 Sumitomo Forestry Co Ltd 14,929
5,000 Tokyo Gas Co 12,847
-----------------
142,649
-----------------
See accompanying notes to the financial statements. 3
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS - 1.4%
1,000 Daiichi Pharmaceuticals Co Ltd 23,631
2,000 Kyowa Hakko Kogyo Co Ltd 16,429
-----------------
40,060
-----------------
RETAIL TRADE - 1.7%
1,000 Aoyama Trading 13,278
1,000 Jusco Co Ltd 18,802
2,000 Mitsubishi Corp 14,629
-----------------
46,709
-----------------
SERVICES - 3.3%
1,000 Canon Sales Co Inc 17,020
1,000 Dainippon Printing Co Ltd 15,745
5,000 Nippon Shinpan Co 10,597
22,000 Nissho Iwai Corp * 22,693
1,000 Sumitomo Corp 8,721
2,000 Toppan Printing Co Ltd 19,542
-----------------
94,318
-----------------
TECHNOLOGY - 3.6%
6,000 Hitachi Ltd 71,062
200 TDK Corp 29,557
-----------------
100,619
-----------------
TEXTILES - 1.1%
3,000 Nisshinbo Industries Inc 13,953
1,000 Tokyo Style Co Ltd 8,918
2,000 Toray Industries Inc 7,314
-----------------
30,185
-----------------
TOBACCO - 1.4%
5 Japan Tobacco Inc 38,353
-----------------
TRANSPORTATION - 2.3%
6,000 Kawasaki Kisen 11,140
5,000 Nippon Express Co Ltd 28,085
5,000 Seino Transportation Co Ltd 26,585
-----------------
65,810
-----------------
4 See accompanying notes to financial statements.
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/ DESCRIPTION VALUE ($)
PER VALUE ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - 8.8%
1,400 Chubu Electric Power Co Inc 23,762
1,400 Hokkaido Electric Power 19,653
800 Hokuriku Electric Power 11,380
1,700 Kansai Electric Power 27,898
300 Kokusai Denshin Denwa 25,544
3,400 Kyushu Electric Power Co Inc 53,404
1,300 Shikoku Electric Power 18,956
3,500 Tohoku Electric Power Co Inc 50,052
800 Tokyo Electric Power 17,892
-----------------
248,541
-----------------
TOTAL COMMON STOCKS (Cost $2,572,012) 2,524,929
-----------------
SHORT-TERM INVESTMENTS - 7.1%
CASH EQUIVALENTS - 7.1%
$ 200,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 200,000
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $200,000) 200,000
-----------------
TOTAL INVESTMENTS - 96.3%
(Cost $2,772,012) 2,724,929
Other Assets and Liabilities (net) - 3.7% 103,622
-----------------
TOTAL NET ASSETS - 100.0% $2,828,551
-----------------
-----------------
NOTES TO THE SCHEDULE OF INVESTMENTS: 5
* Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $2,772,012) (Note 1) $ 2,724,929
Foreign currency, at value (cost $106,345) (Note 1) 108,590
Cash 18,760
Dividends and interest receivable 1,274
Receivable for expenses waived or borne by Manager (Note 2) 11,966
------------------
Total assets 2,865,519
------------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 1,327
Shareholder service fee 370
Payable for variation margin on open futures contracts (Notes 1 and 6) 1,308
Accrued expenses and other liabilities 33,963
------------------
Total liabilities 36,968
------------------
NET ASSETS $ 2,828,551
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital $48,679,734
Distributions in excess of net investment income (61,953)
Accumulated net realized loss (45,743,050)
Net unrealized depreciation (46,180)
------------------
$ 2,828,551
------------------
------------------
NET ASSETS ATTRIBUTABLE TO CLASS III SHARES $ 2,828,551
------------------
------------------
SHARES OUTSTANDING - CLASS III 334,289
------------------
------------------
NET ASSET VALUE PER SHARE - CLASS III $ 8.46
------------------
------------------
6 See accompanying notes to the financial statements.
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $12,450) $ 70,535
Interest 11,883
--------------------
Total income 82,418
--------------------
EXPENSES:
Management fee (Note 2) 24,526
Custodian fees 39,652
Audit fees 20,148
Transfer agent fees 14,076
Legal fees 368
Trustees fees (Note 2) 92
Miscellaneous 736
Fees waived or borne by Manager (Note 2) (75,072)
--------------------
24,526
Shareholder service fee - Class III (Note 2) 6,813
--------------------
Net expenses 31,339
--------------------
Net investment income 51,079
--------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 1,356,363
Closed futures contracts (195,494)
Foreign currency and foreign currency related
transactions 75,040
--------------------
Net realized gain 1,235,909
--------------------
Change in net unrealized appreciation (depreciation) on:
Investments (245,733)
Open futures contracts (8,944)
Foreign currency and foreign currency related transactions 880
--------------------
Net unrealized loss (253,797)
--------------------
Net realized and unrealized gain 982,112
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,033,191
--------------------
See accompanying notes to the financial statements. --------------------
7
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
-------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 51,079 $ 370,940
Net realized gain 1,235,909 18,487,302
Change in net unrealized appreciation (depreciation) (253,797) 5,968,681
-------------------- ---------------------
Net increase in net assets resulting from operations 1,033,191 24,826,923
-------------------- ---------------------
Distributions to shareholders from:
Net investment income - Class III - (370,940)
In excess of net investment income - (304,432)
-------------------- ---------------------
- (675,372)
-------------------- ---------------------
Net share transactions - Class III (Note 5) (11,972,975) (138,772,688)
-------------------- ---------------------
Total decrease in net assets (10,939,784) (114,621,137)
NET ASSETS:
Beginning of period 13,768,335 128,389,472
-------------------- ---------------------
End of period (including distributions in excess of
net investment income of $61,953 and $113,032,
respectively) $ 2,828,551 $ 13,768,335
-------------------- ---------------------
-------------------- ---------------------
8 See accompanying notes to the financial statements.
</TABLE>
<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 31,2000 -------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
----------------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.79 $6.20 $6.36 $7.02 $ 8.52 $9.12
---------------- ---------- --------- --------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) 0.05(b) 0.07(b)(c) 0.01 0.01 -(b) (0.01)(b)
Net realized and unrealized gain (loss) 0.62 1.92 (0.17) (0.67) (1.50) 0.79
----------------- ---------- ------ ------- ------- ------
Total from investment operations 0.67 1.99 (0.16) (0.66) (1.50) 0.78
----------------- ----------- ----- ------- -------- ------
Less distributions to shareholders:
From net investment income - (0.22) - - - -
In excess of net investment income - (0.18) - - (0.00) -
From net realized gains - - - - - (1.38)
----------------- -------- -------- --------- --------- -----
Total distributions - (0.40) - - (0.00) (1.38)
----------------- -------- -------- ------- --------- ------
NET ASSET VALUE, END OF PERIOD $8.46 $7.79 $ 6.20 $ 6.36 $ 7.02 $ 8.52
----------------- -------- -------- -------- -------- -------
----------------- -------- -------- -------- -------- -------
TOTAL RETURN (a) 8.60%** 31.54% (2.52%) (9.40%) (17.69%) 8.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,829 $13,768 $128,389 $149,152 $218,797 $126,107
Net expenses to average
daily net assets 0.69%* 0.69% 0.69% 0.69% 0.70%(d) 0.92%
Net investment income (loss) to average
daily net assets 1.12%* 0.89%(c) 0.25% 0.21% 0.01% (0.13%)
Portfolio turnover rate 14% 56% 102% 128% 4% 23%
Fees and expenses voluntarily waived or
borne by the Manager consisted
of the following per share amounts: $ 0.07 $0.03 $ 0.02 $ 0.02 $0.03 $ 0.01
* Annualized
** Not 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) Based on average month end shares outstanding.
(c) Net investment income is affected by the timing of dividends earned and purchases and redemptions of Fund shares.
(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
</TABLE>
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high total return through investment in equity securities
of Japanese companies. The Fund's benchmark is the MSCI Japan Index.
The following is a summary of significant accounting policies which are
in conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the
preparation of its financial statements. The preparation of financial
statements in accordance with accounting principles generally accepted
in the United States 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 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 quotations are not
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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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
10
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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
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, 2000.
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, 2000.
11
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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, both based on notional amounts. 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. Total return swaps are marked to market daily based upon
quotations from market makers and the change in value, 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, 2000.
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, 2000, 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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 29, 2000, the Fund had a capital loss
carryforward available to offset future capital gains, if any, of
$11,631,832 and $34,925,915, expiring in 2006 and 2007 respectively. The
value of the capital loss carryforward may be limited due to significant
shareholder activity.
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.
12
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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,
net of applicable withholding taxes, 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.
For the six months ended August 31, 2000, the Fund received $374 in
purchase premiums and $24,369 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 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.
13
<PAGE>
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, was $92. No
remuneration is paid to any Trustee or officer who is affiliated with
the Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2000,
aggregated $1,147,688 and $12,887,501, respectively.
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------------- --------------------------- --------------------------- -----------------------
<S> <C> <C> <C>
$2,772,012 $254,579 $301,662 $47,083
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 51.7% of the outstanding shares of the Fund were held
by four 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, 2000 (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, 2000 February 29, 2000
-------------------------------------------- ---------------------------------------
Class III: Shares Amount Shares Amount
------------------ --------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 21,796 $ 186,931 877,279 $ 6,239,388
Shares issued to shareholders in
reinvestment of distributions
- - 67,649 572,315
Shares repurchased (1,454,398) (12,159,906) (19,894,664) (145,584,391)
------------------ --------------------- ---------------- ------------------
Net decrease (1,432,602) $(11,972,975) (18,949,736) $(138,772,688)
================== ===================== ================ ==================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding long futures contracts purchased at August 31,
2000 is as follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
-------------------- ------------------------ --------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
2 TOPIX September 2000 $283,758 $(1,343)
=================
</TABLE>
At August 31, 2000, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
15
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 90.5%
BASIC MATERIALS - 2.8%
25,000 Abitibi-Consolidated Inc 279,688
2,500 Alcan Aluminum Ltd 82,031
5,000 Du Pont (E I) De Nemours & Co Inc 224,375
25,000 Engelhard Corp 468,750
13,400 FMC Corp * 908,687
12,500 Inco Ltd * 223,438
30,000 International Paper Co 956,250
5,000 Weyerhaeuser Co 231,563
------------------
3,374,782
------------------
CAPITAL GOODS - 7.3%
10,000 Amcol International Corp 33,125
27,500 General Electric Co 1,613,906
25,000 Honeywell International Inc 964,063
10,000 Ingersoll-Rand Co 455,625
10,000 Lockheed Martin Corp 283,750
30,000 Pall Corp 641,250
10,000 Parker Hannifin Corp 348,125
32,500 Rockwell International Corp 1,314,219
35,000 Thomas & Betts Corp 656,250
12,500 United Technologies Corp 780,469
90,000 Waste Management Inc 1,704,375
------------------
8,795,157
------------------
COMMUNICATION SERVICES - 4.0%
20,000 AT&T Corp 630,000
10,000 SBC Communications Inc 417,500
7,500 Sprint Corp (FON Group) 251,250
80,000 Verizon Communications 3,490,000
------------------
4,788,750
------------------
CONSUMER CYCLICALS - 10.3%
47,500 American Greetings Corp 884,687
10,000 Delphi Automotive Systems Corp 164,375
45,000 Federated Department Stores * 1,243,125
15,000 General Motors Corp 1,082,812
32,500 Information Resources Inc * 221,406
25,000 Intermet Corp 193,750
10,000 Manpower Inc 361,875
25,000 Michelin SA Class B * 732,394
67,500 Modis Professional Services Inc * 464,063
17,500 Nestle SA ADR 1,885,110
62,500 Owens Corning 324,219
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER CYCLICALS - CONTINUED
47,500 Saks Inc * 475,000
67,500 Staples Inc * 1,037,813
10,000 TJX Cos Inc 188,125
120,000 Toys R Us Inc * 2,182,500
20,000 Wal-Mart Stores Inc 948,750
------------------
12,390,004
------------------
CONSUMER STAPLES - 12.7%
12,500 Anheuser-Busch Cos Inc 985,156
5,000 Coors (Adolph) Co 297,813
50,000 CVS Corp 1,856,250
42,500 Eastman Kodak 2,645,625
65,000 Kimberly-Clark Corp 3,802,500
50,000 Kroger Co * 1,134,375
20,000 Owens and Minor Holdings Co 306,250
62,500 Pepsi Bottling Group Inc 1,984,375
82,500 R. R. Donnelley & Sons Co 2,124,375
------------------
15,136,719
------------------
ENERGY - 11.9%
12,500 Amerada Hess Corp 855,469
35,000 Anadarko Petroleum Corp 2,301,950
5,000 Baker Hughes Inc 182,813
12,500 Cabot Oil & Gas Corp Class A 250,000
75,000 Conoco Inc 1,959,375
237,500 Gulf Canada Resources Ltd * 1,321,094
5,000 Kerr-McGee Corp 315,938
50,000 Lasmo Plc ADR 325,000
60,000 Occidental Petroleum Corp 1,297,500
27,500 Texaco Inc 1,416,250
82,500 Unocal Corp 2,753,437
50,000 USX - Marathon Group 1,371,875
------------------
14,350,701
------------------
FINANCIALS - 21.7%
25,000 Allstate Corp 726,563
12,500 Bank of America Corp 669,531
5,000 Bank One Corp 176,250
82,500 Block (H&R) Inc 2,959,687
20,000 Boston Properties Inc - REIT 808,750
60,000 Brandywine Realty Trust 1,230,000
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIALS - CONTINUED
42,500 Chase Manhattan Corp 2,374,687
62,500 Citigroup Inc 3,648,457
75,000 Equity Office Properties Trust - REIT 2,165,625
45,000 Equity Residential Properties Trust - REIT 2,160,000
7,500 First Union Corp 217,031
150,000 JP Realty Inc - REIT 2,662,500
32,500 Mack-Cali Realty Corp - REIT 851,094
12,500 Reckson Associates Realty Corp - REIT 303,906
62,500 Summit Properties Inc - REIT 1,453,125
50,000 United Dominion Realty Trust Inc - REIT 540,625
50,000 Washington Mutual Inc 1,750,000
30,000 Wells Fargo & Co 1,295,625
------------------
25,993,456
------------------
HEALTH CARE - 3.3%
10,000 Abbott Laboratories 437,500
65,000 Acuson Corp * 934,375
15,000 Aetna Inc 839,063
15,000 Becton Dickinson & Co 451,875
5,000 Lilly (Eli) and Co 365,000
12,500 Mylan Laboratories Inc 332,031
7,500 Schering-Plough Corp 300,938
10,000 Tenet Healthcare Corp * 310,000
------------------
3,970,782
------------------
TECHNOLOGY - 9.3%
11,500 Avnet Inc 688,563
25,000 BMC Software Inc * 675,000
60,000 Compaq Computer Corp 2,043,750
5,000 Computer Associates International Inc 158,750
2,500 Electronic Data Systems Corp 124,531
20,000 Intel Corp 1,497,500
17,500 International Business Machines Corp 2,310,000
10,000 Motorola Inc 360,625
25,000 Parametric Technology Corp * 334,375
165,000 Storage Technology Corp * 2,609,062
27,500 Unisys Corp * 357,500
------------------
11,159,656
------------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION - 3.0%
22,500 AMR Corp * 738,281
32,500 Canadian Pacific Ltd 887,656
12,500 Delta Air Lines Inc 618,750
5,000 FedEx Corp * 201,750
50,000 Ryder System Inc 959,375
7,500 US Airways Group Inc * 255,000
------------------
3,660,812
------------------
UTILITIES - 4.2%
25,000 Mitchell Energy & Development Corp 1,000,000
50,000 Niagara Mohawk Holdings Inc * 643,750
25,000 Questar Corp 542,187
35,000 Sempra Energy 682,500
47,500 TXU Corp 1,659,531
12,500 Unicom Corp 571,094
------------------
5,099,062
------------------
TOTAL COMMON STOCKS (Cost $91,704,794) 108,719,881
------------------
PREFERRED STOCKS - 0.8%
BASIC MATERIALS - 0.3%
20,000 Freeport-McMoran Corp 0.00% 365,000
------------------
ENERGY - 0.5%
12,500 Unocal Corp Convertible 6.25% 559,375
------------------
TOTAL PREFERRED STOCKS (Cost $1,347,458) 924,375
------------------
DEBT OBLIGATIONS - 9.1%
BASIC MATERIALS - 0.4%
$ 500,000 IMC Global Inc, 10.125%, due 6/15/01 506,920
------------------
TECHNOLOGY - 1.1%
1,500,000 International Business Machines Corp, 6.50%, due 1/15/28 1,368,600
------------------
TRANSPORTATION - 0.8%
1,000,000 United Air Lines Inc, 9.13%, due 1/15/12 970,230
------------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT - 6.8%
$ 4,500,000 U.S. Treasury Bond, 11.13%, due 8/15/03 5,094,135
1,250,000 U.S. Treasury Bond, 10.75%, due 8/15/05 1,496,287
1,500,000 U.S. Treasury Note, 6.625%, due 5/15/07 1,551,555
------------------
8,141,977
------------------
TOTAL DEBT OBLIGATIONS (Cost $11,619,560) 10,987,727
------------------
TOTAL INVESTMENTS - 100.4%
(Cost $104,671,812) 120,631,983
Other Assets and Liabilities (net) - (0.4%) (487,728)
------------------
TOTAL NET ASSETS - 100.0% $ 120,144,255
------------------
------------------
</TABLE>
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. 5
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $104,671,812) (Note 1) $ 120,631,983
Foreign currency, at value (cost $10,396) (Note 1) 9,659
Dividends and interest receivable 266,309
Foreign withholding taxes receivable 10,715
Receivable for investments sold 169,844
Receivable for Fund shares sold 12,831
Receivable for expenses waived or borne by Manager (Note 2) 19,716
-------------------
Total assets 121,121,057
-------------------
LIABILITIES:
Due to custodian 87,819
Payable for Fund shares repurchased 745,322
Payable to affiliate for management fee (Note 2) 75,703
Accrued expenses 67,958
-------------------
Total liabilities 976,802
-------------------
NET ASSETS (equivalent to $11.68 per share based
on 10,288,007 shares outstanding, unlimited shares authorized) $ 120,144,255
-------------------
-------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 98,355,784
Accumulated undistributed net investment income 439,505
Accumulated undistributed net realized gain 5,390,062
Net unrealized appreciation 15,958,904
-------------------
NET ASSETS $ 120,144,255
-------------------
-------------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $17,264) $ 1,429,525
Interest 501,386
-------------------
Total income 1,930,911
-------------------
EXPENSES:
Management fee (Note 2) 460,731
Custodian and transfer agent fees 82,248
Audit fees 19,228
Registration fees 4,140
Legal fees 3,404
Trustees fees (Note 2) 828
Miscellaneous 3,496
-------------------
Total expenses 574,075
Less: expenses waived or borne by Manager (Note 2) (113,344)
-------------------
Net expenses 460,731
-------------------
Net investment income 1,470,180
-------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 6,337,945
Foreign currency and foreign currency related transactions (5,751)
-------------------
Net realized gain 6,332,194
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments 13,478,736
Foreign currency and foreign currency related transactions (420)
-------------------
Net unrealized gain 13,478,316
-------------------
Net realized and unrealized gain 19,810,510
-------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,280,690
-------------------
-------------------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
--------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,470,180 $ 3,179,018
Net realized gain 6,332,194 45,410,117
Change in net unrealized appreciation (depreciation) 13,478,316 (50,354,494)
--------------------- ----------------------
Net increase (decrease) in net assets resulting from operations 21,280,690 (1,765,359)
--------------------- ----------------------
Distributions to shareholders from:
Net investment income (1,276,460) (3,927,061)
Net realized gains (13,805,711) (38,462,287)
--------------------- ----------------------
(15,082,171) (42,389,348)
--------------------- ----------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 4,928,345 9,423,293
Net asset value of shares issued to shareholders
in payment of distributions declared 14,593,064 41,267,246
Cost of shares repurchased (22,608,385) (113,439,710)
--------------------- ----------------------
Net decrease in net assets resulting
from Fund share transactions (3,086,976) (62,749,171)
--------------------- ----------------------
Total increase (decrease) in net assets 3,111,543 (106,903,878)
NET ASSETS:
Beginning of period 117,032,712 223,936,590
--------------------- ----------------------
End of period (including accumulated undistributed
net investment income of $439,505 and
$245,785, respectively) $ 120,144,255 $ 117,032,712
--------------------- ----------------------
--------------------- ----------------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
----------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.15 $ 15.73 $ 17.78 $ 16.31 $ 14.52 $ 11.99
------------------ ----------- ------------ ----------- ------------ -----------
Income from investment operations:
Net investment income 0.15 0.30 0.30 0.32 0.33 0.31
Net realized and unrealized gain (loss) 1.94 (0.78) 0.43 4.13 2.27 3.04
------------------- ----------- ------------ ----------- ------------ -----------
Total from investment operations 2.09 (0.48) 0.73 4.45 2.60 3.35
------------------- ----------- ------------ ----------- ------------ -----------
Less distributions to shareholders:
From net investment income (0.13) (0.36) (0.31) (0.40) (0.27) (0.29)
From net realized gains (1.43) (3.74) (2.47) (2.58) (0.54) (0.53)
------------------ ----------- ------------ ----------- ------------ -----------
Total distributions (1.56) (4.10) (2.78) (2.98) (0.81) (0.82)
------------------- ----------- ------------ ----------- ------------ -----------
NET ASSET VALUE, END OF PERIOD $ 11.68 $ 11.15 $ 15.73 $ 17.78 $ 16.31 $ 14.52
------------------- ----------- ------------ ----------- ------------ -----------
------------------- ----------- ------------ ----------- ------------ -----------
TOTAL RETURN (a) 19.42%** (5.80%) 3.89% 28.97% 18.60% 28.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 120,144 $ 117,033 $ 223,937 $ 236,286 $ 207,369 $ 177,238
Net expenses to average
daily net assets 0.75%* 0.93% 0.95% 0.95% 0.95% 1.05%
Net investment income to average
daily net assets 2.39%* 1.79% 1.68% 1.77% 2.10% 2.42%
Portfolio turnover rate 16% 32% 34% 28% 27% 32%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ -
</TABLE>
* Annualized
** Not annualized
(a) The total returns would have been lower had certain expenses not been waived
during the periods shown.
See accompanying notes to the financial statements. 9
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 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 accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 quotations are not 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 a pricing source should it deem it
appropriate. The Manager is informed of erratic or unusual movements
(including unusual inactivity) in the prices supplied for a security and at
its discretion may override a price supplied by a source (by taking a price
supplied by another source).
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
10
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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.
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 future, security or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security or currency 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, 2000 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.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are excercised or closed
are added to the amounts paid or offset against the proceeds on the
transaction to determine the realized gain or loss. The risk associated
with purchasing put and call options is limited to the premium paid.
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 each day by the board of trade or exchange on which they are
traded. At August 31, 2000 there were no open futures contracts.
11
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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. 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 U.S. federal
income tax purposes. Therefore, no provision for U.S. 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.
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 a shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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, net
of applicable foreign withholding taxes, 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.
12
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. GMO has entered into a binding agreement
effective until June 30, 2001 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 .75% 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, 2000, was $828. 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, 2000, 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 - $565,508
Investments (non-U.S. Government securities) $19,178,073 $33,891,346
</TABLE>
At August 31, 2000, 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>
$104,671,812 $27,241,706 $11,281,535 $15,960,171
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 62.61% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
13
<PAGE>
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
------------------------------- ----------------------------
<S> <C> <C>
Shares sold 401,695 608,624
Shares issued to shareholders in
reinvestment of distributions 1,305,649 3,145,991
Shares repurchased (1,912,903) (7,496,586)
---------------------- ---------------------------
Net decrease (205,559) (3,741,971)
Fund shares:
Beginning of period 10,493,566 14,235,537
---------------------- ---------------------------
End of period 10,288,007 10,493,566
====================== ===========================
</TABLE>
14
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 94.6%
AUSTRALIA - 2.4%
6,200 Australia and New Zealand Banking Group Ltd 46,678
6,200 Broken Hill Proprietary Ltd 67,947
28,200 CSR Ltd 71,693
27,000 Email Ltd 47,270
102,230 MIM Holdings Ltd 67,338
110,400 National Australia Bank Ltd 1,620,244
5,000 OPSM Protector Ltd 7,396
33 PaperlinX Ltd 69
39,300 PMP Communications Ltd 44,507
7,500 Qantas Airways Ltd 17,074
74,200 Santos Ltd 250,806
120,000 Schroders Property 162,246
---------
2,403,268
---------
AUSTRIA - 1.4%
800 Austria Tabakwerke AG 30,761
300 Austrian Airlines 3,481
100 Bau Holdings AG 3,067
1,600 Boehler Uddeholm (Bearer) 51,081
400 Brau Union AG 17,390
600 Energie-Versorgung Niederoesterreich AG 18,777
6,100 Erste Bank Der Oesterreichischen Sparkassen AG 271,703
700 Flughafen Wien AG 24,028
200 Mayr-Melnhof Karton AG (Bearer) 9,068
350 Oesterreichische Brau Beteiligungs AG 15,558
100 Oesterreichische Elektrizitaetswirtschafts AG 9,335
3,100 OMV AG 230,158
300 VA Technologie AG (Bearer) 14,597
26,700 Voest-Alpine Stahl AG 706,195
600 Wienerberger Baustoffindustrie AG 12,802
---------
1,418,001
---------
BELGIUM - 0.3%
2,900 Arbed SA 208,838
800 Compagnie Maritime Belge SA 48,009
---------
256,847
---------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
BRAZIL - 0.5%
9,573,000 Electrobras 179,412
740 Embratel Participacoes SA ADR 16,188
14,400 Souza Cruz (Registered) 70,833
1,000 Tele Leste Celular Participacoes SA ADR * 45,750
5,054 Tele Norte Leste Participacoes SA ADR 128,877
530 Telesp Celular Participacoes SA ADR 19,478
---------
460,538
---------
CANADA - 0.4%
1,400 Abitibi Consolidated Inc 15,665
400 Alcan Aluminum Ltd * 13,088
1,900 Bank of Montreal 77,822
1,500 Bank of Nova Scotia 39,314
1,500 Brascan Corp * 19,581
500 Canadian Imperial Bank of Commerce 15,292
400 Canadian National Railway Co * 11,596
1,000 Canadian Pacific Ltd 27,125
500 Magna International Class A 23,921
300 Potash Corp of Saskatchewan 15,889
1,100 Sun Life Financial Services of Canada Inc * 23,124
5,200 TransCanada Pipelines Ltd 50,426
1,200 Westcoast Energy Inc 23,192
---------
356,035
---------
CZECH REPUBLIC - 0.3%
1,637 Ceske Radiokomunikace * 72,827
7,735 SPT Telecom AS * 116,914
600 Tabak AS 84,643
---------
274,384
---------
DENMARK - 1.1%
600 Carlsberg A/S Class B * 21,678
133 Codan Forsikring 8,247
800 Danisco A/S * 26,137
5,400 Den Danske Bank 676,091
2,000 DFDS A/S 64,151
580 Kapital Holding AS 16,183
500 Novo-Nordisk A/S Class B * 101,652
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
DENMARK - CONTINUED
6,900 SAS Danmark A/S 56,441
1,400 Tele Danmark A/S Class B * 84,303
600 Topdanmark AS * 11,304
----------
1,066,187
----------
FINLAND - 0.8%
36,300 Finnair Class A 138,772
18,600 Fortum Oyj 65,649
30,900 Kemira Oyj 164,555
1,100 Partek Oyj 13,007
42,300 Rautaruukki Oyj 172,991
3,300 Stora Enso Oyj Class A 30,806
9,600 UPM-Kymmene Oyj 242,817
----------
828,597
----------
FRANCE - 10.5%
14,200 Alcatel SA * 1,162,086
600 Assurances Generales de France (Bearer) 30,299
7,100 Aventis SA Class A 533,386
300 Axa SA 42,754
6,444 Banque Nationale de Paris 592,955
520 Bongrain 135,040
38 Cap Gemini SA 7,939
4,340 Chargeurs International SA 237,296
11,880 Christian Dior SA * 652,726
445 Compagnie Generale d'Industrie et de Participations 21,127
5,970 Compagnie Parisienne de Reescompte * 232,209
13,500 Credit Lyonnais SA 546,099
280 Credit National 21,284
100 Damart SA 6,846
840 Dexia 119,115
840 Dexia Strip * 37
2,440 Eiffage SA 150,331
910 Elf Gabon 121,274
2,900 Eramet 120,533
5,340 Eridania Beghin-Say SA 474,753
4,140 Esso S.A.F. 287,092
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE - CONTINUED
10 Fromageries Bel SA 4,801
1,317 Gaz et Eaux 85,943
1,380 Imetal 159,496
14,500 Michelin SA Class B 425,410
6,800 Pechiney SA Class A 311,345
850 Pernod Ricard 44,661
5,000 Renault SA 217,639
9,820 Saint-Gobain 1,307,825
17,600 Societe Generale Class A * 1,043,674
8,200 Sommer Allibert 317,853
4,790 Sylea (Bearer) 218,464
61,190 Usinor Sacilor 655,532
5,020 Vallourec 215,118
----------
10,502,942
----------
GERMANY - 7.6%
900 Allianz AG 304,055
62,300 Bankgesellschaft Berlin AG 891,744
18,250 BASF AG 684,702
11,200 Bayer AG 474,468
400 Bayerische Motoren Werke AG 12,945
600 Bayerische Vereinsbank 35,073
1,150 Bilfinger & Berger 14,314
12,900 Commerzbank AG 414,022
20,600 DaimlerChrysler AG 1,064,068
7,100 Deutsche Bank AG 620,495
21,600 Deutsche Telekom 835,351
1,100 Dresdner Bank AG 49,680
300 Escada AG 31,208
12,700 FAG Kugelfischer 84,117
800 Heidelberg Port-Zement 44,097
500 Holzmann (Philipp) * 9,655
12,800 IWKA AG 155,904
900 Lufthansa AG 19,964
500 Metro AG * 19,026
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - CONTINUED
700 RWE AG 26,045
400 Schering AG 21,373
58,800 Schmalbach-Lubeca AG 376,911
500 Siemens AG 80,681
28,080 SKW Trostberg 176,499
3,900 Suedzucker AG 41,954
34,300 Thyssen Krupp AG 524,504
9,300 Veba AG 446,481
3,300 Volkswagen AG 143,759
40 Walter Bau AG 196
---------
7,603,291
---------
HONG KONG - 3.8%
65,000 Amoy Properties Ltd 60,839
14,200 Bank of East Asia 33,136
44,000 Cheung Kong Holdings 575,436
56,100 Chinese Estates Holdings Ltd * 8,632
50,500 CLP Holdings Ltd 226,623
54,000 Hang Lung Development Co Ltd 50,197
4,000 Hang Seng Bank 42,953
24,000 Henderson Land Development Co Ltd 133,243
10,000 Hong Kong Electric Holdings Ltd 31,670
66,000 Hong Kong Land Holdings 132,000
14,000 Hong Kong & China Gas * 17,322
9,900 Hutchison Whampoa 139,628
235,800 Jardine Matheson Holdings Ltd 1,155,420
275,000 New Asia Realty & Trust Co Class A * 66,993
148 Pacific Century CyberWorks Ltd * 275
566,000 Regal Hotels International Ltd * 20,320
212 Sino Land 113
81,000 Sun Hung Kai Properties Ltd 763,338
23,000 Swire Pacific Ltd Class A 157,771
80,000 Wharf Holdings Ltd 190,273
32,000 Wheelock and Co Ltd 26,669
---------
3,832,851
---------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA - 0.5%
236,500 Astra International * 74,804
115,500 Gudang Garam 173,354
1,775,000 Matahari Putra Prima Tbk 136,621
318,000 PT Daya Guna Samudera * 20,269
151,500 PT Indofood Sukses Makmur Tbk * 67,961
294,000 United Tractors * 66,473
---------
539,482
---------
IRELAND - 0.1%
16,000 Greencore Group 41,963
29,100 Oakhill Group Plc 9,055
---------
51,018
---------
ISRAEL - 0.6%
40,000 Bank Hapoalim Ltd 127,458
57,542 Bank Leumi Le-Israel 132,646
10,500 Clal Industries Ltd * 130,093
3,000 Teva Pharmaceutical 184,391
---------
574,588
---------
ITALY - 3.0%
22,500 Banca di Roma 27,705
13,000 Banco Ambrosiano Veneto SPA (Savings Shares) 31,726
2,000 Buzzi Unicem SPA 9,922
22,400 Danieli and Co SPA (Savings Shares) 53,869
210,000 ENI SPA 1,226,622
2,000 Fiat SPA 49,573
13,540 Fiat SPA (Savings Shares) 179,362
3,800 Fila Holding SPA ADR * 36,100
40,600 IFIL Finanziaria di Partecipazioni SPA (Savings Shares) 180,477
4,000 Immsi SPA * 5,743
15,000 Parmalat Finanziaria SPA 20,470
4,500 RAS SPA 52,690
280 Reno de Medici SPA 587
5,090 San Paolo IMI SPA 90,415
27,350 SNIA BPD SPA 30,443
79,900 Telecom Italia Mobile SPA 693,303
12,000 Telecom Italia SPA 147,653
24,000 Telecom Italia SPA (Savings Shares) 142,746
---------
2,979,406
---------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - 23.7%
400 Acom Ltd 34,096
7,600 Aoki International 26,084
53,000 Asahi Bank 208,740
3,000 Asahi Breweries Ltd 27,429
41,000 Bank Of Tokyo-Mitsubishi 502,119
3,000 Bank of Yokohama 13,194
12,000 Brother Industries Ltd 27,794
3,600 Chubu Electric Power Co Inc 61,103
6,100 Chugoku Electric Power Co Inc 94,955
5,000 Chuo Mitsui Trust & Banking Co Ltd * 19,224
388,000 Cosmo Oil Co Ltd 782,258
31,000 Dai-Ichi Kangyo Bank 235,174
14,000 Daiichi Pharmaceuticals Co Ltd 330,833
2,000 Dainippon Printing Co Ltd 31,489
37,000 Daio Paper Corp 373,331
182,000 Daiwa Bank 457,389
2,000 Daiwa House Industry Co Ltd 13,128
9,000 Daiwa Securities Co Ltd 112,247
44,000 Ezaki Glico Co Ltd 264,066
18,000 Fuji Bank 136,890
6,000 Fuji Heavy Industries Ltd 39,722
11,000 Fuji Photo Film Co Ltd 394,036
46,000 Hitachi Ltd 544,805
14,000 Honda Motor Co Ltd 512,003
23,000 Industrial Bank of Japan 174,484
6,000 Itochu Corp * 26,444
84,000 Itoham Foods Inc 330,833
21,000 Izumiya Co Ltd 167,583
83,000 JACCS Co 311,328
100 Japan Tobacco Inc 767,067
2,000 Jusco Co Ltd 37,603
60,000 Kamigumi Co Ltd 284,134
68,000 Kandenko Co 362,828
9,600 Kansai Electric Power 157,539
68,000 Kansai Paint Co 165,154
2,000 Kirin Brewery Co Ltd 21,943
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
300 Kokusai Denshin Denwa 25,544
13,000 Komatsu Ltd 83,993
23,000 Kubota Corp 74,194
5,000 Kyodo Printing 17,817
66,000 Kyudenko Corp 264,891
26,000 Kyushu Electric Power Co Inc 408,383
56,000 Maeda Road Construction 258,890
124,000 Marubeni Corp * 343,023
2,000 Marui Co Ltd 31,527
16,000 Matsushita Electric Industrial Co Ltd 438,110
50,000 Misawa Homes 159,415
9,000 Mitsubishi Belting 22,365
87,000 Mitsubishi Corp 636,347
3,000 Mitsubishi Electric Corp 27,991
67,000 Mitsubishi Heavy Industries 235,606
3,000 Mitsubishi Motors * 9,565
86,000 Mitsubishi Paper Mills Ltd 196,774
9,000 Mitsubishi Trust & Banking 69,205
2,000 Mitsui Fudosan Co Ltd 21,662
4,000 Mitsui Petrochemical Industries Ltd 20,293
52,000 Mizuno Corp 159,940
16,000 MOS Food Services 175,544
78,000 Nagase & Co 424,231
12,000 Nikko Securities 115,791
2,000 Nintendo Co Ltd 345,836
11,000 Nippon Express Co Ltd 61,787
34,000 Nippon Flour Mills Co Ltd 84,490
79,000 Nippon Hodo Co 348,922
273,000 Nippon Oil Co Ltd 1,551,369
27,000 Nippon Paint Co 85,071
61,000 Nippon Suisan Kaisha Ltd 108,111
16,000 Nishimatsu Construction 51,913
289,000 Nissan Motor Co * 1,452,588
445,000 Nisshin Steel Co Ltd 396,427
42,000 Nisshinbo Industries Inc 195,349
234,000 NKK Corp * 149,212
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN - CONTINUED
59,000 NOF Corp 130,570
81,000 Okumura Corp 269,646
1,000 Ono Pharmaceutical Co Ltd 39,854
44,000 Onoda Cement Co Ltd 70,968
700 Orix Corp 93,211
3,600 Promise Co 250,825
7,000 Ryosan Co 150,975
155,000 Sakura Bank Ltd 1,154,070
5,000 Sankyo Co Ltd 115,810
14,000 Sanwa Bank Ltd 132,464
3,000 Sanyo Electric Co 25,459
94,000 Seino Transportation Co Ltd 499,794
48,000 Sekisui Chemical 167,892
5,000 Sekisui House Ltd 50,731
3,000 Sharp Corp 47,796
3,000 Shikoku Electric Power 43,745
2,000 Shiseido Co Ltd 23,631
20,000 Showa Shell Sekiyu 98,650
2,400 Sony Corp 267,817
1,000 Sumitomo Bank * 12,378
2,000 Sumitomo Corp 17,442
47,000 Sumitomo Trust & Banking 331,433
9,000 Sumitomo Warehouse 25,741
4,000 Suzuki Motor Corp 42,423
2,000 Takeda Chemical Industries Ltd 118,342
50,000 TOA Corp 57,202
69,000 Tohoku Electric Power Co Inc 986,731
68,000 Tokai Bank 344,336
900 Tokyo Electric Power 20,128
20,000 Tokyo Gas Co 51,388
196,000 Tokyo Ink Manufacturing Co Ltd 387,809
14,000 Tokyo Style Co Ltd 124,850
14,000 Toppan Printing Co Ltd 136,797
8,000 Toray Industries Inc 29,257
4,000 Toyo Seikan Kaisha 68,642
1,000 Toyota Motor Corp 43,511
69,000 Yodogawa Steel Works 186,994
----------
23,377,514
----------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
KOREA - 0.2%
364 Cheil Jedang Corp 15,266
1,815 Dongwon Securities Co 11,459
3,108 Hyundai Industrial Development 12,446
1,261 Kookmin Bank 15,354
1,100 Korea Electric Power Corp 32,343
140 Lotte Confectionery Co 14,268
1,200 Pacific Chemical Corp 29,655
360 Pohang Iron & Steel (a) 27,556
550 Shinsegae Department Store 27,382
80 SK Telecom * 17,605
----------
203,334
----------
MALAYSIA - 2.4%
40,000 Genting Berhad 112,632
137,900 IJM Corp Berhad Class A 124,110
67,600 Kuala Lumpur Kepong Berhad 96,063
211,000 Magnum Corp Berhad 132,708
55,000 Malakoff Berhad 143,289
66,000 Malayan Banking Berhad 253,579
116,000 Sime Darby Berhad 128,821
19,000 Sime UEP Properties Berhad * 27,000
6,990,000 Tan Chong International Ltd 1,120,293
15,000 Tan Chong Motor Holdings Berhad 5,487
48,000 Tanjong 104,211
41,000 Tenaga Nasional Berhad 137,026
4,650 Warisan TC Holdings Berhad 2,778
----------
2,387,997
----------
MEXICO - 0.5%
34,000 Alfa SA Class A 93,629
21,000 Cemex SA de CV CPO 98,550
99,300 Desc SA Class B 61,486
30,000 Grupo Carso SA de CV Class A * 106,567
2,700 Telefonos de Mexico Class L ADR 146,981
----------
507,213
----------
NETHERLANDS - 4.3%
11,400 ABN Amro Holdings NV 283,785
4,700 Boskalis Westminster NV 106,344
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS - CONTINUED
480 Buhrmann NV Maastricht 13,634
8,400 DSM NV 256,900
6,600 Fortis (NL) NV 203,434
2,600 Gamma Holdings NV 100,552
400 Gucci Group NV * 41,608
11,400 Hollandsche Beton Groep NV 117,061
9,800 ING Groep NV 656,937
8,175 KLM-Konin Luchtvaart Mij NV * 204,594
27,000 Kon Bolswessanen 302,455
2,400 Koninklijke Ten Cate 81,615
3,100 Koninklijke Volker Wessels 54,432
7,600 Nedlloyd NV * 142,298
22,100 Royal Dutch Petroleum 1,345,888
5,400 Royal KPN NV * 144,074
5,600 Stork NV 60,740
5,906 Van Ommeren Vopak 124,967
400 Wereldhave NV 18,457
---------
4,259,775
---------
NEW ZEALAND - 0.2%
78,900 Air New Zealand Class B 83,101
95,000 Fletcher Challenge Buildings 90,297
---------
173,398
---------
NORWAY - 2.6%
900 Bergesen d.y. ASA Class A 19,836
700 Bergesen d.y. ASA Class B 14,117
93,100 Christiania Bank OG Kreditkasse 488,358
146,500 Den Norske Bank Class A 665,146
1,300 Fred Olsen Energy * 12,320
1,500 Hafslund ASA Class B * 4,661
1,000 Kvaerner ASA Class B * 11,351
4,200 Kvaerner ASA * 56,235
500 Leif Hoegh and Co AS * 5,372
6,000 Merkantildata ASA * 38,680
23,300 Norsk Hydro AS 1,001,389
600 Norske Skogindustrier ASA Class A 21,092
600 Norske Skogindustrier ASA Class B 17,323
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
NORWAY - CONTINUED
2,400 Orkla ASA 42,714
4,900 Petroleum Geo-Services * 93,417
800 SAS Norge ASA Class B 6,876
500 Schibsted ASA 10,634
6,000 Storebrand 42,647
4,300 Tandberg Data ASA * 7,866
---------
2,560,034
---------
PORTUGAL - 1.0%
276,500 Electricidade de Portugal SA * 897,251
1,400 Inapa-Invest Particip Gesta 8,451
4,000 Mota & Co SA 45,519
2,800 Portucel Industrial Empresa 17,674
500 Salvador Caetano 6,357
---------
975,252
---------
RUSSIA - 0.5%
4,400 Lukoil Holding Co ADR 286,000
10,000 Norilsk Nickel (Registered) * 100,000
8,000 Unified Energy Systems ADR * 135,000
---------
521,000
---------
SINGAPORE - 4.4%
165,900 Asia Food & Properties Ltd * 31,806
200,000 Brierley Investments Ltd * 35,438
1,500 Creative Technology Ltd 32,592
9,000 Cycle & Carriage Ltd 19,869
4,652 DBS Group Holdings Ltd 56,214
38,500 Fraser & Neave 143,148
64,000 Haw Par Brothers International Ltd 114,518
129,500 Hotel Properties Ltd 112,098
66,900 Inchcape Berhad 54,024
252,000 Jardine Strategic Holdings 718,200
5,750 Oversea-Chinese Banking Corp 39,752
330 Overseas Union Bank 1,668
221,100 Singapore Airlines Ltd (Registered) 2,132,260
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE - CONTINUED
433,100 Singapore Telecom 714,579
199,680 Straits Trading Co Ltd 170,528
3,008 United Overseas Bank 23,591
208,000 Van Der Horst Ltd (a) * 5,377
---------
4,405,662
---------
SOUTH AFRICA - 0.7%
25,600 Amalgamated Bank of South Africa 105,741
24,900 Barlow Ltd 162,667
7,100 De Beers Consolidated Mines Ltd ADR 197,025
233,100 Safmarine & Rennies Holdings (a) 13,372
26,550 Sage Group Ltd 56,927
16,200 Sasol Ltd 132,435
---------
668,167
---------
SPAIN - 1.0%
7,500 Aceralia SA 62,078
1,400 Azucarera Ebro Agricolas 16,305
2,100 Cristaleria Espanola SA 63,478
20,414 Endesa 398,372
2,800 FENOSA SA 52,052
15,400 Repsol SA 305,317
9,100 Tableros Defibras Class B * 70,386
---------
967,988
---------
SWEDEN - 4.6%
21,400 Foreningssparbanken AB Class A 318,624
6,400 Gambro AB Class A 52,901
3,400 Gambro AB Class B 28,464
4,400 Mo Och Domsjo AB Class B 101,415
167,800 Nordbanken Holdings AB 1,164,722
13,027 Nordic Baltic Holding AB * 90,094
66,000 Skandinaviska Enskilda Banken Class A 790,335
6,400 Skanska AB Class B 219,064
18,900 SSAB Swedish Steel Class A 162,232
9,700 SSAB Swedish Steel Class B 82,234
1,600 Svenska Cellulosa Class B 30,350
53,400 Svenska Handelsbanken Class A 882,785
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN - CONTINUED
13,200 Svenska Handelsbanken Class B * 214,719
42,900 Trelleborg AB Class B 293,228
2,400 Volvo AB Class A 38,404
8,200 Volvo AB Class B 135,993
---------
4,605,564
---------
SWITZERLAND - 2.8%
700 BK Vision AG (Bearer) * 177,154
110 Bobst AG (Bearer) 178,962
200 Bobst AG (Registered) 161,258
100 Credit Suisse Holdings (Registered) 20,889
100 Financiere Richemont AG Class A 283,091
200 Givaudan * 53,485
1,200 Hero AG 142,550
400 Merkur Holding AG (Registered) 99,394
300 Movenpick Holdings (Bearer) 123,956
160 Nestle AG (Registered) 344,690
200 SAir Group (Registered) 30,932
200 Schweizerische Industrie-Gesellschaft
Holding AG (Registered) 134,171
200 Schweizerische Lebensversicherungs-und
Rentenanstalt 153,912
160 Swatch Group AG (Bearer) 227,253
20 Swiss Reinsurance (Bearer) 41,043
200 Swisscom AG (Registered) * 56,699
2,000 UBS AG (New Shares) (Registered) * 290,953
600 Zurich Allied 308,858
---------
2,829,250
---------
THAILAND - 0.8%
12,500 Advanced Info Service Pcl (Foreign Registered) * 151,070
117,000 Bangkok Bank Pcl (Foreign Registered) * 120,936
374,000 Bangkok Expressway Pcl (Foreign Registered) * 71,369
9,700 Delta Electronics Pcl (Foreign Registered) 72,142
100,000 Electricity Generating Pcl (Foreign Registered) 116,819
16,000 Shinawatra Computer Pcl (Foreign Registered) * 73,199
207,000 Siam Commercial Bank Pcl (Foreign Registered) * 94,954
120,000 Telecomasia Corp Pcl (Foreign Registered) * 96,881
---------
797,370
---------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - 11.3%
100 Abbey National Plc 1,213
40,700 Anglian Water Plc * 331,020
15,100 Arcadia Group 9,667
49 AstraZeneca Plc 2,202
100 BAA 800
14,900 Barclays Plc 372,875
30,000 Bass Plc 293,318
45,200 Beazer Holmes Plc 79,574
18,000 Berkley Group 147,052
100 BG Group Plc 624
40,000 BICC Group 61,981
68,224 British Airways Plc 322,851
200 British American Tobacco 1,289
12,000 British Telecom Plc 152,770
5 BTR Siebe Plc 20
19,200 Coats Viyella 14,177
412,540 Corus Group Plc * 423,159
13,100 De Vere Group Plc 57,942
100 Great Universal Stores Plc 710
27,500 Hepworth Plc 83,423
150,100 HSBC Holdings Plc 2,164,225
46,100 Inchcape Plc 197,866
41,000 Laird Group 152,115
213,400 Marks & Spencer 644,259
15,183 Mothercare Plc * 31,037
11,000 National Power 75,381
47,100 Northern Foods Plc 72,982
45,800 Pilkington 60,973
27,100 Powergen Plc 230,266
18,000 Rank Group Plc 43,998
44,900 Rexam Plc 182,916
3,300 RMC Group 30,969
8,062 Royal Bank of Scotland Group 145,919
74,400 Royal & Sun Alliance Insurance Group 519,592
154,500 Sainsbury (J) 802,499
100 Scottish Hydro-Electric Plc 812
</TABLE>
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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM - CONTINUED
28,300 Scottish Power Plc 216,169
100 Scottish & Newcastle Plc 671
23,200 Severn Trent Plc 227,845
11,700 Smithkline Beecham Plc 152,781
7,400 Tate & Lyle 27,455
27,100 Taylor Woodrow Plc 64,269
114,200 Tesco 360,142
33,816 Thames Water Plc 410,825
45,200 Thistle Hotels Plc 82,533
204,300 TI Group Plc 1,040,362
33,600 Unigate Plc (New Shares) * 119,771
14 Unilever Plc 88
62,000 United Utilities 577,324
20,000 Vodafone Group Plc 80,968
37,800 Wilson (Connolly) Holdings 84,971
14,000 Wimpey (George) 24,138
35,100 Yorkshire Water 171,974
----------
11,354,762
----------
VENEZUELA - 0.3%
10,800 Compania Anonima Nacional Telefonos de
Venezuela (CANTV) ADR 265,950
----------
TOTAL COMMON STOCKS (Cost $99,254,587) 94,350,688
----------
PREFERRED STOCKS - 2.9%
BRAZIL - 0.9%
3,700 Companhia Vale do Rio Doce 0.00% 100,049
7,100,000 Electrobras Class B (Registered) 0.00% 144,380
1,990,710 Gerdau SA 0.00% 28,556
242,500 Investimentos Itau SA 0.00% 257,227
9,060 Petroleo Brasileiro SA (Petrobras) 0.67% 274,364
5,900,000 Telesp Celular Participacoes SA 0.00% * 87,227
-----------
891,803
-----------
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY - 1.4%
17,200 Dyckerhoff AG (Non Voting) 5.96% 336,417
300 Escada AG 4.79% 27,205
5,800 Krones AG 2.85% 165,008
19,800 MAN AG 0.00% 397,832
1,500 RWE AG 0.00% 45,008
25,000 Villeroy & Boch AG (Non Voting) 5.23% 227,819
7,800 Volkswagen AG 0.00% 203,183
10 Walter Bau AG 2.57% 45
-----------
1,402,517
-----------
ITALY - 0.5%
21,210 Fiat SPA 0.00% 320,753
4,350 IFI-Istituto Finanziario 2.85% 131,490
-----------
452,243
-----------
KOREA - 0.1%
750 Samsung Electronics (Non Voting) 2.82% 86,584
-----------
TOTAL PREFERRED STOCKS (Cost $3,022,370) 2,833,147
-----------
RIGHTS & WARRANTS - 0.0%
BRAZIL - 0.0%
590,000 Telesp Celular Participacoes SA Preferred Rights,
Expires 10/02/00 * 357
-----------
GERMANY - 0.0%
3,900 Suedzucker AG Rights, Expires 9/13/00 * 173
-----------
HONG KONG - 0.0%
5,100 Chinese Estates Holdings Ltd Warrants,
Expires 11/24/00 * 152
-----------
MALAYSIA - 0.0%
21,000 YTL Corp Berhad Warrants, Expires 6/26/09 * 7,074
-----------
THAILAND - 0.0%
75,000 Quality House Co Ltd Warrants, Expires 10/30/02 * --
-----------
TOTAL RIGHTS & WARRANTS (Cost $2,864) 7,756
-----------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 0.2%
CASH EQUIVALENTS - 0.2%
$ 200,000 Banque Nationale Paribas (London) Time Deposit,
6.60%, due 9/01/00 200,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $200,000) 200,000
-----------
TOTAL INVESTMENTS- 97.7%
(Cost $102,479,821) 97,391,591
Other Assets and Liabilities (net) - 2.3% 2,320,039
-----------
TOTAL NET ASSETS - 100.0% $99,711,630
-----------
-----------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) Valued by management (Note 1).
*Non-income producing security.
18 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, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
INDUSTRY SECTOR
<S> <C>
Banking 20.8 %
Energy Services 8.4
Utilities 6.1
Automotive 5.9
Conglomerates 5.8
Consumer Goods 5.2
Construction 4.8
Metals and Mining 4.5
Telecommunications 4.2
Transportation 4.1
Chemicals 3.7
Machinery 3.6
Services 3.1
Retail Trade 2.4
Electronic Equipment 2.3
Insurance 2.2
Real Estate 2.1
Financial Services 1.9
Food and Beverage 1.5
Paper and Allied Products 1.4
Textiles 1.3
Health Care 1.0
Communications 0.3
Miscellaneous 3.4
--------------
100.0 %
--------------
--------------
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 2000 (Unaudited)
-------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at value (cost $102,479,821) (Note 1) $ 97,391,591
Foreign currency, at value (cost $2,269,301) (Note 1) 2,233,155
Cash 68,988
Receivable for securities sold 31,707
Dividends and interest receivable 174,577
Foreign withholding taxes receivable 91,874
Receivable for expenses waived or borne by Manager (Note 2) 15,066
-------------------
Total assets 100,006,958
-------------------
LIABILITIES:
Net payable for open forward foreign currency contracts 179,444
Accrued capital gain and repatriation taxes payable (Note 1) 6,282
Payable to affiliate for (Note 2):
Management fee 46,083
Shareholder service fee 12,801
Accrued expenses 50,718
-------------------
Total liabilities 295,328
-------------------
NET ASSETS $ 99,711,630
-------------------
-------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 100,118,269
Accumulated undistributed net investment income 1,076,860
Accumulated undistributed net realized gain 3,830,664
Net unrealized depreciation (5,314,163)
-------------------
$ 99,711,630
-------------------
-------------------
NET ASSETS ATTRIBUTABLE TO:
Class III Shares $ 99,711,630
-------------------
-------------------
SHARES OUTSTANDING:
Class III 9,150,325
-------------------
-------------------
NET ASSET VALUE PER SHARE:
Class III $ 10.90
-------------------
-------------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $229,383) $ 2,065,997
Interest 55,733
------------------
Total income 2,121,730
------------------
EXPENSES:
Management fee (Note 2) 296,916
Custodian fees 79,672
Audit fees 19,136
Transfer agent fees 13,800
Legal fees 3,036
Trustees fees (Note 2) 736
Registration fees 92
Miscellaneous 3,761
Fees waived or borne by Manager (Note 2) (117,392)
------------------
299,757
Shareholder service fee - Class III (Note 2) 82,477
------------------
Net expenses 382,234
------------------
Net investment income 1,739,496
------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 4,633,947
Foreign currency, forward contracts and foreign
currency related transactions (450,239)
------------------
Net realized gain 4,183,708
------------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (881,039)
Foreign currency, forward contracts and foreign
currency related transactions (33,939)
------------------
Net unrealized loss (914,978)
------------------
Net realized and unrealized gain: 3,268,730
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,008,226
------------------
------------------
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
--------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,739,496 $ 1,040,739
Net realized gain (loss) 4,183,708 (631,685)
Change in net unrealized appreciation (depreciation) (914,978) (4,350,518)
--------------------- ---------------------
Net increase (decrease) in net assets resulting from operations 5,008,226 (3,941,464)
--------------------- ---------------------
Distributions to shareholders from:
Net investment income - Class III (64,093) (1,040,739)
In excess of net investment income - Class III - (324,705)
--------------------- ---------------------
(64,093) (1,365,444)
--------------------- ---------------------
Net share transactions - Class III (Note 5) (17,855,753) 99,401,085
--------------------- ---------------------
Total increase (decrease) in net assets (12,911,620) 94,094,177
NET ASSETS:
Beginning of period 112,623,250 18,529,073
--------------------- ---------------------
End of period (including accumulated undistributed net
investment income of $1,076,860 and distributions in excess
of net investment income of $598,543, respectively) $ 99,711,630 $ 112,623,250
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
22 See accompanying notes to the financial statements.
<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, 2000 YEAR ENDED (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) FEBRUARY 29, 2000 THROUGH FEBRUARY 28, 1999
----------------- ------------------- ------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.43 $ 9.71 $ 10.00
---------------- ------------------- ------------------
Income (loss) from investment operations:
Net investment income 0.17 (b) 0.15 (b) 0.04
Net realized and unrealized gain (loss) 0.31 0.70 (0.28)
---------------- ------------------- ------------------
Total from investment operations 0.48 0.85 (0.24)
---------------- ------------------- ------------------
Less distributions to shareholders:
From net investment income (0.01) (0.10) (0.04)
In excess of net investment income 0.00 (0.03) (0.01)
---------------- ------------------- ------------------
Total distributions (0.01) (0.13) (0.05)
---------------- ------------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 10.90 $ 10.43 $ 9.71
---------------- ------------------- ------------------
---------------- ------------------- ------------------
TOTAL RETURN (a) 4.57% ** 8.65% (2.44%)**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 99,712 $ 112,623 $ 18,529
Net expenses to average
daily net assets 0.70% * 0.69% 0.69% *
Net investment income to average
daily net assets 3.16% * 1.36% 0.87% *
Portfolio turnover rate 29% 5% 20%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.04 $ 0.12
</TABLE>
* Annualized
** Not 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.
See accompanying notes to the financial statements. 23
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of shares into classes.
The Fund seeks high after-tax total return primarily through investment in
non-U.S. equity securities. The Fund's benchmark is the GMO EAFE (After
Tax).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States and which are consistently followed by the Fund in the preparation
of its financial statements. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States 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 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 quotations are not 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 current exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at current 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
24
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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 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, 2000.
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, 2000,
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
25
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return, both based on notional amounts. 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. 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, 2000,
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 future, security, or
currency transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying future,
security, or currency may be sold (call) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the future,
security, or currency 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, 2000 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.
Premiums paid for purhasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the
transaction to determine gain or loss. 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
U.S. federal income tax purposes. Therefore, no
26
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
provision for U.S. 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 29,
2000, the Fund had a capital loss carry forward available to offset future
gains, if any, of $323,163, expiring in 2008. The value of the capital loss
carryforward may be limited due to significant shareholder activity.
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 a deferred tax
liability in respect of unrealized appreciation on foreign securities of
$6,282 for potential repatriation taxes at August 31, 2000. The accrual for
repatriation taxes is included in net unrealized gain in the Statement of
Operations.
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. Distributions to shareholders are recorded by the fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
accounting principles generally accepted in the United States.
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, net
of applicable withholding taxes, 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.
27
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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. For the six months ended August 31, 2000, the Fund
received $13,373 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.
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 31, 2001 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2000, 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, 2000,
aggregated $30,632,874 and $47,415,201, respectively.
At August 31, 2000, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
$102,479,821 $6,937,696 $12,025,926 $5,088,230
</TABLE>
28
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 51.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
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, 2000 February 29, 2000
------------------- --------------------
Class III: Shares Amount Shares Amount
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold 212,785 $ 2,228,778 8,828,580 $ 98,659,192
Shares issued to
shareholders in
reinvestment of
distributions 3,151 34,981 65,946 741,893
Shares repurchased (1,868,067) (20,119,512) - -
------------- ------------ ---------- -----------
Net increase/(decrease) (1,652,131) $(17,855,753) 8,894,526 $ 99,401,085
------------- ------------ ---------- -----------
------------- ------------ ---------- -----------
</TABLE>
29
<PAGE>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2000 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>
Buy
04/11/01 EUR 3,600,000 $ 3,232,776 $ (215,484)
------------
Sales
10/20/00 HKD 2,949,532 $ 378,343 $ (2,343)
04/11/01 JPY 350,100,000 3,409,877 38,383
------------
$ 36,040
-------------
-------------
</TABLE>
Currency Abbreviations:
EUR Euro Dollar
HKD Hong Kong Dollar
JPY Japanese Yen
30
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2000
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 71.0%
BRAZIL - 6.4%
35,000 Brasil Telecom Participacoes SA ADR 2,465,313
268,194,000 Brasil Telecom Participacoes SA * 2,947,997
392,900,000 Cesp-Cia Energetica Sao Paulo * 3,865,298
6,519,803 Cia Saneamento Basico SAO PA 705,909
1,676,280,000 Companhia de Acos Especiais Itabira-Acesita * 1,022,628
1,215,783,000 Electrobras 22,785,491
139,600 Embratel Participacoes SA ADR 3,053,750
268,194,000 Embratel Participacoes SA * 5,085,294
106,000 Petroleo Brasileiro SA (Petrobras) ADR * 3,372,125
1,105,700 Souza Cruz (Registered) 5,438,865
31,600 Tele Celular Sul Participacoes SA ADR * 1,256,100
268,194,000 Tele Celular Sul Participacoes SA * 854,919
317,300 Tele Centro Oeste Celular SA ADR 4,045,575
268,194,000 Tele Centro Oeste Celular SA * 1,381,136
37,600 Tele Leste Celular Participacoes SA ADR * 1,720,200
268,194,000 Tele Leste Celular Participacoes SA * 244,684
268,194,000 Tele Nordeste Celular Participacoes SA * 648,559
268,194,000 Tele Norte Celular Participacoes SA * 213,730
268,194,000 Tele Norte Leste Participacoes SA * 5,262,174
268,472,304 Telemig Celular Participacoes SA * 687,596
32,000 Telesp Celular Participacoes SA ADR 1,176,000
268,211,790 Telesp Celular Participacoes SA * 2,800,783
-----------------
71,034,126
-----------------
CHILE - 1.0%
9,655 Banco de Edward ADR * 127,325
55,800 Banco Santander ADR 843,975
37,900 Banco Santiago ADR 743,788
12,500 Chilectra SA ADR 193,750
227,100 Chilquinta ADR 144A 3,179,400
30,800 Compania de Telefones de Chile ADR * 542,850
36,000 Cristalerias de Chile SA ADR 567,000
14,148 Empresa Nacional de Electricidad SA ADR * 151,207
20,581 Enersis SA ADR * 355,022
104,663 Gener SA ADR 1,334,453
18,400 Laboratorio Chile SA ADR 315,100
65,000 Madeco SA ADR * 373,750
101,100 Masisa SA ADR 1,289,025
55,490 Quinenco SA ADR 492,474
14,000 Sociedad Quimica y Minera de Chile ADR 326,375
25,640 Telex-Chile SA ADR * 73,715
6,600 Vina Concha y Toro SA ADR 237,188
-----------------
11,146,397
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CHINA - 2.6%
5,120,000 Beijing Datang Power Generation Co Ltd Class H 1,201,339
9,878,000 China Eastern Airlines * 1,646,481
624,832 China International Marine Containers Ltd Class B 541,570
1,650,000 China Merchants Holdings Co Ltd 1,290,500
10,914,000 China Overseas Land & Investment Ltd 1,301,401
1,511,000 China Resources Enterprise 2,247,330
1,086,895 China Southern Glass Co Ltd Class B * 405,532
633,000 China Telecom Ltd * 4,869,668
2,342,000 Citic Ka Wah Bank Ltd 863,315
1,047,000 Cosco Pacific Ltd 946,412
6,406,000 Guangdong Investment Ltd * 878,851
115,700 Guangshen Railway Co ADR 766,513
14,781,000 Guangshen Railway Co Class H 2,027,832
40,300 Huaneng Power International ADR 652,356
2,636,000 Jilin Chemical Industrial Co 199,408
630,000 Maanshan Iron & Steel * 39,580
17,335,000 Qingling Motor Co Ltd Class H 2,800,521
4,173,504 Shanghai Chlor-Alkali Chemical Class B * 1,085,111
597,000 Shanghai Industrial Holdings 1,278,307
5,854,684 Shanghai Lujiazui Finance & Trade Class B * 2,318,455
1,221,551 Shenzhen Seg Co Ltd Class B 383,727
12,437 SIIC Medical Science and Technology (Group) Ltd * 2,679
4,970,000 Zhejiang Expressway Co 911,248
-----------------
28,658,136
-----------------
COLOMBIA - 0.0%
24,300 Banco Ganadero SA ADR 88,088
-----------------
CZECH REPUBLIC - 1.4%
190,000 Ceska Sporitelna * 966,848
927,178 Ceske Energeticke Zavody AS * 2,527,223
71,846 Ceske Radiokomunikace * 3,196,293
130,000 IPS Praha * 623,735
45,100 Komercni Banka AS * 1,011,160
157,565 SPT Telecom AS * 2,381,575
19,730 Tabak AS 2,783,353
1,480,000 Unipetrol * 2,222,088
-----------------
15,712,275
-----------------
EGYPT - 0.9%
20,000 Al Ahram Beverage Co GDR 144A * 339,000
238,500 Al Ahram Beverage Co GDR * 4,042,575
12,000 Al Ahram Beverage Co * 213,371
3,754 Eastern Tobacco Co 79,042
2,000 Egypt Gas Co 91,038
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
EGYPT - CONTINUED
15,800 Egyptian International Pharmaceuticals Industries Co 635,147
16,770 Miraco 87,404
151,485 MobiNil-Egyptian Mobile Services Co * 3,878,706
19,000 Oriental Weavers Co 222,649
-----------------
9,588,932
-----------------
FORMER SOVIET REPUBLICS - 0.1%
90,000 Divot Holdings NV (e) (f) * 1,502,100
-----------------
GREECE - 0.0%
8,940 Econ Viomihanies (f) * -
-----------------
HUNGARY - 0.0%
28,151 Fotex (Registered) * 27,771
-----------------
INDIA - 1.2%
2,700 Aptech Ltd 32,150
2,700 Aptech Ltd (New Shares) * 32,150
530 Arvind Mills Ltd * 104
100 Bank of India * 22
299,600 Birla Corp Ltd * 114,551
135,109 Birla Global Finance * 81,178
1,060 BSES Ltd 5,060
50 Ceat Ltd 31
7,700 Ceat Ltd 4,711
1,300 Cipla Ltd 23,177
2,000 Cipla Ltd (New Shares) 35,657
600 Cipla Ltd * 10,697
133,200 Citicorp Securities & Investments * 331,763
850 Escorts Ltd 1,840
300,000 ETC Networks Ltd * 950,404
5,925 Fujitsu ICIM Ltd * 21,683
300,000 Galaxy Entertainment Corp * 648,569
146 Gesco Corp Ltd 48
400 Global Tele-Systems Ltd 9,736
1,165 Godfrey Phillips India 10,385
1,318 Great Eastern Shipping Co 717
2,990 HCL Infosytems Ltd 22,567
1,580 Himachal Futuristic Communications 49,535
20 India Cements 19
300 ITC Ltd 5,086
100 ITC Ltd * 1,695
998 Kale Consultants Ltd 2,478
61,166 KEC International Ltd 24,055
66,000 Leading Edge Systems Ltd 712,200
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDIA - CONTINUED
1,300 Mastek Ltd 75,978
9,150 Mastek Ltd 534,766
300 Mastek Ltd (New Shares) 17,533
100 NIIT Ltd (New Shares) 4,104
30,475 NIIT Ltd * 1,253,090
8,029 Reliance Industries 59,020
6,000 Satyam Computer Services * 75,075
87,700 Shyam Telecom Ltd 619,859
104,596 Shyam Telecom Ltd (New Shares) * 739,279
271,317 Shyam Telecom Ltd * 1,936,624
400 SSI Ltd 24,759
75,500 Sterlite Industries Ltd 1,267,433
300 Sun Pharmaceuticals Industries 3,674
20,800 Sun Pharmaceuticals Industries * 254,717
10,100 Tata Elxsi Ltd 24,274
11,000 Trigyn Technologies Ltd * 118,700
262,100 U TV Software Comm Ltd (f) * 2,863,229
56,000 United Breweries Ltd * 91,641
1,115 Videocon International Ltd 1,040
9,600 Western Hatcheries Ltd 10,645
145,000 Western Hatcheries Ltd 160,777
200 Wockhardt Life Sciences Ltd 137
2,100 Wockhardt Ltd * 19,449
-----------------
13,288,071
-----------------
INDONESIA - 4.2%
18,144,100 Astra International * 5,738,904
102,800,000 Bank Internasional Indonesia * 927,240
33,328,000 Barito Pacific Timber * 1,202,453
29,861,500 Citra Marga Nusaphala Persad * 1,723,815
1,875,000 Dynaplast 251,428
12,752,000 Gajah Tunggal Tbk * 705,462
6,186,000 Gudang Garam 9,284,580
78,100 Gulf Resources Ltd ADR * 781,000
3,013,900 HM Sampoerna 4,476,448
3,643,800 Indah Kiat Pulp & Paper * 637,610
9,451,000 Indorama Synthetics 949,078
3,072,000 International Nickel * 2,697,005
3,148,000 Jakarta International Hotel & Development Tbk * 223,370
13,888,500 Kalbe Farma * 1,127,449
27,491,000 Matahari Putra Prima Tbk 2,115,964
7,227,000 Mulia Industrindo Tbk * 365,044
25,051,250 PT Asuransi Lippo Life Tbk 858,642
3,230,000 PT Bimantara Citra * 442,838
5,069,000 PT Indofood Sukses Makmur Tbk * 2,273,887
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDONESIA - CONTINUED
140,000 PT Indosat (Persero) Tbk 125,436
9,397,500 PT Multipolar Corp Tbk * 542,489
6,072,500 PT Pabrik Kertas Tjiwi Kimia 894,626
776,000 Semen Gresik 629,946
17,327,280 Telekomunikasi Indonesia 6,022,350
138,240 Telekomunikasi Indonesia Class B ADR 984,960
4,109,000 United Tractors * 929,034
-----------------
46,911,058
-----------------
ISRAEL - 2.8%
68 Africa Israel Investments Ltd * 77,683
1,745,202 Bank Hapoalim Ltd 5,561,012
2,112,511 Bank Leumi Le-Israel 4,869,766
20,278 Clal Electronics Industries Ltd * 4,573,530
33,430 Clal Industries Ltd * 414,192
2,600 Discount Mortgage Bank Ltd * 214,239
139,446 FIBI Holdings Ltd * 1,403,138
539,633 First International Bank of Israel Ltd * 780,500
13,100 Formula Systems Ltd ADR * 668,100
15,648 Formula Systems Ltd * 790,775
68,237 IDB Development Corp Ltd Class A1 * 3,190,169
1,104,319 Israel Discount Bank Class A * 1,308,028
1 Machteshim Agan Industries * 2
109,729 Teva Pharmaceutical 6,744,359
-----------------
30,595,493
-----------------
KOREA - 7.3%
277,000 Cheil Industries Inc * 1,808,776
243,520 Daelim Industrial Co Ltd 1,322,201
1,735,000 Daewoo Corp 610,282
438,000 Dongbu Securities Co * 1,321,407
725,000 Hankook Tire Co Ltd * 1,778,579
126,420 Hankuk Glass 1,465,161
275,000 Hanwha Chemical Corp * 910,259
493,948 Hanwha Corp 1,559,250
370,000 Hanwha Securities Co * 1,374,882
268,400 Hotel Shilla Co * 1,125,646
247,000 Hyosung Corp * 2,327,982
256,734 Hyundai Electronics Industries * 4,700,519
100,881 Hyundai Heavy Industries 2,001,697
164,600 Hyundai Marine & Fire Insurance Co 1,165,375
354,000 Hyundai Motor Co 5,363,878
435,000 Inchon Iron & Steel * 1,339,820
652,172 Inchon Oil Refinery Co * 1,202,879
280,993 Kookmin Bank GDR 144A (Registered) 3,428,115
206,670 Korea Electric Power Corp 6,076,611
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
KOREA - CONTINUED
312,000 Korea Express * 1,497,037
126,735 Korea Next Education Services Inc * 426,355
160,000 Korea Reinsurance * 1,057,768
38,400 Korea Telecommunications ADR 1,454,400
506,815 Korean Air Lines 3,606,557
53,580 LG Ad Inc * 2,764,172
29,980 LG Home Shopping Inc * 3,028,419
559,400 LG International Corp * 1,533,778
11,570 Lotte Confectionery Co 1,179,175
1,046,000 Orion Electric Co * 1,877,375
39,476 Pohang Iron & Steel (f) 3,021,716
200,000 Poongsan Corp 1,257,272
153,003 Sam Yang 1,386,859
14,193 Samsung Electro Mechanics 602,922
3,613 Samsung Fire & Marine Insurance 96,455
340,600 Samsung Heavy Industries * 1,336,289
17,341 Serome Technology Inc 391,785
115,341 Shin Young Securities Co 1,248,336
168,370 SK Corp 2,854,887
21,900 SK Telecom * 4,819,481
800,643 Ssangyong Cement * 1,000,127
77,770 Ssangyong Oil Refining 1,802,651
341,131 Tai Han Electric Wire 2,799,812
1,760 Wooree Lighting Co Ltd * 36,986
-----------------
81,963,933
-----------------
LEBANON - 0.2%
217,064 Banque Libanaise * 1,519,448
139,000 Solidere GDR (Registered) * 948,675
-----------------
2,468,123
-----------------
MALAYSIA - 7.3%
2,836,500 Affin Holdings Berhad 1,545,146
630,000 AMMB Holdings Berhad 2,072,368
1,709,000 Arab Malaysian Corp * 1,110,850
515,600 British American Tobacco Berhad 4,816,789
816,000 Cement Industries of Malaysia Berhad 517,516
2,467,900 Cold Storage * 1,428,784
1,395,800 DRB-Hicom Berhad * 907,270
1,197,000 Edaran Otomobil Berhad 3,276,000
1,041,000 Gamuda Berhad 1,177,974
1,202,000 Genting Berhad 3,384,579
4,310,000 Highlands and Lowlands Berhad 2,948,947
1,330,000 Hong Leong Bank Berhad 2,397,500
1,143,000 Hong Leong Credit Berhad 2,105,526
393,000 Hong Leong Industries Berhad * 1,272,079
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA - CONTINUED
1,323,000 Hume Industries-Malaysia Berhad 1,483,153
3,562,625 IGB Corp Berhad 1,171,916
6,917,000 IJM Corp Berhad Class A 6,225,300
5,761,800 IOI Corp Berhad 4,912,693
2,058,000 Kuala Lumpur Kepong Berhad 2,924,526
1,883,000 Malakoff Berhad 4,905,711
786,000 Malayan Banking Berhad 3,019,895
3,402,000 Malaysian International Shipping (Foreign Registered) 5,147,763
940,000 Malaysian Oxygen Berhad 2,597,368
343,000 Malaysian Pacific Industries 2,978,684
7,491,000 Metroplex Berhad 1,143,363
48,600 Nylex Berhad 26,602
658,900 Oriental Holdings Berhad 1,361,149
109,620 Silverstone (f) * 288
1,040,000 Sime Darby Berhad 1,154,947
1,260,000 Sime UEP Properties Berhad * 1,790,526
14,130,000 Tan Chong International Ltd 2,264,626
2,290,700 Tanjong 4,973,230
313,700 Tenaga Nasional Berhad 1,048,418
1,061,000 United Engineers 2,261,605
3,491,700 Westmont Industries Berhad (f) * 9,189
-----------------
80,362,280
-----------------
MEXICO - 8.0%
2,062,600 Alfa SA Class A 5,679,964
2,666,415 Altos Hornos de Mexico (f) (g) * 2,897
1,689,000 Carso Global Telecom Class A * 4,348,411
123,900 Cemex SA de CV ADR (Participating Certificates) 2,903,906
771,000 Cemex SA de CV CPO 3,618,185
3,904,815 Controladora Comercial Mexicana SA de CV Classes B and C 5,005,357
525,000 Corporacion GEO SA * 992,342
1,601,680 Cydsa SA Class A 1,130,946
142,100 Desc SA ADR 1,705,200
5,452,700 Desc SA Class B 3,376,285
1,298,500 Desc SA Class C 784,277
14,700 Fomento Economico Mexicano SA 669,769
1,905,600 Grupo Carso SA de CV Class A * 6,769,118
1,500,000 Grupo Casa Autrey * 1,499,104
70,000 Grupo Cementos de Chihuahua SA Class B 53,229
565,705 Grupo Financiero Banamex Acciva Class O * 2,888,288
17,007,758 Grupo Financiero Bancomer SA * 10,198,558
50,400 Grupo Financiero Inbursa SA * 190,530
8,232,755 Grupo Financiero Serfin SA de CV Class B (f) * 8,943
1,009,107 Grupo Gigante * 1,731,996
543,000 Grupo Industrial Bimbo Class A 867,101
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEXICO - CONTINUED
3,897,000 Grupo Industrial Maseca SA 1,397,002
934,418 Grupo Mexico Class B 4,171,917
80,200 Grupo Mexico Desarollo Class B ADR (f) * 802
2,738,000 Grupo Posadas SA Class L * 1,963,044
6,255,000 Grupo Situr SA de CV Class B (f) * 6,795
51,000 Grupo Televisa SA GDR * 3,302,250
199,750 Grupo Tribasa SA ADR * 187,266
2,877,000 Herdez Class BCP 843,832
606,000 Hylsamex SA * 868,959
633,200 Industrias Penoles SA 976,747
10,000 Ispat International NV Class A (Registered) 65,000
395,500 Pepsi-Gemex SA * 1,952,781
260,700 Telefonos de Mexico Class L ADR 14,191,856
113,300 Tubos de Acero de Mexico SA ADR 1,706,581
563,800 Vitro SA ADR 1,797,113
-----------------
87,856,351
-----------------
PAKISTAN - 1.5%
4,644,900 Fauji Fertilizer (f) 3,303,743
157,166 HUB Power Co GDR * 1,100,162
9,291,000 HUB Power Co * 2,791,802
138,940 Lever Brothers Pakistan Ltd (f) 2,389,123
1,161,408 Pakistan State Oil (f) 3,548,351
6,351,600 Pakistan Telecom Corp Ltd Class A (f) 2,824,224
6,600 Pakistan Telecom Corp Ltd GDR 293,700
-----------------
16,251,105
-----------------
PERU - 0.0%
134,624 Cervecerias 41,077
730 Milpo Minera Class T 151
-----------------
41,228
-----------------
PHILIPPINES - 0.7%
14,480,200 Aboitiz Equity Ventures Inc 494,172
4,697,184 Ayala Corp 749,468
1,690,543 Ionics Circuits Inc 580,685
7,277,700 JG Summit Holdings Inc Class B 467,708
807,500 La Tondena Distillers Inc 590,526
350,000 Manila Electric Class B * 508,033
10,723,000 Petron Corp * 308,917
172,770 Philippine Long Distance Telephone 2,928,954
912,200 San Miguel Corp Class B 1,071,393
2,998,000 Universal Robina Corp 345,476
-----------------
8,045,332
-----------------
POLAND - 0.1%
1,430 Elektrim SA (Bearer) * 16,300
234,502 Okocimskie Zaklady Piwowarskie SA * 924,857
-----------------
941,157
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RUSSIA - 6.3%
50,000 AO Tatneft ADR * 655,000
2,649,789 Chelabinsky Tube Work * 105,992
17,100 Dalmoreproduct * 855
272,800 Electrocila * 343,728
29,221 Elisb (f) 37,987
472,700 Irkutskelectrosviaz * 269,439
3,368,100 Irkutskenergo ADR 15,577,463
89,030 Kirovsky Plant * 173,609
221,325 Lukoil Holding Co ADR 14,386,125
25,000 Lukoil Holding Co * 405,000
2,290,387 Norilsk Nickel (Registered) * 22,903,870
450,000 OMZ Gruppa Uralmash-Izhora ADR 144A * 900,000
1,418,180 OMZ Gruppa Uralmash-Izhora GDR * 2,836,360
135,000 Russia Petroleum * 101,250
10,000 Seversky Tube Works ADR * 72,500
785,700 St Petersburg Telephone * 628,560
500,000 Sun Interbrew Ltd GDR * 1,437,500
70,000 Surgutneftegaz ADR * 1,356,250
37,000 Trade House GUM ADR 142,080
250,000 Unified Energy Systems ADR * 4,218,750
40,000 Unified Energy Systems GDR * 675,000
1,014,240 Uralmash Zavody * 2,028,480
150,000 Yukos Holding * 252,750
-----------------
69,508,548
-----------------
SOUTH AFRICA - 8.6%
1,434,800 AECI Ltd 2,736,872
1,352,337 Amalgamated Bank of South Africa 5,585,845
94,600 Anglo American Platinum Corp 3,698,524
96,145 Anglo Gold Ltd 3,750,655
3,330,300 Anglovaal Industries Inc 3,510,607
895,700 Barlow Ltd 5,851,436
6,929,404 Consolidated African Mines * 387,589
243,380 De Beers Centenary Link Units 6,771,706
149,700 De Beers Consolidated Mines Ltd ADR 4,154,175
2,460,700 Del Monte Royal Foods Ltd 1,574,001
735,377 Dimension Data Holdings Plc * 7,171,837
791,900 Goldfields Ltd 2,918,871
196 Harmony Gold Mining Co Ltd 1,046
931,279 Iscor Ltd * 2,163,746
20,000 Johnnies Industrial Corp 276,802
246,008 Liberty International Plc 1,905,261
617,640 Liberty Life Association of Africa Ltd 5,757,849
1,607,500 Metropolitan Life Ltd 2,224,794
3,340,300 Murray & Roberts Holdings Ltd 1,595,296
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH AFRICA - CONTINUED
2,793,200 Premier Group Ltd 4,006
164,000 Randgold Resources Ltd GDR 144A * 697,000
180,200 Randgold & Exploration Co * 167,989
293,870 Rembrandt Group Ltd 2,908,143
2,201,373 Reunert Ltd 3,693,950
5,638,900 Safmarine & Rennies Holdings (f) 323,494
1,213,371 Sage Group Ltd 2,601,634
458,768 Sappi Ltd 4,013,603
1,019,110 Sasol Ltd 8,331,197
150,000 Specialized Outsourcing Ltd * 223,736
465,549 Standard Bank Investment Corp 1,969,695
16,200,260 Sun International Ltd 4,182,211
173,351 Tiger Brands Ltd 1,382,333
580,300 Tongaat-Hulett Group 2,996,171
87,000 Western Areas Gold Mining Co Ltd * 194,650
-----------------
95,726,724
-----------------
SRI LANKA - 0.1%
4,590,170 Blue Diamonds Jewelry Ltd * 205,837
333,600 Lanka Walltile Ltd 48,085
404,200 Lion Brewery Ceylon Ltd * 64,734
311,597 Millenium Information Technology (e) (f) * 342,757
-----------------
661,413
-----------------
TAIWAN - 2.6%
7,205,290 Ambassador Hotel * 1,982,629
1,308,000 Asia Cement Corp 711,407
21,240 Asustek Computer Inc 130,560
9,865,400 Chia Hsin Food & Synthetic * 1,276,335
2,445,550 China Steel Corp 1,621,316
1,407,972 China Trust Commercial Bank * 1,110,156
1,960,343 First Bank 1,703,412
4,715,214 Formosa Taffeta Co 2,989,451
3,294,650 Great Wall Enterprise Co 1,023,200
126,100 Hon Hai Precision Industry Co Ltd 961,805
2,250,000 International Bills Finance Corp * 510,500
3,281,350 Megamedia Corp * 1,309,478
8,655,466 Pacific Construction * 1,935,972
6,442,000 Prince Housing Development * 1,015,876
1,425,600 Taiwan Cement Corp 899,244
3,013,000 Taiwan Fluorescent Lamp Co * 606,042
1,980,000 Taiwan Pulp and Paper Co * 560,753
1,111,331 Taiwan Semiconductor * 4,810,492
915,600 United Microelectronics * 2,430,992
637,000 Wan Yu Paper (f) * 205
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TAIWAN - CONTINUED
1,043,050 Yageo Corp * 1,248,740
2,674,000 Yieh Loong Co * 351,972
-----------------
29,190,537
-----------------
THAILAND - 5.5%
635,200 Advanced Info Service Public Co Ltd (Foreign Registered) * 7,676,790
2,197,000 Ban Pu Coal Public Co Ltd (Foreign Registered) 1,074,985
6,842,700 Bangchak Petroleum Public Co Ltd (Foreign Registered) * 970,952
3,624,500 Bangkok Bank Pcl (Foreign Registered) * 3,746,425
13,309,700 Bangkok Expressway Public Co Ltd (Foreign Registered) * 2,539,833
4,800 Bangkok Land Co Ltd (Foreign Registered) * 317
7,663,000 Bank of Ayudhya Pcl (Foreign Registered) * 1,124,844
160,000 BEC World Public Co Ltd (Foreign Registered) 962,936
2,453,954 CP Feedmill Public Co Ltd (Foreign Registered) 3,062,415
335,496 Delta Electronics Public Co Ltd (Foreign Registered) 2,495,187
3,936,760 Electricity Generating Public Co Ltd (Foreign Registered) 4,598,906
7,418,959 Industrial Finance Corp of Thailand (Foreign Registered) * 1,143,473
3,021,000 Krung Thai Bank Public Co Ltd (Foreign Registered) * 905,376
6,804,700 National Finance Pcl * 948,912
1,483,000 National Petrochemical (Foreign Registered) (f) 961,456
623,019 PTT Exploration and Production Public Co Ltd (Foreign Registered) 3,871,482
6,008,500 Safari World Public Co * 867,282
1,642,700 Saha Pathana International Holdings Pcl (Foreign Registered) 1,597,488
2,230,500 Saha Union Public Co Ltd (Foreign Registered) 559,330
695,492 Shinawatra Computer Public Co Ltd (Foreign Registered) * 3,181,823
772,000 Siam City Cement (Foreign Registered) * 2,436,404
4,375,300 Siam Commercial Bank Pcl (Foreign Registered) * 2,007,018
1,108,000 Siam Makro Co Ltd * 1,450,226
3,108,050 Star Block Co Ltd (Foreign Registered) (f) * 760
5,951,913 Telecomasia Corp Public Co Ltd (Foreign Registered) * 4,805,214
4,080,600 Thai Farmers Bank Pcl (Foreign Registered) * 2,495,780
50 Thai German Ceramics Industry (Foreign Registered) * 6
8,266,500 Thai Military Bank * 1,152,760
8,892,680 Thai Petrochemical (Foreign Registered) * 913,743
93,800 Thai Plastic & Chemical (Foreign Registered) 165,226
7,168,400 Thai Telephone & Telecommunications (Foreign Registered) * 947,018
3,363,400 TPI Polene Co (Foreign Registered) * 843,421
4,107,378 United Broadcasting Pcl (Foreign Registered) * 1,808,754
-----------------
61,316,542
-----------------
TURKEY - 1.2%
441,732,000 Dardanel Onentas Gida * 1,180,633
361,964,000 Doktas Dokumculuk Ticaret * 4,146,145
62,649,000 Eregli Demir VE Celik Fabrik * 2,081,092
55,733,264 Gima * 510,721
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TURKEY - CONTINUED
205,950,000 Global Menkul Degerler * 2,107,436
497,400,000 Izmir Demir Celik Sanayi * 1,025,551
42,150,000 Medya Holding * 495,685
32,564,000 Sarkuysan Elektrolitik Bakir 758,447
38,330,000 TAT Konserve 515,157
81,000,000 Yapi VE Kredi Bankasi * 680,402
-----------------
13,501,269
-----------------
VENEZUELA - 1.0%
2,402,565 Banco Provincial 1,574,937
160,606 Ceramica Carabobo Class B ADR 192,727
284,200 Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR 6,998,425
778 International Briquettes Holding * 1,848
40,181 Mantex SA Class A ADR * 318,937
280,000 Mercantil Servicios Financieros ADR 1,120,000
23 Siderurgica Venezolana (Sivensa) Class B * 1
723,926 Venepal SA Class B GDR 144A * 7,239
1,245,773 Venezolana de Cementes 425,518
329,257 Venezolana de Cementes Tipo II 107,679
-----------------
10,747,311
-----------------
TOTAL COMMON STOCKS (Cost $931,803,412) 787,134,300
-----------------
PREFERRED STOCKS - 11.1%
BRAZIL - 8.2%
22,920,000 Alpargatas de Sao Paolo 5.99% 1,788,755
750,900,000 Banco do Brasil SA 0.00% 3,408,867
93,316,200 Banco Estado Sao Paulo 0.53% 3,164,391
148,940,000 Banco Nacional 0.00% (f) (g) * 819
564,625,003 Bombril SA 6.17% 5,368,515
49,522,000 Brasil Telecom Participacoes SA 0.00% * 707,652
6,610,000 Centrais Eletricas de Santa Catarina SA Class B 0.08% * 2,651,992
943,400,000 Cia Energetica de Sao Paolo SA (Registered) 4.23% 9,773,614
34,000,000 Cia Energetica Perna Class A 0.94% 177,521
167,200,000 Companhia de Transmissao de Energia Eletrica Paulista 0.00% * 827,040
13,559,000 Copene-Petroquimica do Nordeste SA Class A 0.00% 5,663,556
415,748,860 Electrobras Class B (Registered) 0.00% 8,454,360
146,500,000 Elektro 0.00% 394,531
49,522,000 Embratel Participacoes SA 0.12% * 1,099,582
659,062,710 Gerasul 0.00% * 1,043,358
13,566,189 Investimentos Itau SA 0.00% 14,390,077
5,850,000 Itaubanco SA (Registered) 0.00% 559,439
42,420,000 Mesbla (Registered) 0.00% (f) (g) * 233
335,746,000 Olvebra 0.00% (f) * 1,845
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BRAZIL - CONTINUED
353,450,328 Sao Carlos Empreendimentos e Participacoes 0.00% 796,453
219,100,000 Siderurgica de Tubarao 8.39% 2,926,150
63,000 Suzano (Registered) 1.76% 238,912
49,522,000 Tele Celular Sul Participacoes SA 0.00% * 202,769
49,522,000 Tele Centro Oeste Celular SA 0.00% * 215,017
49,522,000 Tele Leste Celular Participacoes SA (Registered) 0.00% * 50,896
49,522,000 Tele Nordeste Celular Participacoes SA 0.00% * 152,417
62,300 Tele Nordeste Celular Participacoes SA ADR 0.00% 3,738,000
49,522,000 Tele Norte Celular Participacoes SA 0.86% * 43,820
9,500 Tele Norte Celular Participacoes SA ADR 0.00% * 409,688
86,724,414 Tele Norte Leste Participacoes SA 1.60% 2,197,304
128,832 Tele Norte Leste Participacoes SA ADR 0.00% 3,285,216
144,000 Telecomunicacoes Brasileiras SA ADR 0.00% 13,212,000
49,573,388 Telemig Celular Participacoes SA 0.00% * 162,111
10,000 Telemig Celular Participacoes SA ADR 0.00% * 650,000
49,524,830 Telesp Celular Participacoes SA 0.00% * 732,189
9,749,212 Unipar 0.00% 7,608,618
462,000 Usinas Siderurgicas de Minas Gerais SA (Usiminas) 3.75% 2,691,509
-----------------
98,789,216
-----------------
KOREA - 2.3%
218,763 Samsung Electronics (Non Voting) 2.92% 25,255,165
-----------------
RUSSIA - 0.5%
100,800 Krasny Oktyabr144A 0.00% * 55,440
144,200 Lukoil Holding Co ADR 0.00% 3,424,750
30 Rostelecom 0.00% 25
34,916,000 Unified Energy Systems 0.00% * 2,479,036
-----------------
5,959,251
-----------------
SRI LANKA - 0.1%
11,209,546 Millenium Information Technology 0.00% (e) (f) * 782,426
-----------------
TOTAL PREFERRED STOCKS (Cost $106,381,742) 130,786,058
-----------------
INVESTMENT FUNDS - 4.1%
BRAZIL - 0.0%
18,400 Brazil Fund Inc 338,100
-----------------
CHILE - 0.0%
22,000 Chile Fund Inc 209,000
-----------------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDIA - 0.1%
170 SPG Infinity Technology Fund (e) (f) * 643,534
700,400 TDA India Technology Fund II LP (e) (f) * 711,396
100 UTI Masterplus 1991 Unit * 48
10,400 UTI Masterplus 1991 * 4,976
-----------------
1,359,954
-----------------
POLAND - 2.7%
11,269,444 CHP Investors (e) (f) * 17,268,169
3,782,132 OBP Investors (e) (f) * 6,476,900
5,500,000 Polimex Investment Fund (e) (f) * 5,500,000
1,833,715 Templeton Emerging European Fund (e) (f) * 1,320,531
-----------------
30,565,600
-----------------
ROMANIA - 0.1%
3,600 Romanian Investment Fund (e) (f) * 1,260,000
-----------------
RUSSIA - 0.9%
450,000 Kazakhstan Investment Fund (e) (f) 508,500
10,000,000 New Century Holdings LP (e) (f) * 9,260,000
16,667 Societe Generale Thalmann Ukraine Fund (e) (f) * 500,010
-----------------
10,268,510
-----------------
THAILAND - 0.1%
1,500,000 Ruam Pattana Fund (Registered) * 168,807
1,859,000 Ruang Khao Fund (Foreign Registered) * 200,113
70 Thailand International Fund IDR 350,000
-----------------
718,920
-----------------
UNITED STATES - 0.1%
71,400 Morgan Stanley Emerging Markets Fund * 1,039,763
-----------------
TOTAL INVESTMENT FUNDS (Cost $48,931,235) 45,759,847
-----------------
DEBT OBLIGATIONS - 3.8%
U.S. GOVERNMENT - 3.8%
$ 19,789,042 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 (a) 19,071,689
$ 23,319,102 U.S. Treasury Inflation Indexed Note, 3.875%, due 1/15/09 (a) 23,056,762
-----------------
42,128,451
-----------------
TOTAL DEBT OBLIGATIONS (Cost $41,259,614) 42,128,451
-----------------
EQUITY LINKED SECURITIES - 1.2%
CHILE - 1.0%
$ 12,737,702 Citibank-Nassau Chilean Equity Time Deposit, 3.50%, due 10/02/00 (b) (e) * 11,572,202
-----------------
</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, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RUSSIA - 0.2%
32,787 Renaissance Sberbank Note (c) (e) * 1,665,055
-----------------
TOTAL EQUITY LINKED SECURITIES (Cost $24,326,488) 13,237,257
-----------------
CONVERTIBLE SECURITIES - 0.4%
INDONESIA - 0.3%
$ 26,000,000 APP Finance (VI), Zero Coupon, due 11/18/12 3,900,000
-----------------
SOUTH AFRICA - 0.1%
$ 1,100,000 Randgold Finance, 7.00%, due 10/03/01 761,750
-----------------
TOTAL CONVERTIBLE SECURITIES (Cost $6,410,240) 4,661,750
-----------------
RIGHTS & WARRANTS - 0.1%
BRAZIL - 0.0%
4,952,483 Telesp Celular Participacoes SA Preferred Rights, Expires 10/02/00 * 2,994
26,821,178 Telesp Celular Participacoes SA Rights, Expires 10/02/00 * 147
-----------------
3,141
-----------------
INDONESIA - 0.0%
226,076 Indah Kiat Pulp & Paper Warrants, Expires 4/13/01 * 21,751
-----------------
KOREA - 0.0%
352 Wooree Lighting Co Ltd Rights, Expires 10/04/00 * 2,222
-----------------
MALAYSIA - 0.0%
200,750 Affin Holdings Berhad Warrants, Expires 5/15/05 * 37,244
288,125 IGB Corp Berhad Warrants, Expires 12/29/04 * 32,225
265,600 IJM Corp Berhad Warrants, Expires 8/24/04 * 88,067
27,600 UMW Holdings Berhad Warrants, Expires 1/26/05 * 13,219
247,200 YTL Corp Berhad Warrants, Expires 6/26/09 * 83,267
-----------------
254,022
-----------------
MEXICO - 0.0%
38,886 Grupo Mexico Class B Warrants, Expires 8/09/01 * 181,641
-----------------
THAILAND - 0.1%
1,098,500 Banpu Public Co Ltd Warrants, Expires 1/14/03 * 139,748
1,061,977 Charoen Pokphand Foods Public Co Ltd Warrants, Expires 6/30/02 * 127,307
550,000 Siam Commercial Bank Ltd Warrants, Expires 5/10/02 * 47,095
2,689,393 Telecomasia Corp Public Co Ltd Warrants, Expires 12/31/49 * 671,865
-----------------
986,015
-----------------
TOTAL RIGHTS & WARRANTS (Cost $138,206) 1,448,792
-----------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE ($) DESCRIPTION VALUE ($)
--------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 7.4%
CASH EQUIVALENTS - 7.4%
$ 75,600,000 Royal Bank of Canada Time Deposit, 6.625%, due 9/01/00 75,600,000
6,224,600 The Boston Global Investment Trust (d) 6,224,600
-----------------
81,824,600
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $81,824,600) 81,824,600
-----------------
TOTAL INVESTMENTS - 99.9%
(Cost $1,241,075,537) 1,106,981,055
Other Assets and Liabilities (net) - 0.1% 1,199,571
-----------------
TOTAL NET ASSETS - 100.0% $ 1,108,180,626
-----------------
-----------------
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
ADR American Depositary Receipt
GDR Global Depository Receipt
IDR International Depository Receipt
(a) All or a portion of this security is held as collateral
for open swaps (Note 6).
(b) A derivative security whose price is linked to the
return on a basket of Chilean investments.
(c) A derivative security whose price is linked to the
return on a basket of Russian securities.
(d) Represents investment of security lending collateral
(Note 1).
(e) Security is restricted as to public resale. The
aggregate market value of restricted securities is
$59,478,988 or 5.37% of net assets.
(f) Valued by management (Note 1).
(g) Bankrupt issuer.
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.
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, 2000 (UNAUDITED)
------------------------------------------------------------------------------
At August 31, 2000, industry sector diversification of
the Fund's equity investments was as follows:
INDUSTRY SECTOR
Telecommunications 15.2%
Utilities 9.0
Banking 6.6
Electronic Equipment 6.3
Metals and Mining 6.3
Energy Services 6.0
Financial Services 5.9
Conglomerates 5.7
Consumer Goods 4.4
Food and Beverage 3.7
Construction 3.3
Automotive 1.8
Transportation 1.7
Paper and Allied Products 1.6
Services 1.6
Chemicals 1.5
Real Estate 1.4
Machinery 1.2
Textiles 1.2
Insurance 1.1
Retail Trade 1.1
Computers 0.6
Health Care 0.6
Miscellaneous 12.2
----------------
100.0%
----------------
----------------
See accompanying notes to the financial statements. 17
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 2000 (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $1,241,075,537) (Note 1) $ 1,106,981,055
Foreign currency, at value (cost $6,860,573) (Note 1) 6,844,426
Cash 601,489
Receivable for investments sold 4,311,766
Net receivable for open forward foreign currency contracts (Notes 1 and 6) 349,546
Foreign withholding taxes receivable 2,426,706
Dividends and interest receivable 4,994,549
Receivable for expenses waived or borne by Manager (Note 2) 21,266
---------------------
Total assets 1,126,530,803
---------------------
LIABILITIES:
Payable for investments purchased 4,739,907
Payable for closed swap contracts (Notes 1 and 6) 872,898
Payable for open swap contracts (Notes 1 and 6) 4,074,482
Payable for Fund shares repurchased 271,000
Payable upon return of securities loaned (Note 1) 6,224,600
Accrued capital gain and repatriation taxes payable (Note 1) 866,863
Payable to affiliate for (Note 2):
Management fee 765,454
Shareholder service fee 122,598
Accrued expenses 412,375
---------------------
Total liabilities 18,350,177
---------------------
NET ASSETS $ 1,108,180,626
---------------------
---------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 1,387,121,776
Accumulated undistributed net investment income 8,478,989
Accumulated net realized loss (148,693,493)
Net unrealized depreciation (138,726,646)
---------------------
$ 1,108,180,626
---------------------
---------------------
NET ASSETS ATTRIBUTABLE TO:
Class III Shares $ 608,394,922
---------------------
---------------------
Class IV Shares $ 499,785,704
---------------------
---------------------
SHARES OUTSTANDING:
Class III 59,300,892
---------------------
---------------------
Class IV 48,730,262
---------------------
---------------------
NET ASSET VALUE PER SHARE:
Class III $ 10.26
---------------------
---------------------
Class IV $ 10.26
---------------------
---------------------
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $1,466,438) $ 14,588,686
Interest (including security lending income of $62,436) 3,135,045
-------------------
Total income 17,723,731
-------------------
EXPENSES:
Management fee (Note 2) 4,678,720
Custodian fees 1,321,120
Legal fees 42,287
Audit fees 38,364
Transfer agent fees 22,448
Trustees fees (Note 2) 7,809
Registration fee 368
Miscellaneous 161,118
Fees waived or borne by Manager (Note 2) (116,943)
-------------------
6,155,291
Shareholder service fee (Note 2)
Class III 508,896
Class IV 250,273
-------------------
Net expenses 6,914,460
-------------------
Net investment income 10,809,271
-------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 55,111,771
Closed swap contracts (256,866)
Foreign currency, forward contracts and foreign
currency related transactions (1,043,164)
-------------------
Net realized gain 53,811,741
-------------------
Change in net unrealized appreciation (depreciation) on:
Investments (Note 1) (154,019,914)
Open swap contracts (7,895,855)
Foreign currency, forward contracts and foreign
currency related transactions 294,361
-------------------
Net unrealized loss (161,621,408)
-------------------
Net realized and unrealized loss (107,809,667)
-------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (97,000,396)
-------------------
-------------------
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED
(UNAUDITED) FEBRUARY 29, 2000
------------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 10,809,271 $ 15,355,862
Net realized gain 53,811,741 136,500,357
Change in net unrealized appreciation (depreciation) (161,621,408) 419,116,046
------------------- -----------------
Net increase (decrease) in net assets
resulting from operations (97,000,396) 570,972,265
------------------- -----------------
Distributions to shareholders from:
Net investment income
Class III - (1,880,001)
Class IV - (886,390)
------------------- -----------------
Total distributions from net investment - (2,766,391)
income
------------------- -----------------
In excess of net investment income
Class III - (1,583,628)
Class IV - (746,654)
------------------- -----------------
Total distributions in excess of net
investment income - (2,330,282)
------------------- -----------------
Net share transactions: (Note 5)
Class III (59,185,467) (183,418,042)
Class IV 56,961,474 39,019,272
------------------- -----------------
Decrease in net assets resulting from
net share transactions (2,223,993) (144,398,770)
------------------- -----------------
Total increase (decrease) in net assets (99,224,389) 421,476,822
NET ASSETS:
Beginning of period 1,207,405,015 785,928,193
------------------- -----------------
End of period (including accumulated undistributed net
investment income of $8,478,989 and distributions in
excess of net investment income of
$2,330,282, respectively) $ 1,108,180,626 $ 1,207,405,015
------------------- -----------------
------------------- -----------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING MARKETS 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, 2000 -------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------- ------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.16 $ 6.31 $ 9.56 $ 12.49 $ 10.54 $ 9.52
---------- ------- ------- ------- --------- --------
Income (loss) from investment operations:
Net investment income 0.10 + 0.13 + 0.25 0.16 + 0.13 0.10
Net realized and unrealized gain (loss) (1.00) 4.77 (3.19) (1.76) 1.96 1.06
---------- ------- ------- ------- --------- --------
Total from investment operations (0.90) 4.90 (2.94) (1.60) 2.09 1.16
---------- ------- ------- ------- --------- --------
Less distributions to shareholders from:
Net investment income - (0.03) (0.19) (0.25) (0.14) (0.01)
In excess of net investment income - (0.02) - - - -
Net realized gains - - (0.12) (0.71) - (0.13)
In excess of net realized gains - - 0.00 (d) (0.37) - -
---------- ------- ------- ------- --------- --------
Total distributions - (0.05) (0.31) (1.33) (0.14) (0.14)
---------- ------- ------- ------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 11.16 $ 6.31 $ 9.56 $ 12.49 $ 10.54
---------- ------- ------- ------- --------- --------
---------- ------- ------- ------- --------- --------
TOTAL RETURN (a) (8.06%)** 77.43% (30.96%) (12.94%) 19.98% 12.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 608,395 $ 727,197 $ 524,741 $ 913,615 $ 1,725,651 $ 907,180
Net expenses to average
daily net assets 1.21%* 1.18% 1.16% 1.24% (c) 1.24% (c) 1.35%
Net investment income to average
daily net assets 1.88%* 1.41% 2.75% 1.30% 1.40% 1.31%
Portfolio turnover rate 46% 73% 76% 88% 41% 35%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ 0.00(b) $ 0.00(b) $ 0.02 $ 0.03 $ 0.02 $ 0.00(b)
</TABLE>
* Annualized
** Not 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.
See accompanying notes to the financial statements. 21
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
-----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2000 -------------------------------------------
(UNAUDITED) 2000 1999 1998*
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.16 $ 6.31 $ 9.56 $ 8.62
--------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.10 + 0.13 + 0.28 0.01 +
Net realized and unrealized gain (loss) (1.00) 4.77 (3.21) 0.93
--------- --------- --------- ---------
Total from investment operations (0.90) 4.90 (2.93) 0.94
--------- --------- --------- ---------
Less distributions to shareholders from:
Net investment income - (0.03) (0.20) -
In excess of net investment income - (0.02) - -
Net realized gains - - (0.12) -
In excess of net realized gains - - 0.00 (d) -
--------- --------- --------- ---------
Total distributions - (0.05) (0.32) -
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 11.16 $ 6.31 $ 9.56
--------- --------- --------- ---------
--------- --------- --------- ---------
TOTAL RETURN (a) (8.06%)*** 77.76% (31.01%) 10.90%***
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 499,786 $ 480,208 $ 261,187 $ 672,020
Net expenses to average
daily net assets 1.17% ** 1.13% 1.12% 1.22%**(c)
Net investment income to average
daily net assets 1.87% ** 1.45% 2.87% 0.65%**
Portfolio turnover rate 46% 73% 76% 88%
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share amounts: $ 0.00(b) $ 0.00(b) $ 0.02 $ 0.00(b)
</TABLE>
* Period from January 9, 1998 (commencement of operations) to
February 28, 1998.
** Annualized.
*** Not 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.
22 See accompanying notes to the financial statements.
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000 (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 of
shares 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 benchmark is
the IFC Investable Index.
The Fund offers two classes of shares: Class III and Class IV. 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 described in the Trust's prospectus.
The following is a summary of significant accounting policies which
are in conformity with accounting principles generally accepted in
the United States and which are consistently followed by the Fund
in the preparation of its financial statements. The preparation of
financial statements in accordance with accounting principles
generally accepted in the United States 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 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 quotations are
not readily available are valued at fair value as determined in good
faith by the Trustees or other persons acting at their direction.
Certain securities held by the Fund were valued on the basis of a
price provided by a principal market maker. These prices may
differ from the value that would have been used had a broader
market for the securities existed and the differences could be
material to the financial statements.
23
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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 current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current 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. 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, 2000.
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 future, security or currency transaction to
determine the realized gain or loss. The Fund as a writer of an option
has no control over whether the underlying future, security or currency
may be sold (call) or purchased (put) and as a result bears the market
risk of an unfavorable change in the price of the future, security or
currency 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, 2000 there were no open written option contracts.
24
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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. Premiums paid for purchasing options which expire
are treated as realized losses. Premiums paid for purchasing options
which are exercised or closed are added to the amounts paid or offset
against the proceeds on the transaction to determine the realized gain
or loss. 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, 2000, 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, both based on notional amounts. 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
25
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
will receive a payment from or make a payment to the counterparty.
Total return swaps are marked to market daily based upon quotations
from market makers and the change in value, 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, 2000.
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, 2000, the Fund
loaned securities having a market value of $6,073,902 collateralized by
cash in the amount of $6,224,600 which was invested in a short-term
instrument.
TAXES
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund intends to distribute substantially
all of its 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 U. S. federal income tax
purposes. Therefore, no provision for U. S. 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 29, 2000,
the Fund had a capital loss carryforward available to offset future
gains, if any, of $199,563,451, expiring in 2007. The value of the
capital loss carryforward may be limited due to significant
shareholder activity.
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 a deferred tax liability in respect of unrealized
appreciation on foreign securities of $866,863 for potential
capital gains and repatriation taxes at August 31, 2000. The
accrual for capital gains and repatriation taxes is included in net
unrealized loss in the Statement of Operations. The Fund has
incurred $6,405,911 related to capital gain taxes which is included
in net realized gain in the Statement of Operations.
26
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (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.
Distributions to shareholders are recorded by the Fund on the
ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may
differ from accounting principles generally accepted in the United
States. 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.
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.
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. For the six months
ended August 31, 2000, the Fund received $1,159,881 in purchase
premiums and $273,244 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 purchases.
27
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
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, 2001
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.
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, 2000, was $7,809.
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, 2000, were as follows:
Purchases Proceeds
------------ -----------
U.S. Government securities $ 11,298,791 $ 1,222,697
Investments (non-U.S. Government securities) 477,714,864 548,881,513
28
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
At August 31, 2000, 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
-------------- ---------------- ---------------- --------------
$1,241,075,537 $131,155,321 $265,249,803 $134,094,482
4. PRINCIPAL SHAREHOLDERS
At August 31, 2000, 30% of the outstanding shares of the Fund were held
by two shareholders.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an
unlimited number of shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
-------------------------- ----------------------------
Class III: Shares Amount Shares Amount
---------- ------------ ----------- -------------
Shares sold 3,252,927 $ 35,440,496 8,250,164 $ 75,191,088
Shares issued to
shareholders in
reinvestment of
distributions - - 238,039 2,615,828
Shares repurchased (9,098,808) (94,625,963) (26,449,273) (261,224,958)
---------- ------------ ----------- -------------
Net decrease (5,845,881) $(59,185,467) (17,961,070) $(183,418,042)
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
Six Months Ended Year Ended
August 31, 2000 February 29, 2000
-------------------------- ----------------------------
Class IV: Shares Amount Shares Amount
---------- ------------ ----------- -------------
Shares sold 6,305,927 $ 63,877,153 13,191,632 $ 146,997,411
Shares issued to
shareholders in
reinvestment of
distributions - - 20,982 230,234
Shares repurchased (622,875) (6,915,679) (11,566,413) (108,208,373)
---------- ------------ ----------- -------------
Net increase 5,683,052 $ 56,961,474 1,646,201 $ 39,019,272
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
29
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August
31, 2000 is as follows:
FORWARD CURRENCY CONTRACTS
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- --------------- ----------- ------------ -------------
Buy
11/15/00 THB 674,400,000 $16,553,417 $ (657,250)
----------
Sale
11/15/00 THB 674,400,000 $16,553,417 $1,006,796
----------
Currency Abbreviations:
THB Thai Baht
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Expiration Unrealized
Notional Amount Date Description Depreciation
--------------- ---------- ---------------------------------------------- -------------
<C> <C> <S> <C>
$ 5,696,637 9/29/00 Agreement with Credit Agricole Indosuez $ (432,715)
(W.I. Carr) dated 3/30/00 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.
2,020,924 3/13/01 Agreement with Credit Agricole Indosuez (315,804)
(W.I. Carr) dated 3/13/00 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>
30
<PAGE>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
SWAP AGREEMENTS - CONTINUED
<TABLE>
<CAPTION>
Expiration Unrealized
Notional Amount Date Description Depreciation
--------------- ---------- ---------------------------------------------- -------------
<C> <C> <S> <C>
$13,797,575 4/27/01 Agreement with Goldman Sachs International $ (923,201)
dated 4/28/00 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.
4,370,000 6/08/01 Agreement with Lehman Brothers Special (687,152)
Financing Inc. dated 6/13/00 to receive (pay)
the notional amount multiplied by the return
on the KOPSI 200 Korean Index and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
10,000,000 6/28/01 Agreement with Salomon Smith Barney dated (1,715,610)
6/09/00 to receive (pay) the notional
amount multiplied by the return on the MSTW
Taiwan Index and to pay the notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread.
------------
$ (4,074,482)
------------
------------
</TABLE>
31
