-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T9c4p7UDNTRFhVKePYlXwMX4DWgMigU6ZrrUwcqhmKPdmzwIHjz2/S5lYihSSzMm ZNasd5FFSqhzAqUu/sLV4g== 0001104659-07-079158.txt : 20071102 0001104659-07-079158.hdr.sgml : 20071102 20071102115211 ACCESSION NUMBER: 0001104659-07-079158 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070831 FILED AS OF DATE: 20071102 DATE AS OF CHANGE: 20071102 EFFECTIVENESS DATE: 20071102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GMO TRUST CENTRAL INDEX KEY: 0000772129 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04347 FILM NUMBER: 071209250 BUSINESS ADDRESS: STREET 1: 40 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173467646 MAIL ADDRESS: STREET 1: 40 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: GMO CORE TRUST DATE OF NAME CHANGE: 19900927 0000772129 S000004081 GMO U.S. Core Equity Fund C000011423 Class III GMUEX C000011424 Class IV GMRTX C000011425 Class V C000011426 Class VI GMCQX C000011427 Class M GMTMX 0000772129 S000004083 GMO Tobacco-Free Core Fund C000011429 Class I C000011430 Class II C000011431 Class III GMTCX C000011432 Class IV GMTFX C000011433 Class V C000011434 Class VI C000011435 Class M 0000772129 S000004084 GMO U.S. Quality Equity Fund C000011436 Class II C000011437 Class III GQETX C000011438 Class IV GQEFX C000011439 Class V C000011440 Class VI C000034328 Class M 0000772129 S000004086 GMO U.S. Value Fund C000011448 Class III GMLUX C000011449 Class IV C000011450 Class V C000011451 Class VI C000011452 Class M GMAMX 0000772129 S000004135 GMO U.S. Intrinsic Value Fund C000011589 Class III GMVUX C000011590 Class IV C000011591 Class V C000011592 Class VI 0000772129 S000004138 GMO U.S. Growth Fund C000011603 Class III GMGWX C000011604 Class IV C000011605 Class V C000011606 Class VI C000011607 Class M GMWMX 0000772129 S000004141 GMO U.S. Small/Mid Cap Value Fund C000011619 Class III GMSUX C000011620 Class IV C000011621 Class V C000011622 Class VI 0000772129 S000004144 GMO U.S. Small/Mid Cap Growth Fund C000011635 Class III GMSPX C000011636 Class IV C000011637 Class V C000011638 Class VI 0000772129 S000004146 GMO Real Estate Fund C000011643 Class I C000011644 Class II C000011645 Class III GMORX C000011646 Class IV C000011647 Class V C000011648 Class VI C000011649 Class M 0000772129 S000004147 GMO Tax-Managed U.S. Equities Fund C000011650 Class I C000011651 Class II C000011652 Class III GTMUX C000011653 Class IV 0000772129 S000004155 GMO Tax-Managed Small/Mid Cap Fund C000011696 Class III GTMSX 0000772129 S000004157 GMO International Core Equity Fund C000011701 Class III GMIEX C000011702 Class IV GMIRX C000011703 Class V C000011704 Class VI GCEFX 0000772129 S000004218 GMO International Growth Equity Fund C000011867 Class III GMIGX C000011868 Class IV C000011869 Class V C000011870 Class VI 0000772129 S000004224 GMO International Intrinsic Value Fund C000011879 Class I C000011880 Class II GMICX C000011881 Class III GMOIX C000011882 Class IV GMCFX C000011883 Class V C000011884 Class VI C000011885 Class M 0000772129 S000004226 GMO Global Growth Fund C000011890 Class III GMGTX C000011891 Class IV 0000772129 S000004227 GMO Developed World Stock Fund C000011892 Class III GDWTX C000011893 Class IV GDWFX C000011894 Class V C000011895 Class VI 0000772129 S000004228 GMO Currency Hedged International Equity Fund C000011896 Class I C000011897 Class II C000011898 Class III GMOCX C000011899 Class IV C000011900 Class V C000011901 Class VI C000011902 Class M 0000772129 S000004229 GMO Foreign Fund C000011903 Class I C000011904 Class II GMFRX C000011905 Class III GMOFX C000011906 Class IV GMFFX C000011907 Class V C000011908 Class VI C000011909 Class M GMFMX 0000772129 S000004230 GMO Foreign Small Companies Fund C000011910 Class III GMFSX C000011911 Class IV GFSFX 0000772129 S000004231 GMO International Small Companies Fund C000011912 Class I C000011913 Class II C000011914 Class III GMISX C000011915 Class IV C000011916 Class V C000011917 Class VI 0000772129 S000004911 GMO Emerging Markets Fund C000013267 Class I C000013268 Class II C000013269 Class III GMOEX C000013270 Class IV GMEFX C000013271 Class V GEMVX C000013272 Class VI GEMMX 0000772129 S000004912 GMO Emerging Countries Fund C000013273 Class I C000013274 Class II C000013275 Class III GMCEX C000013276 Class IV C000013277 Class V C000013278 Class VI C000013279 Class M GECMX 0000772129 S000004913 GMO Tax-Managed International Equities Fund C000013280 Class I C000013281 Class II C000013282 Class III GTMIX C000013283 Class IV 0000772129 S000004914 GMO Domestic Bond Fund C000013284 Class I C000013285 Class II C000013286 Class III GMDBX C000013287 Class IV C000013288 Class V C000013289 Class VI GDBSX C000034329 Class M 0000772129 S000004917 GMO Core Plus Bond Fund C000013292 Class I C000013293 Class II C000013294 Class III GUGAX C000013295 Class IV GPBFX C000013296 Class V C000013297 Class VI C000013298 Class VII C000013299 Class VIII C000034330 Class M 0000772129 S000004918 GMO International Bond Fund C000013300 Class I C000013301 Class II C000013302 Class III GMIBX C000013303 Class IV C000013304 Class V C000013305 Class VI C000013306 Class VII C000013307 Class VIII C000034331 Class M 0000772129 S000004919 GMO Currency Hedged International Bond Fund C000013308 Class I C000013309 Class II C000013310 Class III GMHBX C000013311 Class IV C000013312 Class V C000013313 Class VI C000013314 Class VII C000013315 Class VIII C000034332 Class M 0000772129 S000004920 GMO Global Bond Fund C000013316 Class I C000013317 Class II C000013318 Class III GMGBX C000013319 Class IV C000013320 Class V C000013321 Class VI C000013322 Class VII C000013323 Class VIII C000034333 Class M 0000772129 S000004922 GMO Emerging Country Debt Fund C000013325 Class I C000013326 Class II C000013327 Class III GMCDX C000013328 Class IV GMDFX C000013329 Class V C000013330 Class VI 0000772129 S000004924 GMO Short-Duration Investment Fund C000013332 Class III GMSIX C000034335 Class M 0000772129 S000004926 GMO Alpha Only Fund C000013336 Class I C000013337 Class II C000013338 Class III GGHEX C000013339 Class IV GAPOX C000013340 Class V C000013341 Class VI C000034336 Class M 0000772129 S000005485 GMO Benchmark-Free Allocation Fund C000014925 Class I C000014926 Class II C000014927 Class III GBMFX C000034338 Class M 0000772129 S000005486 GMO International Equity Allocation Fund C000014928 Class I C000014929 Class II C000014930 Class III GIEAX C000034339 Class M 0000772129 S000005487 GMO Global Balanced Asset Allocation Fund C000014931 Class I C000014932 Class II C000014933 Class III GMWAX C000034340 Class M 0000772129 S000005488 GMO Global (U.S.+) Equity Allocation Fund C000014934 Class I C000014935 Class II C000014936 Class III GMGEX C000034341 Class M 0000772129 S000005489 GMO Strategic Opportunities Allocation Fund C000014937 Class III GBATX 0000772129 S000005490 GMO World Opportunities Equity Allocation Fund C000014938 Class III GWOAX 0000772129 S000005491 GMO U.S. Equity Allocation Fund C000014939 Class I C000014940 Class II C000014941 Class III C000014942 Class IV C000014943 Class V C000014944 Class VI C000034342 Class M 0000772129 S000005492 GMO Emerging Markets Opportunities Fund C000014945 Class I C000014946 Class II C000014947 Class III GMASX C000014948 Class IV C000014949 Class V C000014950 Class VI 0000772129 S000005494 GMO Alternative Asset Opportunity Fund C000014953 Class III 0000772129 S000005495 GMO Taiwan Fund C000014957 Class III 0000772129 S000007515 GMO World Opportunity Overlay Fund C000020547 GMO World Opportunity Overlay Fund 0000772129 S000007516 GMO Short-Duration Collateral Fund C000020548 GMO Short-Duration Collateral Fund 0000772129 S000007517 GMO Special Purpose Holding Fund C000020549 GMO Special Purpose Holding Fund 0000772129 S000007518 GMO Short-Duration Collateral Share Fund C000020550 Class III C000020551 Class IV C000020552 Class V C000020553 Class VI GSDFX 0000772129 S000011778 GMO Inflation Indexed Plus Bond Fund C000032211 Class III C000032212 Class IV C000032213 Class V C000032214 Class VI 0000772129 S000012210 GMO Strategic Fixed Income Fund C000033338 III C000033339 IV C000033340 V C000033341 VI 0000772129 S000012211 GMO International Opportunities Equity Allocation Fund C000033342 III 0000772129 S000019254 GMO Special Situations Fund C000053096 Class III C000053097 Class VI N-CSRS 1 a07-23407_1ncsrs.htm N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number

811-04347

 

GMO Trust

(Exact name of registrant as specified in charter)

 

40 Rowes Wharf, Boston, MA

 

02110

(Address of principal executive offices)

 

(Zip code)

 

Scott Eston, Chief Executive Officer, 40 Rowes Wharf, Boston, MA 02110

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

617-346-7646

 

 

Date of fiscal year end:

02/29/08

 

 

Date of reporting period:

08/31/07

 

 



Item 1. Reports to Stockholders.

The semiannual reports for each series of the registrant for the periods ended August 31, 2007 are filed herewith.



GMO Developed World Stock Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Developed World Stock Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.7 %  
Short-Term Investments     3.4    
Preferred Stocks     0.4    
Futures     (0.1 )  
Forward Currency Contracts     (0.2 )  
Other     0.8    
      100.0 %  
Country Summary   % of Equity Investments  
United States     47.5 %  
United Kingdom     12.9    
Japan     9.9    
France     7.2    
Germany     6.0    
Netherlands     3.1    
Singapore     2.9    
Italy     2.4    
Switzerland     2.0    
Hong Kong     1.6    
Belgium     1.3    
Sweden     0.7    
Canada     0.7    
Finland     0.6    
Norway     0.5    
Ireland     0.2    
Austria     0.2    
Australia     0.2    
Spain     0.1    
      100.0 %  

 


1


GMO Developed World Stock Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     23.3 %  
Energy     13.9    
Consumer Discretionary     12.6    
Health Care     12.3    
Industrials     10.6    
Information Technology     8.0    
Materials     5.6    
Consumer Staples     5.5    
Utilities     4.3    
Telecommunication Services     3.9    
      100.0 %  

 


2



GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.7%  
        Australia — 0.2%  
    172,555     Qantas Airways Ltd     788,389    
        Austria — 0.2%  
    1,442     Boehler Uddeholm (Bearer)     143,303    
    8,780     Voestalpine AG     718,233    
    Total Austria     861,536    
        Belgium — 1.2%  
    21,703     Belgacom SA     952,212    
    50,537     Dexia     1,393,665    
    55,025     Fortis     2,018,134    
    12,693     Inbev NV     1,042,268    
    13,919     UCB SA     784,192    
    Total Belgium     6,190,471    
        Canada — 0.6%  
    21,064     BCE Inc     805,658    
    15,100     Canadian Natural Resources     1,032,262    
    12,300     EnCana Corp     720,878    
    7,100     Potash Corp of Saskatchewan Inc     629,184    
    Total Canada     3,187,982    
        Finland — 0.6%  
    7,000     Metso Oyj     449,752    
    67,829     Nokia Oyj     2,234,529    
    7,904     Rautaruukki Oyj     432,183    
    Total Finland     3,116,464    
        France — 6.9%  
    21,740     Air France     899,758    
    3,492     Alstom     628,067    
    36,910     Arcelor Mittal     2,420,797    

 

See accompanying notes to the financial statements.


3


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    45,998     BNP Paribas     4,828,602    
    7,306     Bouygues     573,071    
    11,609     Casino Guichard-Perrachon SA     1,182,312    
    20,039     Cie de Saint-Gobain     2,170,171    
    13,591     Credit Agricole SA     510,516    
    13,104     Electricite de France     1,320,367    
    6,568     Groupe Danone     498,715    
    8,586     Lafarge SA     1,329,303    
    11,584     Michelin SA Class B     1,453,958    
    21,001     Peugeot SA     1,781,493    
    13,562     Renault SA     1,821,907    
    30,512     Sanofi-Aventis     2,499,011    
    10,165     Societe Generale     1,632,260    
    116,206     Total SA     8,714,726    
    7,124     Vinci SA     505,107    
    Total France     34,770,141    
        Germany — 5.4%  
    9,387     Allianz SE (Registered)     2,016,579    
    20,643     Altana AG     472,254    
    10,953     BASF AG     1,450,951    
    9,513     Bayer AG     753,427    
    16,907     Bayerische Motoren Werke AG     1,033,053    
    12,947     Beiresdorf AG (Bearer)     871,796    
    24,069     Commerzbank AG     989,542    
    6,280     DaimlerChrysler AG (Registered)     559,490    
    55,731     Depfa Bank Plc     1,056,800    
    8,810     Deutsche Boerse AG     974,876    
    21,906     Deutsche Lufthansa AG (Registered)     639,228    
    46,158     Deutsche Post AG (Registered)     1,340,669    
    4,305     E. On AG     723,463    
    9,990     Hannover Rueckversicherungs AG (Registered)     464,063    
    11,158     MAN AG     1,602,056    
    9,441     Muenchener Rueckversicherungs AG (Registered)     1,634,633    

 

See accompanying notes to the financial statements.


4


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    5,812     Salzgitter AG     1,151,037    
    17,156     Siemens AG (Registered)     2,157,074    
    36,515     Suedzucker AG     701,002    
    55,629     ThyssenKrupp AG     3,256,384    
    15,712     Volkswagen AG     3,253,553    
    Total Germany     27,101,930    
        Hong Kong — 1.6%  
    156,200     Bank of East Asia Ltd     870,609    
    295,000     BOC Hong Kong Holdings Ltd     709,083    
    211,000     CLP Holdings Ltd     1,453,013    
    45,300     Esprit Holdings Ltd     658,051    
    151,000     Foxconn International Holdings *      394,645    
    101,000     Hang Seng Bank Ltd     1,584,718    
    180,500     Hong Kong Electric Holdings Ltd     904,994    
    71,000     Hong Kong Exchanges and Clearing Ltd     1,310,244    
    Total Hong Kong     7,885,357    
        Ireland — 0.2%  
    47,086     Bank of Ireland     865,063    
        Italy — 2.3%  
    107,704     Enel SPA     1,112,899    
    255,119     ENI SPA     8,812,223    
    61,852     Fiat SPA     1,649,517    
    Total Italy     11,574,639    
        Japan — 9.5%  
    19,950     Canon Inc     1,138,736    
    94,000     Cosmo Oil Co Ltd     424,628    
    29,950     Daiei Inc *      225,807    
    103,000     Daikyo Inc     369,880    
    8,700     Eisai Co Ltd     362,386    
    139,000     Fuji Heavy Industries Ltd     582,636    
    89,100     Honda Motor Co Ltd     2,928,535    

 

See accompanying notes to the financial statements.


5


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    256,000     Isuzu Motors Ltd     1,388,423    
    169,000     Itochu Corp     1,825,014    
    14,400     JFE Holdings Inc     937,621    
    54,200     Kansai Electric Power Co Inc     1,266,268    
    71,000     Kawasaki Kisen Kaisha Ltd     913,282    
    13,400     Kyushu Electric Power Co Inc     357,590    
    225,000     Marubeni Corp     1,829,770    
    97,700     Mitsubishi Corp     2,742,284    
    31,000     Mitsubishi Estate Co Ltd     828,765    
    115,000     Mitsui & Co     2,390,528    
    43,000     Mitsui Chemicals Inc     389,233    
    29,000     Mitsui Fudosan Co Ltd     758,674    
    51,000     Mitsui OSK Lines Ltd     749,174    
    5,500     Nintendo Co Ltd     2,531,494    
    167,000     Nippon Oil Corp     1,405,130    
    206,000     Nippon Steel Corp     1,439,496    
    219,600     Nissan Motor Co     2,097,811    
    449     NTT Docomo Inc     684,449    
    243,000     Osaka Gas Co Ltd     902,537    
    33,000     Ricoh Company Ltd     726,361    
    45,800     Seven & I Holdings Co Ltd     1,221,192    
    197,800     Sojitz Corp     823,084    
    17,000     SUMCO Corp     908,377    
    142,000     Sumitomo Corp     2,449,549    
    92,000     Sumitomo Metal Industries Ltd     464,021    
    14,000     Sumitomo Realty & Development Co Ltd     457,855    
    130,000     Taisei Corp     415,554    
    32,000     Taisho Pharmaceutical Co Ltd     626,174    
    51,700     Takeda Pharmaceutical Co Ltd     3,537,243    
    19,100     Tokyo Electric Power Co Inc     500,943    
    217,000     Tokyo Gas Co Ltd     1,078,149    
    80,000     TonenGeneral Sekiyu KK     792,426    
    25,400     Toyota Motor Corp     1,470,887    
    28,000     Toyota Tsusho Kaisha     693,510    
    Total Japan     47,635,476    

 

See accompanying notes to the financial statements.


6


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — 3.0%  
    87,223     ABN Amro Holdings NV     4,053,707    
    96,546     Aegon NV     1,761,260    
    35,838     Heineken NV     2,271,848    
    141,135     ING Groep NV     5,680,202    
    10,561     Koninklijke DSM     540,115    
    58,523     Koninklijke KPN NV     913,800    
    Total Netherlands     15,220,932    
        Norway — 0.5%  
    89,700     Statoil ASA     2,580,815    
        Singapore — 2.8%  
    309,000     Capitaland Ltd     1,500,374    
    105,000     City Developments Ltd     1,029,177    
    92,000     DBS Group Holdings Ltd     1,209,118    
    84,000     Keppel Corp Ltd     705,074    
    183,000     Oversea-Chinese Banking Corp     1,028,754    
    269,000     Sembcorp Industrie     995,566    
    132,000     Singapore Airlines Ltd     1,647,898    
    121,000     Singapore Exchange Ltd     775,199    
    355,000     Singapore Technologies Engineering Ltd     857,650    
    1,383,600     Singapore Telecommunications     3,309,076    
    83,000     United Overseas Bank Ltd     1,134,263    
    Total Singapore     14,192,149    
        Spain — 0.1%  
    16,322     Repsol YPF SA     588,153    
        Sweden — 0.7%  
    18,900     Electrolux AB Series B     425,199    
    9,525     Hennes & Mauritz AB Class B     538,499    
    30,100     Sandvik AB     615,160    
    44,100     Svenska Cellulosa AB (SCA)     766,851    
    58,100     Volvo AB Class B     1,007,589    
    Total Sweden     3,353,298    

 

See accompanying notes to the financial statements.


7


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — 1.9%  
    79,693     ABB Ltd     1,967,881    
    16,268     Credit Suisse Group     1,067,639    
    61,324     Novartis AG (Registered)     3,232,691    
    11,155     Zurich Financial Services AG     3,203,720    
    Total Switzerland     9,471,931    
        United Kingdom — 12.4%  
    53,170     AstraZeneca Plc     2,620,398    
    99,805     Aviva Plc     1,429,732    
    178,534     Barclays Plc     2,213,054    
    39,006     Barratt Developments Plc     732,500    
    51,556     BG Group Plc     825,049    
    94,125     BP Plc     1,057,774    
    276,501     BT Group Plc     1,763,357    
    292,678     Centrica Plc     2,281,078    
    195,072     DSG International Plc     612,075    
    49,445     GKN Plc     368,158    
    163,137     GlaxoSmithKline Plc     4,257,309    
    159,166     HBOS Plc     2,829,313    
    87,074     HSBC Holdings Plc     1,574,449    
    6,931     Imperial Tobacco Group Plc     313,638    
    117,991     J Sainsbury Plc     1,320,889    
    79,468     Kesa Electricals Plc     497,506    
    115,877     Kingfisher Plc     488,488    
    195,566     Lloyds TSB Group Plc     2,152,577    
    23,529     Man Group Plc     235,152    
    56,622     Marks & Spencer Group Plc     715,718    
    27,390     Next Plc     1,070,571    
    471,875     Old Mutual Plc     1,523,886    
    35,040     Persimmon Plc     820,494    
    16,915     Reckitt Benckiser Plc     922,349    
    36,349     Rio Tinto Plc     2,510,789    
    775,776     Royal Bank of Scotland Group     9,014,714    
    70,901     Royal Dutch Shell Group Class A (Amsterdam)     2,746,324    

 

See accompanying notes to the financial statements.


8


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    131,659     Royal Dutch Shell Plc A Shares (London)     5,115,870    
    21,205     Scottish & Newcastle Plc     265,343    
    41,181     Scottish & Southern Energy Plc     1,180,023    
    140,677     Taylor Woodrow Plc     988,826    
    119,484     Tomkins Plc     576,424    
    30,584     Unilever Plc     966,519    
    49,116     United Utilities Plc     686,417    
    944,862     Vodafone Group Inc     3,053,459    
    23,952     Wolseley Plc     503,341    
    36,387     Xstrata Plc     2,140,858    
    Total United Kingdom     62,374,421    
        United States — 45.6%  
    14,900     Abbott Laboratories     773,459    
    13,500     Abercrombie & Fitch Co.-Class A     1,062,450    
    14,900     Accenture Ltd.     614,029    
    14,500     Adobe Systems, Inc. *      619,875    
    5,000     Allegheny Technologies, Inc.     496,950    
    39,600     Allied Waste Industries, Inc. *      505,692    
    27,800     Allstate Corp. (The)     1,522,050    
    63,100     Altria Group, Inc.     4,379,771    
    17,000     AMBAC Financial Group, Inc.     1,067,940    
    23,600     American Electric Power Co., Inc.     1,049,728    
    16,250     American Financial Group, Inc.     458,250    
    33,700     American International Group, Inc.     2,224,200    
    11,200     American Standard Cos., Inc.     412,496    
    22,400     AmerisourceBergen Corp.     1,071,840    
    50,700     Amgen, Inc. *      2,540,577    
    9,400     Amphenol Corp.-Class A     339,434    
    21,200     Apache Corp.     1,640,456    
    12,600     Apollo Group, Inc.-Class A *      739,242    
    18,500     Apple, Inc. *      2,561,880    
    7,600     Ashland, Inc.     454,404    
    141,254     AT&T, Inc.     5,631,796    

 

See accompanying notes to the financial statements.


9


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    10,800     Automatic Data Processing, Inc.     493,992    
    21,300     AutoNation, Inc. *      404,274    
    15,600     Avon Products, Inc.     535,860    
    67,983     Bank of America Corp.     3,445,378    
    3,700     Bear Stearns Cos. (The), Inc.     402,042    
    35,400     Bed Bath & Beyond, Inc. *      1,226,256    
    129,500     Boston Scientific Corp. *      1,661,485    
    38,200     Capital One Financial Corp.     2,470,012    
    17,100     CDW Corp. *      1,471,797    
    36,400     Centerpoint Energy, Inc.     590,408    
    21,000     Centex Corp.     607,110    
    37,300     Chesapeake Energy Corp.     1,203,298    
    113,105     Chevron Corp.     9,926,095    
    22,000     Chubb Corp.     1,124,860    
    24,900     Cigna Corp.     1,286,832    
    83,300     Cisco Systems, Inc. *      2,658,936    
    42,600     Citigroup, Inc.     1,997,088    
    11,600     CNA Financial Corp.     486,736    
    9,200     Cognizant Technologies Solutions Corp.-Class A *      676,292    
    23,750     Comcast Corp.-Class A *      619,637    
    45,000     Comcast Corp.-Special Class A *      1,163,700    
    23,700     Computer Sciences Corp. *      1,326,015    
    34,900     Compuware Corp. *      283,039    
    145,953     ConocoPhillips     11,952,091    
    22,000     Convergys Corp. *      368,500    
    67,100     Countrywide Financial Corp.     1,331,935    
    12,000     CSX Corp.     492,000    
    4,700     Cummins, Inc.     556,574    
    53,700     D.R. Horton, Inc.     811,407    
    10,100     Deere & Co.     1,374,206    
    43,700     Dell, Inc. *      1,234,525    
    13,650     Discover Financial Services *      315,861    
    14,900     Dow Chemical Co. (The)     635,187    
    20,500     DTE Energy Co.     980,105    

 

See accompanying notes to the financial statements.


10


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    6,100     Eaton Corp.     574,742    
    22,200     eBay, Inc. *      757,020    
    40,700     EMC Corp. *      800,162    
    22,700     Energy East Corp.     605,863    
    6,600     Everest Re Group Ltd.     672,408    
    36,600     Exxon Mobil Corp.     3,137,718    
    66,700     Fannie Mae     4,376,187    
    31,192     Fidelity National Title Group, Inc.-Class A     567,382    
    17,700     First American Corp.     740,391    
    10,700     First Horizon National Corp.     328,276    
    15,850     First Marblehead Corp. (The)     530,816    
    5,300     First Solar, Inc. *      549,822    
    200,500     Ford Motor Co. *      1,565,905    
    4,500     Foster Wheeler Ltd. *      532,980    
    17,300     FPL Group, Inc.     1,017,932    
    8,700     Franklin Resources, Inc.     1,146,399    
    22,600     Gannett Co., Inc.     1,062,200    
    60,400     Gap (The), Inc.     1,133,104    
    7,300     Genuine Parts Co.     362,664    
    29,500     Genworth Financial, Inc.-Class A     854,910    
    8,300     Goldman Sachs Group, Inc.     1,460,883    
    13,200     Graco, Inc.     533,412    
    24,400     Harley-Davidson, Inc.     1,312,476    
    7,600     Hartford Financial Services Group, Inc.     675,716    
    15,200     Hess Corp.     932,824    
    38,900     Hewlett-Packard Co.     1,919,715    
    186,900     Home Depot, Inc.     7,160,139    
    12,600     Honeywell International, Inc.     707,490    
    7,800     Integrys Energy Group Inc.     391,326    
    3,700     IntercontinentalExchange, Inc. *      539,719    
    13,400     International Business Machines Corp.     1,563,646    
    32,200     Janus Capital Group, Inc.     856,198    
    193,400     Johnson & Johnson     11,950,186    
    11,500     Jones Apparel Group, Inc.     220,685    

 

See accompanying notes to the financial statements.


11


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    18,500     Juniper Networks, Inc. *      609,020    
    16,700     KB Home     506,678    
    32,500     Kimberly-Clark Corp.     2,232,425    
    6,300     Kohls Corp. *      373,590    
    78,235     Kraft Foods, Inc.     2,508,214    
    27,800     Lennar Corp.-Class A     785,906    
    13,100     Lexmark International, Inc. *      488,106    
    11,200     Lincare Holdings, Inc. *      403,088    
    14,300     Lockheed Martin Corp.     1,417,702    
    21,100     Loews Corp.     991,911    
    7,400     Loews Corp.-Carolina Group     563,288    
    109,000     Lowe's Cos., Inc.     3,385,540    
    14,000     Marathon Oil Corp.     754,460    
    8,100     Mastercard, Inc.     1,109,619    
    9,300     MBIA, Inc.     558,000    
    10,200     McDermott International, Inc. *      979,098    
    37,100     McDonald's Corp.     1,827,175    
    9,300     MDC Holdings, Inc.     413,757    
    28,500     Medtronic, Inc.     1,505,940    
    8,400     MEMC Electronic Materials, Inc. *      515,928    
    101,900     Merck & Co., Inc.     5,112,323    
    10,700     Merrill Lynch & Co., Inc.     788,590    
    7,600     MetLife, Inc.     486,780    
    16,300     MGIC Investment Corp.     491,608    
    131,000     Microsoft Corp.     3,763,630    
    10,600     Monsanto Co.     739,244    
    7,200     Moody's Corp.     330,120    
    27,300     Morgan Stanley     1,702,701    
    46,000     National City Corp.     1,237,860    
    8,300     Navistar International Corp. *      464,634    
    30,600     NiSource, Inc.     576,504    
    21,400     Nvidia Corp. *      1,094,824    
    1,000     NVR, Inc. *      559,500    
    25,000     Occidental Petroleum Corp.     1,417,250    

 

See accompanying notes to the financial statements.


12


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    35,925     Old Republic International Corp.     653,476    
    162,100     Oracle Corp. *      3,287,388    
    11,300     Paccar, Inc.     966,715    
    18,300     Pepco Holdings, Inc.     510,204    
    448,100     Pfizer, Inc.     11,130,804    
    1,867     Pharmericap Corp. *      33,102    
    21,600     PMI Group (The), Inc.     684,288    
    5,600     PPG Industries, Inc.     410,760    
    10,400     Precision Castparts Corp.     1,355,224    
    16,300     Progress Energy, Inc.     747,844    
    5,800     Prudential Financial, Inc.     520,724    
    46,800     Pulte Homes, Inc.     778,752    
    11,900     Radian Group, Inc.     209,916    
    16,600     RadioShack Corp.     394,582    
    7,800     Ryder Systems, Inc.     427,050    
    28,800     Safeway, Inc.     913,824    
    37,200     Sara Lee Corp.     618,264    
    20,000     Schering-Plough Corp.     600,400    
    16,600     SEI Investment Co.     421,142    
    18,000     Southern Copper Corp.     1,894,500    
    14,400     SPX Corp.     1,296,720    
    26,700     Stryker Corp.     1,783,560    
    14,942     Supervalu, Inc.     629,805    
    108,200     Symantec Corp. *      2,035,242    
    8,400     Terex Corp. *      670,992    
    17,700     Thornburg Mortgage, Inc. REIT     208,506    
    34,600     Toll Brothers, Inc. *      739,056    
    10,900     Torchmark Corp.     671,004    
    28,300     Travelers Cos. (The), Inc.     1,430,282    
    9,000     United Parcel Service, Inc.-Class B     682,740    
    6,300     United States Steel Corp.     595,224    
    15,400     United Technologies Corp.     1,149,302    
    51,300     Unum Group     1,255,311    
    19,800     Valero Energy Corp.     1,356,498    

 

See accompanying notes to the financial statements.


13


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        United States — continued  
    26,500     Verizon Communications, Inc.     1,109,820    
    5,900     VF Corp.     471,115    
    3,100     WABCO Holdings, Inc.     140,306    
    55,700     Wal-Mart Stores, Inc.     2,430,191    
    50,149     Washington Mutual, Inc.     1,841,471    
    9,600     Wells Fargo & Co.     350,784    
    7,100     Whirlpool Corp.     684,511    
    31,500     Xcel Energy, Inc.     649,215    
    16,700     YRC Worldwide, Inc. *      514,527    
    22,500     Zimmer Holdings, Inc. *      1,762,425    
    Total United States     229,533,927    
    TOTAL COMMON STOCKS (COST $432,375,062)     481,293,074    
        PREFERRED STOCKS — 0.4%  
        Germany — 0.4%  
    336     Porsche AG (Non Voting) 0.46%     600,845    
    11,407     Volkswagen AG 1.39%     1,418,826    
    Total Germany     2,019,671    
    TOTAL PREFERRED STOCKS (COST $1,184,799)     2,019,671    
        SHORT-TERM INVESTMENTS — 3.4%  
    17,100,000     Bank of Montreal Time Deposit, 5.05%, due 09/04/07     17,100,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,100,000)     17,100,000    
    TOTAL INVESTMENTS — 99.5%
(Cost $450,659,861)		     500,412,745    
            Other Assets and Liabilities (net) — 0.5%     2,368,452    
    TOTAL NET ASSETS — 100.0%   $ 502,781,197    

 

See accompanying notes to the financial statements.


14


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
11/20/07   CAD     4,643,967     $ 4,403,756     $ 10,507    
11/20/07   CAD     4,643,967       4,403,756       3,101    
11/20/07   CAD     4,643,967       4,403,756       11,758    
11/20/07   CAD     4,643,967       4,403,756       6,997    
11/20/07   CAD     4,643,967       4,403,756       17,068    
11/20/07   CAD     4,643,967       4,403,756       9,930    
11/20/07   CAD     4,643,967       4,403,756       7,933    
11/20/07   CHF     5,743,648       4,781,919       (7,401 )  
11/20/07   CHF     5,743,648       4,781,918       (9,354 )  
11/20/07   CHF     5,743,648       4,781,918       (6,251 )  
11/20/07   CHF     5,743,648       4,781,918       (7,648 )  
11/20/07   CHF     5,743,648       4,781,918       (12,966 )  
11/20/07   CHF     5,743,648       4,781,918       (11,366 )  
11/20/07   CHF     5,743,648       4,781,918       (13,266 )  
11/20/07   JPY     606,642,313       5,295,059       (26,244 )  
11/20/07   JPY     606,642,313       5,295,059       (33,583 )  
11/20/07   JPY     606,642,313       5,295,059       (34,032 )  
11/20/07   JPY     606,642,313       5,295,058       (43,223 )  
11/20/07   JPY     606,642,313       5,295,058       (52,163 )  
11/20/07   JPY     606,642,313       5,295,058       (48,866 )  
11/20/07   JPY     606,642,313       5,295,058       (63,229 )  
11/20/07   NOK     8,267,237       1,419,769       24,949    
11/20/07   NOK     8,267,237       1,419,768       23,606    
11/20/07   NZD     2,556,000       1,782,581       (145,562 )  
11/20/07   NZD     900,439       627,976       4,573    
11/20/07   NZD     900,439       627,976       5,160    
11/20/07   NZD     900,439       627,976       6,571    
11/20/07   NZD     900,439       627,976       4,467    
11/20/07   SEK     18,399,447       2,677,304       9,739    
11/20/07   SEK     18,399,447       2,677,304       8,736    
11/20/07   SEK     18,399,447       2,677,304       14,191    
11/20/07   SEK     18,399,447       2,677,304       9,364    
11/20/07   SEK     18,399,447       2,677,303       11,026    
11/20/07   SEK     18,399,447       2,677,303       15,693    
11/20/07   SEK     18,399,447       2,677,303       14,583    
11/20/07   SGD     806,169       531,944       1,046    

 

See accompanying notes to the financial statements.


15


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
11/20/07   SGD     806,169     $ 531,944     $ 1,111    
11/20/07   SGD     806,169       531,944       1,570    
11/20/07   SGD     806,169       531,944       853    
11/20/07   SGD     806,169       531,944       1,185    
11/20/07   SGD     806,169       531,944       766    
11/20/07   SGD     806,169       531,944       731    
                $ 130,963,883     $ (287,940 )  
Sales  
11/20/07   AUD     616,156     $ 503,099     $ (11,172 )  
11/20/07   CHF     360,000       299,721       2,037    
11/20/07   EUR     3,617,537       4,942,113       (51,857 )  
11/20/07   EUR     3,617,537       4,942,113       (52,595 )  
11/20/07   EUR     3,617,537       4,942,113       (52,624 )  
11/20/07   EUR     3,617,537       4,942,113       (56,412 )  
11/20/07   EUR     3,617,537       4,942,112       (58,438 )  
11/20/07   EUR     3,617,537       4,942,112       (54,784 )  
11/20/07   EUR     3,871,537       5,289,116       (56,927 )  
11/20/07   GBP     2,726,551       5,488,623       (80,280 )  
11/20/07   GBP     2,726,551       5,488,623       (77,452 )  
11/20/07   GBP     2,726,551       5,488,623       (85,471 )  
11/20/07   GBP     2,726,551       5,488,623       (88,748 )  
11/20/07   GBP     2,726,551       5,488,622       (87,107 )  
11/20/07   GBP     2,726,551       5,488,622       (88,688 )  
11/20/07   GBP     2,972,551       5,983,827       (96,516 )  
11/20/07   HKD     5,544,595       712,191       (1,272 )  
11/20/07   HKD     5,544,595       712,191       (1,377 )  
11/20/07   HKD     5,544,595       712,191       (1,327 )  
11/20/07   HKD     5,544,595       712,190       (1,636 )  
11/20/07   HKD     5,544,595       712,190       (1,436 )  
11/20/07   HKD     5,544,595       712,190       (1,527 )  
11/20/07   HKD     5,544,595       712,190       (1,618 )  
11/20/07   JPY     213,607,000       1,864,462       (27,970 )  
11/20/07   JPY     68,960,000       601,915       (956 )  
11/20/07   NOK     13,262,000       2,277,541       29,656    
11/20/07   NOK     13,264,000       2,277,884       28,978    
11/20/07   SEK     6,949,000       1,011,149       30,626    
11/20/07   SGD     527,000       347,737       421    
                $ 88,026,196     $ (946,472 )  

 

See accompanying notes to the financial statements.


16


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  43     DAX   September 2007   $ 11,205,000     $ (201,106 )  
  35     MSCI Singapore   September 2007     1,927,772       83,256    
  29     TOPIX   September 2007     4,036,057       (420,771 )  
    $ 17,168,829     $ (538,621 )  
Sales      
  4     CAC 40   September 2007   $ 309,149     $ (4,889 )  
  1     EURONEXT   September 2007     142,587       (973 )  
  23     FTSE 100   September 2007     2,928,734       109,983    
  3     OMXS 30   September 2007     52,896       (99 )  
  4     S&P 500   September 2007     1,476,700       6,784    
  15     S&P Toronto 60   September 2007     2,257,954       (523 )  
  4     SPI 200   September 2007     512,432       7,595    
    $ 7,680,452     $ 117,878    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


17


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

As of August 31, 2007, 48.42% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

See accompanying notes to the financial statements.


18



GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $450,659,861) (Note 2)   $ 500,412,745    
Cash     8,895    
Foreign currency, at value (cost $843,076) (Note 2)     647,814    
Receivable for investments sold     272,433    
Dividends and interest receivable     1,348,056    
Foreign taxes receivable     81,722    
Unrealized appreciation on open forward currency contracts (Note 2)     318,932    
Receivable for collateral on open futures contracts (Note 2)     1,655,000    
Receivable for variation margin on open futures contracts (Note 2)     183,033    
Receivable for expenses reimbursed by Manager (Note 3)     51,181    
Total assets     504,979,811    
Liabilities:  
Payable for investments purchased     272,090    
Payable to affiliate for (Note 3):  
Management fee     198,120    
Shareholder service fee     53,973    
Trustees and Chief Compliance Officer of GMO Trust fees     965    
Unrealized depreciation on open forward currency contracts (Note 2)     1,553,344    
Accrued expenses     120,122    
Total liabilities     2,198,614    
Net assets   $ 502,781,197    

 

See accompanying notes to the financial statements.


19


GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 425,984,205    
Accumulated undistributed net investment income     7,374,164    
Accumulated net realized gain     21,517,230    
Net unrealized appreciation     47,905,598    
    $ 502,781,197    
Net assets attributable to:  
Class III shares   $ 280,592,106    
Class IV shares   $ 222,189,091    
Shares outstanding:  
Class III     11,018,788    
Class IV     8,716,912    
Net asset value per share:  
Class III   $ 25.46    
Class IV   $ 25.49    

 

See accompanying notes to the financial statements.


20


GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $651,593)   $ 8,564,616    
Interest     490,814    
Securities lending income     269,887    
Total investment income     9,325,317    
Expenses:  
Management fee (Note 3)     1,204,599    
Shareholder service fee – Class III (Note 3)     216,340    
Shareholder service fee – Class IV (Note 3)     112,071    
Custodian and fund accounting agent fees     194,396    
Transfer agent fees     21,068    
Audit and tax fees     34,316    
Legal fees     5,796    
Trustees fees and related expenses (Note 3)     2,824    
Registration fees     368    
Miscellaneous     4,048    
Total expenses     1,795,826    
Fees and expenses reimbursed by Manager (Note 3)     (258,520 )  
Net expenses     1,537,306    
Net investment income (loss)     7,788,011    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     17,083,432    
Closed futures contracts     1,736,071    
Foreign currency, forward contracts and foreign currency related transactions     2,845,377    
Net realized gain (loss)     21,664,880    
Change in net unrealized appreciation (depreciation) on:  
Investments     936,039    
Open futures contracts     (963,886 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,686,460 )  
Net unrealized gain (loss)     (1,714,307 )  
Net realized and unrealized gain (loss)     19,950,573    
Net increase (decrease) in net assets resulting from operations   $ 27,738,584    

 

See accompanying notes to the financial statements.


21


GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,788,011     $ 6,739,059    
Net realized gain (loss)     21,664,880       15,932,679    
Change in net unrealized appreciation (depreciation)     (1,714,307 )     26,314,621    
Net increase (decrease) in net assets from operations     27,738,584       48,986,359    
Distributions to shareholders from:  
Net investment income  
Class III     —       (3,430,167 )  
Class IV     —       (1,996,536 )  
Total distributions from net investment income     —       (5,426,703 )  
Net realized gains  
Class III     (6,172,664 )     (6,179,695 )  
Class IV     (4,814,412 )     (3,819,305 )  
Total distributions from net realized gains     (10,987,076 )     (9,999,000 )  
      (10,987,076 )     (15,425,703 )  
Net share transactions (Note 7):  
Class III     (11,220,422 )     83,907,560    
Class IV     4,814,412       57,645,131    
Increase (decrease) in net assets resulting from net share
transactions		     (6,406,010 )     141,552,691    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     52,179       239,083    
Class IV     —       156,000    
Increase in net assets resulting from purchase premiums
and redemption fees		     52,179       395,083    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (6,353,831 )     141,947,774    
Total increase (decrease) in net assets     10,397,677       175,508,430    
Net assets:  
Beginning of period     492,383,520       316,875,090    
End of period (including accumulated undistributed net investment
income of $7,374,164 and distributions in excess of
net investment income of $413,847, respectively)		   $ 502,781,197     $ 492,383,520    

 

See accompanying notes to the financial statements.


22



GMO Developed World Stock Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 24.58     $ 22.24     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.39       0.43       0.15    
Net realized and unrealized gain (loss)     1.05       2.84       2.15    
Total from investment operations     1.44       3.27       2.30    
Less distributions to shareholders:  
From net investment income     —       (0.32 )     (0.06 )  
From net realized gains     (0.56 )     (0.61 )     —    
Total distributions     (0.56 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 25.46     $ 24.58     $ 22.24    
Total Return(b)      5.77 %**      14.87 %     11.51 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 280,592     $ 282,446     $ 179,466    
Net expenses to average daily net assets     0.62 %*      0.62 %     0.62 %*   
Net investment income to average daily net assets     3.02 %*      1.83 %     1.27 %*   
Portfolio turnover rate     23 %**      43 %     15 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.10 %*      0.12 %     0.20 %*   
Purchase premiums and redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (c)    $ 0.03     $ 0.07    

 

†  Calculated using average shares outstanding throughout the period.

(a)  Period from August 1, 2005 (commencement of operations) through February 28, 2006.

(b)  The total return would have been lower had certain expenses not been reimbursed during the period shown and assumes the effect of reinvested distributions. Calculations exclude purchase premiums and redemption fees which are borne by the shareholder.

(c)  Rounds to less than 0.01.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


23


GMO Developed World Stock Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 24.59     $ 22.25     $ 20.24    
Income (loss) from investment operations:  
Net investment income (loss)†      0.40       0.45       0.12    
Net realized and unrealized gain (loss)     1.06       2.82       1.95    
Total from investment operations     1.46       3.27       2.07    
Less distributions to shareholders:  
From net investment income     —       (0.32 )     (0.06 )  
From net realized gains     (0.56 )     (0.61 )     —    
Total distributions     (0.56 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 25.49     $ 24.59     $ 22.25    
Total Return(b)      5.85 %**      14.88 %     10.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 222,189     $ 209,937     $ 137,409    
Net expenses to average daily net assets     0.57 %*      0.57 %     0.57 %*   
Net investment income to average daily net assets     3.06 %*      1.93 %     1.20 %*   
Portfolio turnover rate     23 %**      43 %     15 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.10 %*      0.12 %     0.17 %*   
Purchase premiums and redemption fees consisted of the
following per share amounts:† 		     — (c)    $ 0.02     $ 0.06    

 

†  Calculated using average shares outstanding throughout the period.

(a)  Period from September 1, 2005 (commencement of operations) through February 28, 2006.

(b)  The total return would have been lower had certain expenses not been reimbursed during the period shown and assumes the effect of reinvested distributions. Calculations exclude purchase premiums and redemption fees which are borne by the shareholder.

(c)  For the period ended August 31, 2007, the Class received no purchase premiums or redemption fees.

*  Annualized.

**  Not annualized.

††  Calculation represents portfolio turnover rate of the Fund for the period August 1, 2005 through February 28, 2006.

See accompanying notes to the financial statements.


24



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Developed World Stock Fund (the "Fund"), which commenced operations on August 1, 2005, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming the MSCI World Index. The Fund typically makes equity investments in companies from the world's developed markets, including the U.S.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different level of shareholder service fees.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.


25


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price,


26


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


27


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery


28


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

of cash by the Fund may be delayed or limited. There were no repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had no securities on loan.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.


29


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 450,916,633     $ 68,902,616     $ (19,406,504 )   $ 49,496,112    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.

Purchase and redemption of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares are currently each 0.30% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase


30


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

premiums and redemption fees are paid to and recorded by the Fund as paid-in-capital. For the period ended August 31, 2007 and the year ended February 28, 2007 the Fund received $0 and $388,152 in purchase premiums and $52,179 and $6,931 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


31


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.47% 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 0.15% for Class III shares and 0.10% for Class IV shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.47% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007, was $2,180 and $1,472, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $122,773,207 and $109,801,242, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


32


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 54.28% 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 may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       3,144,280     $ 77,151,938    
Shares issued to shareholders
in reinvestment of distributions		     231,881       6,172,664       380,037       9,070,500    
Shares repurchased     (705,591 )     (17,393,086 )     (99,934 )     (2,314,878 )  
Purchase premiums and
redemption fees		     —       52,179       —       239,083    
Net increase (decrease)     (473,710 )   $ (11,168,243 )     3,424,383     $ 84,146,643    
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       2,117,902     $ 51,844,000    
Shares issued to shareholders
in reinvestment of distributions		     180,721       4,814,412       243,970       5,801,131    
Shares repurchased     —       —       —       —    
Purchase premiums and
redemption fees		     —       —       —       156,000    
Net increase (decrease)     180,721     $ 4,814,412       2,361,872     $ 57,801,131    

 


33



GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


34


GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual


35


GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


36


GMO Developed World Stock Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.62 %   $ 1,000.00     $ 1,057.70     $ 3.21    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.02     $ 3.15    
Class IV      
1) Actual     0.57 %   $ 1,000.00     $ 1,058.50     $ 2.95    
2) Hypothetical     0.57 %   $ 1,000.00     $ 1,022.27     $ 2.90    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


37



GMO Emerging Countries Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Emerging Countries Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     85.5 %  
Preferred Stocks     9.6    
Short-Term Investments     4.2    
Rights and Warrants     0.0    
Other     0.7    
      100.0 %  
Country Summary   % of Equity Investments  
South Korea     21.0 %  
Taiwan     17.4    
Brazil     13.9    
China     11.6    
Russia     6.0    
South Africa     4.9    
Mexico     4.2    
India     3.7    
Malaysia     3.7    
Thailand     2.7    
Poland     2.4    
Israel     2.3    
Turkey     1.8    
Chile     1.3    
Philippines     1.2    
Indonesia     0.9    
Hungary     0.9    
Peru     0.1    
Pakistan     0.0    
      100.0 %  

 


1


GMO Emerging Countries Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     21.2 %  
Materials     18.7    
Energy     14.9    
Information Technology     14.8    
Telecommunication Services     10.5    
Industrials     8.8    
Consumer Discretionary     5.0    
Utilities     2.6    
Consumer Staples     2.4    
Health Care     1.1    
      100.0 %  

 


2



GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 85.5%  
        Brazil — 4.6%  
    10,800     B2W Compania Global do Varejo     415,596    
    7,880     Banco Bradesco SA Sponsored ADR     194,478    
    196,740     Banco do Brasil SA     2,827,761    
    1,920     Companhia Energetica de Minas Gerais Sponsored ADR     36,480    
    62,809     Companhia Saneamento Basico Sao Paulo     1,530,209    
    6,938     Companhia Siderurgica Nacional SA     393,719    
    87,700     Companhia Vale do Rio Doce     4,334,937    
    31,960     Companhia Vale do Rio Doce ADR     1,576,587    
    4,634     Compania de Bebidas das Americas     318,853    
    12,300     Duratex SA (Preferred Shares)     304,679    
    117,700     Petroleo Brasileiro SA (Petrobras)     3,659,378    
    31,870     Petroleo Brasileiro SA (Petrobras) ADR     1,970,841    
    22,923     Souza Cruz SA (Registered)     478,906    
    7,900     Unibanco-Uniao de Bancos Brasileiros SA GDR     881,482    
    6,100     Usinas Siderurgicas de Minas Gerais SA     410,398    
    Total Brazil     19,334,304    
        Chile — 1.3%  
    16,952     Banco de Chile ADR     823,020    
    19,030     Banco Santander Chile SA ADR     905,828    
    14,930     Compania Cervecerias Unidas ADR     541,660    
    34,530     Compania de Telecommunicaciones de Chile ADR     295,922    
    7,050     Distribucion y Servicio ADR     208,750    
    8,370     Empresa Nacional de Electricidad SA ADR     371,461    
    31,880     Enersis SA ADR     573,202    
    108,300     Lan Airlines SA     1,738,215    
    Total Chile     5,458,058    
        China — 11.1%  
    440,000     Aluminum Corp of China Ltd     1,196,907    
    808,000     Bank of China Ltd Class H     415,644    
    2,784,000     China Construction Bank Class H     2,337,123    

 

See accompanying notes to the financial statements.


3


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        China — continued  
    570,200     China Cosco Holdings Co Ltd     1,332,411    
    292,797     China International Marine Containers Co Ltd Class B     633,706    
    330,000     China Life Insurance Co Ltd Class H     1,563,055    
    1,160,500     China Merchants Bank     4,365,093    
    394,964     China Mobile Ltd     5,379,207    
    3,872     China Mobile Ltd ADR     262,483    
    244,600     China Netcom Group     591,345    
    3,005,883     China Petroleum & Chemical Corp Class H     3,310,629    
    178,000     China Resources Enterprise Ltd     725,685    
    447,900     China Resources Power Holdings Co     1,263,194    
    46,000     China Shenhua Energy Co Ltd Class H     199,913    
    911,400     China Shipping Container Lines Co Ltd     701,767    
    20,100     China Telecom Corp Ltd ADR     1,169,418    
    855,400     China Telecom Corp Ltd Class H     495,503    
    1,294,000     China Travel International Investment Hong Kong Ltd     816,246    
    316,000     China Unicom     598,360    
    3,310,000     CNOOC Ltd     4,061,490    
    778,000     CNPC Hong Kong Ltd     413,113    
    228,000     Cosco Pacific Ltd     635,379    
    2,794,890     Denway Motors Ltd     1,310,267    
    363,586     Fountain Set Holdings Ltd     142,088    
    568,100     Guangdong Investments Ltd     357,967    
    1,114,000     Huaneng Power International Inc Class H     1,286,915    
    202,000     Kingboard Chemical Holdings Ltd     1,192,369    
    124,000     Nine Dragons Paper Holdings     370,361    
    190,000     Parkson Retail Group Ltd     1,521,645    
    5,330     Perfect World Co Ltd ADR *      120,831    
    3,161,553     PetroChina Co Ltd Class H     4,622,124    
    70,000     Ping An Insurance (Group) Co of China Ltd     730,768    
    4,192,000     Semiconductor Manufacturing International Corp *      488,569    
    308,400     Shanghai Industrial Holdings Ltd     1,352,967    
    1,056,000     Sinofert Holdings Ltd     749,268    
    Total China     46,713,810    

 

See accompanying notes to the financial statements.


4


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Hungary — 0.8%  
    2,410     Gedeon Richter Rt     474,050    
    6,110     MOL Magyar Olaj es Gazipari Rt (New Shares)     870,541    
    41,890     OTP Bank     2,103,524    
    Total Hungary     3,448,115    
        India — 3.6%  
    1,160     BF Utilities Ltd *       60,460    
    91,920     Bharti Televentures *      1,976,064    
    47,040     Canara Bank Ltd     280,936    
    62,300     GAIL India Ltd     471,436    
    21,250     Hindalco Industries Ltd     45,594    
    5,000     Hindalco Industries Ltd GDR 144A     19,750    
    48,800     Hindalco Industries Ltd GDR 144A     188,243    
    32,700     Hindalco Industries Ltd GDR 144A (Registered Shares)
(Luxembourg Exchange) (a) 		     129,165    
    31,140     Hindustan Zinc Ltd     548,097    
    29,271     ICICI Bank Ltd     638,120    
    360     ICICI Bank Ltd ADR     16,002    
    32,720     Indian Oil Corp Ltd     310,249    
    14,620     Larsen & Toubro Ltd     922,839    
    55,000     Oil & Natural Gas Corp Ltd     1,158,260    
    22,110     Reliance Capital Ltd     648,298    
    18,597     Reliance Energy Ltd     353,826    
    86,818     Reliance Industries Ltd (a)      4,170,120    
    4,680     State Bank of India Ltd     182,862    
    7,794     State Bank of India Ltd GDR     719,461    
    316,970     Steel Authority of India     1,305,896    
    53,490     Tata Iron & Steel Co Ltd     904,286    
    Total India     15,049,964    
        Indonesia — 0.9%  
    540,000     Astra International Tbk PT     1,026,802    
    534,000     Bank Danamon PT     458,511    
    475,500     Bank Rakyat Indonesia     316,476    

 

See accompanying notes to the financial statements.


5


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Indonesia — continued  
    2,333,500     Bumi Resources Tbk PT     633,320    
    7,008,620     Matahari Putra Prima Tbk PT     596,553    
    581,724     Telekomunikasi Indonesia Tbk PT     680,022    
    Total Indonesia     3,711,684    
        Israel — 2.2%  
    1,910     Africa Israel Investment Ltd     165,919    
    369,610     Bank Hapoalim BM     1,761,506    
    317,290     Bank Leumi Le     1,239,486    
    24,540     Check Point Software Technologies Ltd *      575,708    
    85,850     Israel Chemicals Ltd     678,704    
    65,970     Machteshim Agan Industries Ltd *      509,919    
    400     Teva Pharmaceutical Industries     17,174    
    87,620     Teva Pharmaceutical Industries ADR     3,767,660    
    945     The Israel Corp Ltd     664,629    
    Total Israel     9,380,705    
        Malaysia — 3.5%  
    268,000     Bumiputra-Commerce Holdings Berhad     846,027    
    65,700     Digi.Com Berhad     381,358    
    1,268,000     Genting Berhad     2,690,123    
    112,200     Golden Hope Plantations Berhad     254,809    
    246,600     Hong Leong Bank Berhad     422,921    
    1,018,590     IOI Corp. Berhad     1,458,781    
    131,450     Kuala Lumpur Kepong Berhad     415,320    
    201,400     Malayan Banking Berhad     673,601    
    332,100     MISC Berhad     908,426    
    257,300     MISC Berhad (Foreign Registered)     666,871    
    558,885     Public Bank Berhad     1,507,210    
    1,921,000     Resorts World Berhad     2,099,357    
    285,400     RHB Capital Berhad     440,355    
    314,790     Sime Darby Berhad     847,411    
    61,791     Tanjong Plc     299,553    

 

See accompanying notes to the financial statements.


6


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Malaysia — continued  
    232,200     Telekom Malaysia Berhad     650,710    
    102,200     Tenaga Nasional Berhad     293,956    
    Total Malaysia     14,856,789    
        Mexico — 4.0%  
    213,700     Alfa SA de CV Class A     1,536,943    
    37,250     America Movil SA de CV Class L ADR     2,252,135    
    191,200     Carso Global Telecom Class A *      909,816    
    952,248     Cemex SA de CV CPO *      3,084,686    
    342,311     Grupo Financiero Banorte SA de CV     1,396,175    
    453,840     Grupo Mexico SA Class B     2,862,980    
    137,000     Organizacion Soriana SA de CV Class B     441,435    
    115,900     Telefonos de Mexico SA de CV Class L ADR     4,095,906    
    45,500     Urbi Desarrollos Urbanos SA de CV *      170,692    
    Total Mexico     16,750,768    
        Pakistan — 0.1%  
    264,450     Pakistan Telecommunication Co Ltd Class A     212,573    
        Peru — 0.1%  
    4,750     Southern Copper Corp (b)      499,937    
        Philippines — 1.1%  
    67,360     Ayala Corp     711,312    
    3,179,644     Ayala Land Inc     988,757    
    274,720     Banco de Oro-EPCI Inc     334,516    
    639,100     Bank of the Philippine Islands     832,466    
    25,180     Philippine Long Distance Telephone     1,439,481    
    6,390     Philippine Long Distance Telephone ADR     375,285    
    Total Philippines     4,681,817    
        Poland — 2.2%  
    6,100     Bank Handlowy W Warszawie     257,687    
    7,900     Bank Pekao SA     690,049    

 

See accompanying notes to the financial statements.


7


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Poland — continued  
    39,220     KGHM Polska Miedz SA     1,624,308    
    144,240     Polski Koncern Naftowy Orlen SA *      2,957,840    
    250,720     Polskie Gornictwo Naftowe     466,736    
    70,720     Powszechna Kasa Oszczednosci Bank Polski SA     1,354,064    
    276,670     Telekomunikacja Polska SA     2,139,706    
    Total Poland     9,490,390    
        Russia — 5.7%  
    5,730     Cherepovets MK Severstal     98,556    
    14,870     Cherepovets Mk Severstal GDR     253,533    
    5,700     Evraz Group SA GDR     287,850    
    66,100     Gazprom Neft ADR (b)      1,255,900    
    79,140     Lukoil ADR     5,856,360    
    4,100     Lukoil ADR 144A     303,400    
    22,640     Mobile Telesystems ADR     1,497,862    
    95,944     OAO Gazprom ADR     3,986,473    
    8,217     OAO Mechel ADR     357,686    
    1,880,000     Sberbank RF     7,200,400    
    81,850     Vimpel-Communications ADR     1,997,140    
    16,220     VTB Bank OJSC Sponsored GDR 144A *      151,657    
    6,250     Wimm-Bill-Dann Foods OJSC ADR     639,750    
    Total Russia     23,886,567    
        South Africa — 4.6%  
    56,052     Absa Group Ltd     1,022,695    
    26,600     AECI Ltd     295,600    
    59,400     African Bank Investments Ltd     263,563    
    5,050     Anglo American Platinum Corp     675,307    
    33,400     Barloworld Ltd     574,096    
    19,200     Bidvest Group Ltd     374,395    
    533,000     FirstRand Ltd     1,745,358    
    49,200     Foschini Ltd     401,869    
    25,800     Imperial Holdings Ltd     517,375    
    94,067     Mittal Steel South Africa Ltd     1,630,522    

 

See accompanying notes to the financial statements.


8


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Africa — continued  
    125,700     MTN Group Ltd     1,917,791    
    31,200     Murray & Roberts Holdings Ltd     329,606    
    59,376     Pretoria Portland Cement Co Ltd     376,513    
    58,507     Remgro Ltd     1,512,167    
    110,300     RMB Holdings Ltd     534,389    
    367,100     Sanlam Ltd     1,108,713    
    36,400     Sasol Ltd     1,469,473    
    141,600     Standard Bank Group Ltd     2,076,301    
    105,300     Steinhoff International Holdings     339,062    
    32,100     Telkom SA Ltd     793,498    
    38,124     Tiger Brands Ltd     1,002,374    
    214,250     Woolworths Holdings     591,392    
    Total South Africa     19,552,059    
        South Korea — 19.0%  
    14,820     Daelim Industrial Co Ltd     2,478,928    
    14,970     Daewoo Engineering & Construction Co Ltd     428,203    
    18,970     Daewoo Securities Co Ltd     585,381    
    11,800     Dongkuk Steel Mill     542,731    
    5,740     Doosan Heavy Industries and Construction Co     550,983    
    7,600     Doosan Infracore Co Ltd     276,653    
    10,440     GS Holdings Corp     539,467    
    2,851     Hana Financial Group Inc     134,828    
    34,638     Hanjin Heavy Industries & Construction Co Ltd *      2,971,714    
    12,811     Hanjin Heavy Industries & Construction Holdings Co Ltd     582,318    
    11,030     Hanjin Shipping     616,757    
    3,230     Honam Petrochemical Co     498,533    
    46,030     Hynix Semiconductor Inc *      1,658,524    
    4,270     Hyundai Development Co     382,043    
    5,440     Hyundai Heavy Industries     2,143,630    
    8,680     Hyundai Merchant Marine Co Ltd     459,087    
    3,355     Hyundai Mipo Dockyard     993,409    
    31,090     Hyundai Mobis     3,342,650    
    16,040     Hyundai Motor Co     1,188,578    

 

See accompanying notes to the financial statements.


9


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    23,480     Hyundai Securities Co     715,584    
    18,010     Hyundai Steel Co     1,440,774    
    40,450     Industrial Bank of Korea     883,198    
    12,640     Kangwon Land Inc     302,980    
    3,340     KCC Corp     1,708,481    
    25,630     Kookmin Bank     2,079,088    
    800     Kookmin Bank ADR     65,160    
    57,560     Korea Exchange Bank     911,674    
    21,840     Korea Gas Corp     1,339,548    
    4,400     Korea Investment Holdings Co Ltd     283,281    
    2,740     Korea Zinc Co Ltd     549,423    
    8,116     Korean Air Lines Co Ltd     549,540    
    2,480     KT Corp     117,650    
    34,000     KT Corp ADR     809,880    
    5,810     KT Freetel Co Ltd     188,808    
    32,650     KT&G Corp     2,482,548    
    14,500     KT&G Corp GDR 144A     522,290    
    3,650     Kumho Industrial Co Ltd     261,445    
    10,520     LG Chemicals Ltd     1,094,681    
    13,980     LG Corp     802,462    
    2,560     LG Electronics Inc     196,417    
    37,900     LG Philips LCD Co Ltd *      1,612,272    
    575     Lotte Shopping Co Ltd     214,401    
    5,700     NHN Corp *      1,100,299    
    1,830     Oriental Brewery Co Ltd *      290,551    
    21,120     POSCO     12,925,061    
    30,070     Samsung Corp     2,046,973    
    14,470     Samsung Electronics Co Ltd     9,121,742    
    2,580     Samsung Engineering Co Ltd     296,970    
    13,510     Samsung Heavy Industries Co Ltd     681,262    
    11,240     Samsung SDI Co Ltd     738,837    
    3,390     Samsung Securities     288,952    
    3,560     Seoul Semiconductor Co Ltd     216,507    
    92,613     Shinhan Financial Group Co Ltd     5,678,116    

 

See accompanying notes to the financial statements.


10


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    4,334     SK Corp     666,697    
    27,431     SK Energy Co Ltd *       3,756,670    
    5,600     SK Networks Co Ltd *       136,088    
    63,600     SK Telecom Co Ltd ADR     1,740,732    
    11,880     Tong Yang Investment Bank     224,579    
    38,370     Woori Finance Holdings Co Ltd     874,501    
    8,910     Woori Investment & Securities Co Ltd     250,268    
    Total South Korea     80,540,807    
        Taiwan — 16.5%  
    252,010     Acer Inc     443,212    
    112,497     Advanced Semiconductor Engineering Inc     111,208    
    1,859     Advanced Semiconductor Engineering Inc ADR     9,295    
    936,516     Asustek Computer Inc     2,794,828    
    402,863     AU Optronics Corp     587,656    
    668,080     Chi Mei Optoelectronics Corp     676,431    
    3,267,718     China Development Financial Holding Corp     1,332,556    
    3,649,723     China Steel Corp     4,962,374    
    934,604     Chinatrust Financial Holding Co Ltd *      702,930    
    1,305,260     Chunghwa Telecom Co Ltd     2,319,744    
    7,965     Chunghwa Telecom Co Ltd ADR     139,549    
    809,799     Compal Electronics Inc     896,499    
    241,160     D-Link Corp     532,359    
    1,268,549     Far Eastern Textile Co Ltd     1,491,748    
    1,219,486     First Financial Holding Co Ltd     843,045    
    1,283,039     Formosa Chemicals & Fibre Co     3,124,387    
    318,000     Formosa Petrochemical Corp     885,625    
    1,561,178     Formosa Plastics Corp     3,878,283    
    203,320     Foxconn Technology Co Ltd     1,848,014    
    46,800     High Tech Computer Corp     635,775    
    859,557     Hon Hai Precision Industry Co Ltd     6,379,023    
    229,804     Innolux Display Corp     975,589    
    607,218     Inventec Co Ltd     386,566    
    313,299     Lite-On Technology Corp     494,325    

 

See accompanying notes to the financial statements.


11


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    607,334     MediaTek Inc     10,265,640    
    1,769,000     Mega Financial Holdings Co Ltd     1,101,379    
    1,577,417     Nan Ya Plastics Corp     3,827,832    
    3,444     Nanya Technology Corp     2,533    
    170,339     Novatek Microelectronics     687,414    
    26,400     PixArt Imaging Inc     234,932    
    193,853     Pou Chen Corp     193,837    
    2,621,471     Powerchip Semiconductor Corp     1,291,670    
    2,457,000     Promos Technologies Inc     758,841    
    532,914     Quanta Computer Inc     867,069    
    660,776     Shin Kong Financial Holdings     643,618    
    1,137,341     Siliconware Precision Industries Co     2,320,513    
    410,960     Sinopac Holdings Co     194,920    
    2,650,000     Taishin Financial Holdings Co Ltd *      1,328,164    
    965,000     Taiwan Cellular Corp     1,227,866    
    233,805     Taiwan Cement Corp     300,862    
    3,116,455     Taiwan Semiconductor Manufacturing Co Ltd     5,916,968    
    206,000     U-Ming Marine Transport Co *      614,682    
    313,498     United Microelectronics Corp     176,981    
    667,687     Walsin Lihwa Corp     327,988    
    447,716     Wan Hai Lines Ltd     316,044    
    1,386,000     Yuanta Financial Holding Co Ltd *      790,390    
    Total Taiwan     69,841,164    
        Thailand — 2.5%  
    359,690     Advanced Info Service Pcl (Foreign Registered) (a)      974,520    
    20     Airports of Thailand Pcl (Foreign Registered) (a)      34    
    183,480     Bangkok Bank Pcl NVDR (a)      635,833    
    261,300     Bangkok Dusit Medical Service Pcl (Foreign Registered) (a)      292,939    
    473,970     Bank of Ayudhya Pcl NVDR (a)      366,523    
    2,427,780     IRPC Pcl (Foreign Registered) (a)      469,656    
    249,600     Kasikornbank Pcl (Foreign Registered) (a)      574,500    
    238,000     Kasikornbank Pcl NVDR (a)      547,801    
    1,085,000     Krung Thai Bank Pcl (Foreign Registered) (a)      357,332    

 

See accompanying notes to the financial statements.


12


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Thailand — continued  
    297,382     PTT Pcl (Foreign Registered) (a)      2,646,272    
    177,309     Siam Cement Pcl (Foreign Registered) NVDR (a)      1,290,552    
    466,000     Siam Commercial Bank Pcl (Foreign Registered) (a)      1,065,696    
    260,400     Thai Airways International Pcl (Foreign Registered) (a)      331,565    
    486,240     Thai Oil Pcl (Foreign Registered) (a)      1,159,517    
    Total Thailand     10,712,740    
        Turkey — 1.7%  
    145,918     Akbank TAS     932,270    
    151,578     Eregli Demir ve Celik Fabrikalari TAS     1,190,326    
    34,534     Tupras-Turkiye Petrol Rafineriler AS     788,696    
    40,607     Turkcell Iletisim Hizmet AS     295,026    
    453,590     Turkiye Garanti Bankasi     2,916,517    
    166,660     Turkiye IS Bankasi Class C     814,419    
    94,120     Turkiye Vakiflar Bankasi TAO     269,836    
    Total Turkey     7,207,090    
    TOTAL COMMON STOCKS (COST $259,540,486)     361,329,341    
        PREFERRED STOCKS — 9.6%  
        Brazil — 8.6%  
    51,064     Banco Bradesco SA 1.01%     1,273,997    
    34,900     Banco Itau Holding Financeira SA 0.34%     1,529,766    
    37,500     Bradespar SA 0.41%     1,586,391    
    42,232     Brasil Telecom SA 0.67%     371,306    
    28,200     Braskem SA Class A 0.90%     260,153    
    80,109     Companhia Energetica de Minas Gerais 1.96%     1,543,384    
    196,678     Companhia Vale do Rio Doce Class A 0.53%     8,139,783    
    9,100     Empresa Brasileira de Aeronautica SA ADR 0.80%     410,956    
    33,500     Gerdau Metalurgica SA 3.24%     1,050,077    
    80,804     Gerdau SA 2.43%     1,976,856    
    475,169     Itausa-Investimentos Itau SA 0.41%     2,857,795    
    77,100     Net Servicos de Comunicacoa SA *      1,159,251    

 

See accompanying notes to the financial statements.


13


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Brazil — continued  
    310,212     Petroleo Brasileiro SA (Petrobras) 0.67%     8,253,347    
    162,500     Sadia SA 1.92%     818,298    
    19,500     Suzano Bahia Sul Papel e Celulose SA 0.08%     268,249    
    10,130     Tele Norte Leste Participacoes ADR 0.18%     223,772    
    104,500     Tele Norte Leste Participacoes SA 0.18%     2,340,864    
    21,500     Telemar Norte Leste SA 1.32%     734,200    
    19,400     Usinas Siderrurgicas de Minas Gerais SA 0.72%     1,155,595    
    106,300     Vivo Participacoes SA 0.20%     504,410    
    Total Brazil     36,458,450    
        Russia — 0.1%  
    220     Transneft 0.58%     330,000    
        South Korea — 0.9%  
    10,400     Hyundai Motor Co 2.80%     410,094    
    7,560     Samsung Electronics Co Ltd (Non Voting) 1.28%     3,548,428    
    Total South Korea     3,958,522    
    TOTAL PREFERRED STOCKS (COST $22,921,484)     40,746,972    
        RIGHTS AND WARRANTS — 0.0%  
        Philippines — 0.0%  
    3,179,644     Ayala Land Inc Rights, Expires 12/31/49 *      6,832    
        Thailand — 0.0%  
    116,526     True Corp Pcl Warrants, Expires 04/03/08 * (a)      —    
    TOTAL RIGHTS AND WARRANTS (COST $0)     6,832    

 

See accompanying notes to the financial statements.


14


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 4.2%  
    1,372,900     Bank of New York Institutional Cash Reserves Fund (c)      1,372,900    
    16,300,000     Societe Generale Time Deposit, 5.28%, due 09/04/07     16,300,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,672,900)     17,672,900    
    TOTAL INVESTMENTS — 99.3%
(Cost $300,134,870)		     419,756,045    
      Other Assets and Liabilities (net) — 0.7%     3,115,086    
    TOTAL NET ASSETS — 100.0%   $ 422,871,131    

 

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.

ADR - American Depositary Receipt

CPO - Ordinary Participation Certificate (Certificado de Participacion Ordinares), representing a bundle of shares of the multiple series of one issuer that trade together as a unit.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

*  Non-income producing security.

(a)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(b)  All or a portion of this security is out on loan (Note 2).

(c)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 64.73% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


15



GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $1,397,600
(cost $300,134,870) (Note 2)		   $ 419,756,045    
Cash     40,483    
Foreign currency, at value (cost $3,435,288) (Note 2)     3,431,237    
Receivable for investments sold     49,323    
Receivable for Fund shares sold     24,504    
Dividends and interest receivable     1,498,164    
Foreign taxes receivable     253,893    
Receivable for expenses reimbursed by Manager (Note 3)     852    
Total assets     425,054,501    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     1,372,900    
Payable for Fund shares repurchased     62,711    
Accrued capital gain and repatriation taxes payable (Note 2)     196,152    
Payable to affiliate for (Note 3):  
Management fee     223,554    
Shareholder service fee     47,208    
Administration fee – Class M     5,844    
Trustees and Chief Compliance Officer of GMO Trust fees     833    
Payable for 12b-1 fee – Class M     14,757    
Accrued expenses     259,411    
Total liabilities     2,183,370    
Net assets   $ 422,871,131    

 

See accompanying notes to the financial statements.


16


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 249,550,379    
Accumulated undistributed net investment income     2,604,061    
Accumulated net realized gain     51,307,175    
Net unrealized appreciation     119,409,516    
    $ 422,871,131    
Net assets attributable to:  
Class III shares   $ 386,878,247    
Class M shares   $ 35,992,884    
Shares outstanding:  
Class III     21,898,353    
Class M     2,060,710    
Net asset value per share:  
Class III   $ 17.67    
Class M   $ 17.47    

 

See accompanying notes to the financial statements.


17


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $954,429)   $ 6,643,951    
Interest     276,378    
Securities lending income     9,152    
Total investment income     6,929,481    
Expenses:  
Management fee (Note 3)     1,314,794    
Shareholder service fee – Class III (Note 3)     279,228    
12b-1 fee – Class M (Note 3)     40,310    
Administration fee – Class M (Note 3)     32,248    
Custodian and fund accounting agent fees     516,212    
Transfer agent fees     23,736    
Audit and tax fees     42,044    
Legal fees     5,060    
Trustees fees and related expenses (Note 3)     2,285    
Registration fees     10,304    
Miscellaneous     3,220    
Total expenses     2,269,441    
Fees and expenses reimbursed by Manager (Note 3)     (467 )  
Net expenses     2,268,974    
Net investment income (loss)     4,660,507    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $12,597) (Note 2)     51,303,342    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $4,518) (Note2)		     31,685    
Net realized gain (loss)     51,335,027    
Change in net unrealized appreciation (depreciation) on:  
Investments (net of change in foreign capital gains tax accrual of ($211,645)) (Note 2)     31,668,388    
Foreign currency, forward contracts and foreign currency related transactions     11,218    
Net unrealized gain (loss)     31,679,606    
Net realized and unrealized gain (loss)     83,014,633    
Net increase (decrease) in net assets resulting from operations   $ 87,675,140    

 

See accompanying notes to the financial statements.


18


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,660,507     $ 6,550,482    
Net realized gain (loss)     51,335,027       124,974,708    
Change in net unrealized appreciation (depreciation)     31,679,606       (76,541,791 )  
Net increase (decrease) in net assets from operations     87,675,140       54,983,399    
Distributions to shareholders from:  
Net investment income  
Class III     (792,687 )     (6,274,494 )  
Class M     (55,601 )     (451,963 )  
Total distributions from net investment income     (848,288 )     (6,726,457 )  
Net realized gains  
Class III     (46,096,758 )     (97,439,141 )  
Class M     (4,067,084 )     (9,313,319 )  
Total distributions from net realized gains     (50,163,842 )     (106,752,460 )  
      (51,012,130 )     (113,478,917 )  
Net share transactions (Note 7):  
Class III     13,535,380       46,234,476    
Class M     3,980,981       (22,200,886 )  
Increase (decrease) in net assets resulting from net share
transactions		     17,516,361       24,033,590    
Total increase (decrease) in net assets     54,179,371       (34,461,928 )  
Net assets:  
Beginning of period     368,691,760       403,153,688    
End of period (including accumulated undistributed net
investment income of $2,604,061 and distributions in excess
of net investment income of $1,208,158, respectively)		   $ 422,871,131     $ 368,691,760    

 

See accompanying notes to the financial statements.


19



GMO Emerging Countries Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value,
beginning of period		   $ 16.04     $ 19.20     $ 15.99     $ 14.99     $ 8.54     $ 9.65    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.21 †      0.32 †      0.28 †      0.30 †      0.18       0.08    
Net realized and unrealized
gain (loss)		     3.79       2.50       5.09       3.43       6.71       (1.04 )  
Total from investment
operations		     4.00       2.82       5.37       3.73       6.89       (0.96 )  
Less distributions to shareholders:  
From net investment income     (0.04 )     (0.36 )     (0.35 )     (0.31 )     (0.22 )     (0.15 )  
From net realized gains     (2.33 )     (5.62 )     (1.81 )     (2.42 )     (0.22 )     —    
Total distributions     (2.37 )     (5.98 )     (2.16 )     (2.73 )     (0.44 )     (0.15 )  
Net asset value, end of period   $ 17.67     $ 16.04     $ 19.20     $ 15.99     $ 14.99     $ 8.54    
Total Return     24.70 %**(a)      16.20 %     36.38 %(a)      28.76 %(a)      81.45 %(a)      (10.15 )%(a)(b)   
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 386,878     $ 339,268     $ 346,018     $ 249,005     $ 249,844     $ 89,042    
Net expenses to average
daily net assets		     1.10 %*      1.06 %     1.10 %     1.10 %     1.16 %     1.27 %  
Net investment income to
average daily net assets		     1.17 %(c)**      1.74 %     1.68 %     2.12 %     1.82 %     0.78 %  
Portfolio turnover rate     31 %**      58 %     35 %     53 %     57 %     108 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.00 %(d)*      —       0.01 %     0.05 %     0.06 %     0.31 %  
Purchase premiums and
redemption fees consisted
of the following
per share amounts:		     —       —       —       —       —     $ 0.00 (e)†   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(b)  Calculations exclude purchase premiums and redemption fees which are borne by the shareholder.

(c)  The ratio for six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

(d)  Fees and expenses reimbursed by the Manager to average daily net assets were less than 0.01%.

(e)  Purchase premiums and redemptions fees were less than $0.01 per share. The purchase premium and redemption fee were rescinded effective April 1, 2002.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20


GMO Emerging Countries Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value,
beginning of period		   $ 15.90     $ 19.05     $ 15.87     $ 14.91     $ 8.51     $ 9.85    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.18 †      0.30 †      0.27 †      0.26 †      0.11       0.01    
Net realized and unrealized
gain (loss)		     3.75       2.44       5.00       3.39       6.71       (1.35 )  
Total from investment
operations		     3.93       2.74       5.27       3.65       6.82       (1.34 )  
Less distributions to shareholders:  
From net investment income     (0.03 )     (0.27 )     (0.28 )     (0.27 )     (0.20 )     —    
From net realized gains     (2.33 )     (5.62 )     (1.81 )     (2.42 )     (0.22 )     —    
Total distributions     (2.36 )     (5.89 )     (2.09 )     (2.69 )     (0.42 )     —    
Net asset value, end of period   $ 17.47     $ 15.90     $ 19.05     $ 15.87     $ 14.91     $ 8.51    
Total Return     24.49 %**(b)      15.89 %     35.99 %(b)      28.30 %(b)      80.98 %(b)      (13.60 )%(b)**   
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 35,993     $ 29,423     $ 57,136     $ 69,109     $ 58,346     $ 579    
Net expenses to average
daily net assets		     1.40 %*      1.36 %     1.39 %     1.40 %     1.45 %     1.57 %*   
Net investment income to
average daily net assets		     1.03 %(c)**      1.63 %     1.65 %     1.82 %     1.27 %     0.20 %*   
Portfolio turnover rate     31 %**      58 %     35 %     53 %     57 %     108 %***   
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.00 %(d)*      —       0.01 %     0.05 %     0.06 %     0.41 %*   

 

(a)  Period from July 9, 2002 (commencement of operations) through February 28, 2003.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)  The ratio for six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

(d)  Fees and expenses reimbursed by the Manager to average daily net assets were less than 0.01%.

†  Calculated using average shares outstanding during the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2003.

See accompanying notes to the financial statements.


21



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Emerging 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming the S&P/IFC Investable Composite Index. The Fund typically makes equity investments in companies whose stocks are traded in the securities markets of the world's non-developed countries, which excludes countries that are included in the MSCI EAFE Index.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class M. Class M shares bear an administration fee and a 12b-1 fee while Class III shares bear a shareholder service fee (See Note 3). The principal economic difference between the classes of shares is the type and level of fees.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and


22


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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,


23


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


24


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.


25


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $1,397,600 collateralized by cash in the amount of $1,372,900, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

The Fund is currently subject to a Taiwanese security transaction tax of 0.3% of the transaction amount on equities and 0.1% of the transaction amount on corporate bonds and mutual fund shares, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to such tax.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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 accrual for capital gains and repatriation taxes is included in net unrealized gain (loss) in the Statement of Operations. For the period ended August 31, 2007, the Fund incurred $12,597 in capital gains taxes which is included in net realized gain (loss) in the Statement of Operations.


26


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. The CPMF tax has been included in the net realized gain (loss) on investments throughout the year. For the period ended August 31, 2007, the Fund incurred $4,518 in CPMF tax which is included in net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 302,358,700     $ 121,422,031     $ (4,024,686 )   $ 117,397,345    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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, 12b-1, and administration fees, which


27


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

are directly attributable to a class of shares, are charged to that class's operations. 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's operations.

Investment risks

Investments in securities of issuers in 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 in emerging countries are typically less liquid than those of developed markets. Accordingly, the Fund may not be able to realize in an actual sale amounts approximating those used to value its holdings.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.65% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee


28


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 0.15% for Class III shares.

Class M shares of the Fund pay GMO an administration fee monthly at an annual rate of 0.20% of average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund and/or the provision of certain other services incidental thereto. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) ex ceed 1.00% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $1,733 and $1,196 respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $118,473,416 and $162,220,057, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications.


29


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 16.97% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 0.10% of the Fund's shares were held by six related parties comprised of certain GMO employee accounts, and 16.67% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     246,175     $ 4,276,802       1,442,762     $ 27,694,596    
Shares issued to shareholders
in reinvestment of distributions		     2,477,722       44,425,566       5,918,651       97,273,044    
Shares repurchased     (1,975,262 )     (35,166,988 )     (4,234,129 )     (78,733,164 )  
Net increase (decrease)     748,635     $ 13,535,380       3,127,284     $ 46,234,476    
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     367,621     $ 6,571,841       917,075     $ 16,897,698    
Shares issued to shareholders
in reinvestment of distributions		     232,526       4,122,685       598,918       9,765,282    
Shares repurchased     (390,241 )     (6,713,545 )     (2,664,680 )     (48,863,866 )  
Net increase (decrease)     209,906     $ 3,980,981       (1,148,687 )   $ (22,200,886 )  

 


30



GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall compet ence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


31


GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total


32


GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


33


GMO Emerging Countries Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 though August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     1.10 %   $ 1,000.00     $ 1,247.00     $ 6.21    
2) Hypothetical     1.10 %   $ 1,000.00     $ 1,019.61     $ 5.58    
Class M      
1) Actual     1.40 %   $ 1,000.00     $ 1,244.90     $ 7.90    
2) Hypothetical     1.40 %   $ 1,000.00     $ 1,018.10     $ 7.10    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


34



GMO Global Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Global Growth Fund

(A Series of GMO Trust)

Investments Concentration Summary

August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.5 %  
Preferred Stocks     0.8    
Short-Term Investments     0.8    
Other     1.9    
      100.0 %  
Country Summary   % of Equity Investments  
United States     43.6 %  
Japan     9.5    
United Kingdom     8.3    
Germany     6.0    
France     4.8    
Singapore     4.2    
Switzerland     2.8    
Spain     2.7    
Netherlands     2.3    
Sweden     2.5    
Hong Kong     2.1    
Italy     1.8    
Canada     1.5    
Norway     1.5    
Denmark     1.5    
Australia     1.5    
Belgium     1.2    
Finland     1.0    
Ireland     0.8    
Austria     0.3    
Portugal     0.1    
      100.0 %  

 


1


GMO Global Growth Fund

(A Series of GMO Trust)

Investments Concentration Summary — (Continued)

August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     19.7 %  
Energy     13.5    
Health Care     13.5    
Consumer Discretionary     12.0    
Information Technology     11.5    
Industrials     10.2    
Consumer Staples     6.9    
Materials     5.6    
Utilities     4.4    
Telecommunication Services     2.7    
      100.0 %  

 


2



GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            COMMON STOCKS — 96.5%          
            Australia — 1.4%          
    649     Commonwealth Bank of Australia     29,295    
    244     CSL Ltd     19,581    
    285     Macquarie Bank Ltd     17,024    
    1,519     QBE Insurance Group Ltd     43,289    
    624     Toll Holdings Ltd     6,934    
    817     Westfield Group     13,990    
    855     Woodside Petroleum Ltd     31,582    
    692     Woolworths Ltd     16,941    
    Total Australia     178,636    
            Austria — 0.3%          
    298     Oesterreichische Elektrizitaetswirtschafts AG Class A     14,791    
    364     OMV AG     22,555    
    Total Austria     37,346    
            Belgium — 1.2%          
    90     Colruyt SA     19,226    
    1,201     Fortis     44,049    
    431     Inbev NV     35,391    
    127     KBC Groep NV     15,938    
    599     UCB SA     33,747    
    Total Belgium     148,351    
            Canada — 1.5%          
    300     Bank of Nova Scotia     14,841    
    500     Canadian Natural Resources     34,181    
    700     EnCana Corp     41,026    
    500     Husky Energy Inc     18,348    
    300     Imperial Oil Ltd     13,128    
    100     Potash Corp of Saskatchewan Inc     8,862    
    300     Research In Motion Ltd *      25,628    
    400     Royal Bank of Canada     20,583    
    200     Toronto Dominion Bank     13,684    
    Total Canada     190,281    

 

See accompanying notes to the financial statements.


3


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Denmark — 1.4%          
    3     AP Moller-Maersk A/S     39,264    
    150     Carlsberg A/S Class B     20,217    
    800     Novo-Nordisk A/S     89,179    
    450     Vestas Wind Systems A/S *      30,482    
    Total Denmark     179,142    
            Finland — 1.0%          
    2,352     Nokia Oyj     77,483    
    666     Outokumpu Oyj     20,219    
    170     Rautaruukki Oyj     9,295    
    466     Sampo Oyj Class A     13,397    
    Total Finland     120,394    
            France — 4.7%          
    463     Arcelor Mittal     30,367    
    433     BNP Paribas     45,454    
    1,038     Electricite de France     104,589    
    318     Groupe Danone     24,146    
    117     Lafarge SA     18,114    
    448     Peugeot SA     38,003    
    158     Renault SA     21,226    
    1,194     Sanofi-Aventis     97,792    
    461     Suez SA     26,187    
    2,314     Total SA     173,536    
    64     Union du Credit-Bail Immobilier     15,332    
    Total France     594,746    
            Germany — 5.0%          
    382     Allianz SE (Registered)     82,064    
    544     Altana AG     12,445    
    286     BASF AG     37,887    
    333     Bayer AG     26,373    
    340     Bayerische Motoren Werke AG     20,775    
    208     Beiresdorf AG (Bearer)     14,006    
    273     DaimlerChrysler AG (Registered)     24,322    

 

See accompanying notes to the financial statements.


4


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Germany — continued          
    724     Depfa Bank Plc     13,729    
    206     Deutsche Boerse AG     22,795    
    454     Deutsche Post AG (Registered)     13,187    
    181     E. On AG     30,417    
    936     Infineon Technologies AG *      14,603    
    148     Linde AG     17,413    
    240     MAN AG     34,459    
    110     Merck KGaA     14,123    
    184     Metro AG     15,860    
    159     Muenchener Rueckversicherungs AG (Registered)     27,530    
    283     RWE AG     31,840    
    397     Siemens AG (Registered)     49,916    
    827     ThyssenKrupp AG     48,411    
    340     Volkswagen AG     70,405    
    Total Germany     622,560    
            Hong Kong — 2.1%          
    3,000     Bank of East Asia Ltd     16,721    
    10,000     BOC Hong Kong Holdings Ltd     24,037    
    1,000     Cheung Kong Holdings Ltd     14,702    
    5,000     CLP Holdings Ltd     34,432    
    1,600     Esprit Holdings Ltd     23,242    
    7,000     Foxconn International Holdings *      18,295    
    5,500     Hong Kong Electric Holdings Ltd     27,576    
    4,500     Hong Kong Exchanges and Clearing Ltd     83,044    
    2,000     Hutchison Whampoa Ltd     19,889    
    Total Hong Kong     261,938    
            Ireland — 0.8%          
    712     Allied Irish Banks Plc     18,149    
    1,042     Anglo Irish Bank Corp     19,449    
    2,297     Bank of Ireland     42,200    
    463     CRH Plc     20,016    
    Total Ireland     99,814    

 

See accompanying notes to the financial statements.


5


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Italy — 1.8%          
    6,518     ENI SPA     225,142    
            Japan — 9.2%          
    300     Astellas Pharma Inc     13,906    
    1,000     Canon Inc     57,079    
    400     Chubu Electric Power Co Inc     10,662    
    300     Daito Trust Construction Co Ltd     14,139    
    3,000     Fuji Heavy Industries Ltd     12,575    
    2,800     Honda Motor Co Ltd     92,030    
    4,000     Itochu Corp     43,196    
    300     JFE Holdings Inc     19,534    
    500     Kansai Electric Power Co Inc     11,681    
    6,000     Marubeni Corp     48,794    
    1,600     Mitsubishi Corp     44,909    
    1,000     Mitsubishi Estate Co Ltd     26,734    
    2,000     Mitsui & Co     41,574    
    1,000     Mitsui Fudosan Co Ltd     26,161    
    2,000     Mitsui OSK Lines Ltd     29,379    
    200     Nintendo Co Ltd     92,054    
    3,000     Nippon Oil Corp     25,242    
    7,000     Nippon Steel Corp     48,915    
    4,600     Nissan Motor Co     43,943    
    3     NTT Data Corp     14,513    
    12     NTT Docomo Inc     18,293    
    6,000     Osaka Gas Co Ltd     22,285    
    700     Seven & I Holdings Co Ltd     18,665    
    500     Shin-Etsu Chemical Co Ltd     36,149    
    300     Sony Corp     14,363    
    3,000     Sumitomo Corp     51,751    
    3,000     Sumitomo Metal Industries Ltd     15,131    
    1,000     Sumitomo Metal Mining Co Ltd     19,787    
    1,000     Sumitomo Realty & Development Co Ltd     32,704    
    1,300     Takeda Pharmaceutical Co Ltd     88,944    
    100     Tokyo Electron Ltd     7,158    

 

See accompanying notes to the financial statements.


6


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Japan — continued          
    2,000     Tokyo Gas Co Ltd     9,937    
    1,000     TonenGeneral Sekiyu KK     9,905    
    1,700     Toyota Motor Corp     98,445    
    Total Japan     1,160,537    
            Netherlands — 2.2%          
    1,676     ABN Amro Holdings NV     77,892    
    881     Heineken NV     55,848    
    2,516     ING Groep NV     101,260    
    1,496     Koninklijke Ahold NV *      20,049    
    1,468     Koninklijke KPN NV     22,922    
    Total Netherlands     277,971    
            Norway — 1.5%          
    1,500     DnB NOR ASA     20,562    
    1,300     Orkla ASA     21,102    
    605     Petroleum Geo Services ASA *      14,213    
    3,400     Statoil ASA     97,824    
    1,600     Telenor ASA *      29,540    
    Total Norway     183,241    
            Portugal — 0.1%          
    2,169     Electricidade de Portugal SA     11,908    
            Singapore — 4.1%          
    15,000     Capitaland Ltd     72,834    
    4,000     City Developments Ltd     39,207    
    4,000     DBS Group Holdings Ltd     52,570    
    4,000     Keppel Corp Ltd     33,575    
    7,000     Oversea-Chinese Banking Corp     39,351    
    4,000     Singapore Airlines Ltd     49,936    
    1,000     Singapore Exchange Ltd     6,407    
    17,000     Singapore Technologies Engineering Ltd     41,071    
    40,320     Singapore Telecommunications     96,431    
    6,000     United Overseas Bank Ltd     81,995    
    Total Singapore     513,377    

 

See accompanying notes to the financial statements.


7


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Spain — 2.6%          
    121     Acciona SA     30,366    
    529     ACS Actividades de Construccion y Servicios SA     29,115    
    1,173     Banco Santander Central Hispano SA     21,431    
    887     Iberdrola SA     49,200    
    726     Inditex SA     42,623    
    893     Repsol YPF SA     32,179    
    351     Sacyr Vallehermoso SA     13,908    
    4,276     Telefonica SA     106,334    
    Total Spain     325,156    
            Sweden — 2.4%          
    200     Alfa Laval AB     12,078    
    1,000     Atlas Copco AB Class B     15,899    
    1,100     Hennes & Mauritz AB Class B     62,189    
    1,300     Nordea AB     19,862    
    1,800     Sandvik AB     36,787    
    800     Scania AB Class B     18,667    
    800     Skandinaviska Enskilda Banken AB Class A     24,239    
    400     SSAB Svenskt Stal AB Series A     13,665    
    700     Swedbank AB     22,995    
    600     Tele2 AB Class B     10,992    
    3,500     TeliaSonera AB     27,357    
    2,500     Volvo AB Class B     43,356    
    Total Sweden     308,086    
            Switzerland — 2.7%          
    2,179     ABB Ltd     53,807    
    200     Alcon Inc     27,052    
    155     Nestle SA (Registered)     67,555    
    2,093     Novartis AG (Registered)     110,332    
    276     Zurich Financial Services AG     79,267    
    Total Switzerland     338,013    

 

See accompanying notes to the financial statements.


8


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United Kingdom — 8.0%          
    1,231     AstraZeneca Plc     60,668    
    2,222     Barclays Plc     27,543    
    2,845     BG Group Plc     45,528    
    625     BHP Billiton Plc     18,328    
    3,237     BT Group Plc     20,644    
    6,817     Centrica Plc     53,130    
    2,220     GlaxoSmithKline Plc     57,934    
    1,832     HBOS Plc     32,565    
    1,838     HSBC Holdings Plc     33,234    
    1,422     Imperial Tobacco Group Plc     64,348    
    2,435     J Sainsbury Plc     27,259    
    1,474     Man Group Plc     14,731    
    1,808     Marks & Spencer Group Plc     22,854    
    1,414     National Grid Plc     21,191    
    666     Next Plc     26,031    
    378     Reckitt Benckiser Plc     20,612    
    910     Rio Tinto Plc     62,858    
    12,567     Royal Bank of Scotland Group     146,032    
    2,317     Royal Dutch Shell Group Class A (Amsterdam)     89,748    
    1,017     Scottish & Southern Energy Plc     29,142    
    5,300     Tesco Plc     45,565    
    4,007     William Morrison Supermarkets Plc     23,223    
    1,132     Xstrata Plc     66,602    
    Total United Kingdom     1,009,770    
            United States — 42.5%          
    300     3M Co.     27,297    
    200     Abercrombie & Fitch Co.-Class A     15,740    
    400     Adobe Systems, Inc. *      17,100    
    400     Aetna, Inc.     20,364    
    200     Air Products & Chemicals, Inc.     18,002    
    300     Akamai Technologies, Inc. *      9,666    
    600     Allstate Corp. (The)     32,850    
    500     Amazon.com, Inc. *      39,955    

 

See accompanying notes to the financial statements.


9


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United States — continued          
    300     AMBAC Financial Group, Inc.     18,846    
    400     American Express Co.     23,448    
    1,300     American International Group, Inc.     85,800    
    800     AmerisourceBergen Corp.     38,280    
    1,700     Amgen, Inc. *      85,187    
    400     Anheuser-Busch Cos., Inc.     19,760    
    500     Apache Corp.     38,690    
    800     Apple, Inc. *      110,784    
    600     Avon Products, Inc.     20,610    
    500     Baxter International, Inc.     27,380    
    800     Bed Bath & Beyond, Inc. *      27,712    
    300     Boeing Co.     29,010    
    2,400     Boston Scientific Corp. *      30,792    
    800     Capital One Financial Corp.     51,728    
    300     CDW Corp. *      25,821    
    300     Centex Corp.     8,673    
    1,000     Chesapeake Energy Corp.     32,260    
    1,700     Chevron Corp.     149,192    
    3,300     Cisco Systems, Inc. *      105,336    
    400     Coach, Inc. *      17,812    
    1,000     Coca-Cola Co. (The)     53,730    
    200     Cognizant Technologies Solutions Corp.-Class A *      14,702    
    400     Colgate-Palmolive Co.     26,528    
    1,650     Comcast Corp.-Class A *      43,048    
    2,642     ConocoPhillips     216,353    
    200     Constellation Energy Group, Inc.     16,588    
    800     Countrywide Financial Corp.     15,880    
    300     CSX Corp.     12,300    
    1,000     D.R. Horton, Inc.     15,110    
    300     Danaher Corp.     23,298    
    300     Deere & Co.     40,818    
    2,500     Dell, Inc. *      70,625    
    1,300     Direct TV Group (The) *      30,329    
    400     Discover Financial Services *      9,256    

 

See accompanying notes to the financial statements.


10


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United States — continued          
    1,100     eBay, Inc. *      37,510    
    100     Energizer Holdings, Inc. *      10,593    
    200     Entergy Corp.     20,724    
    100     Everest Re Group Ltd.     10,188    
    400     Express Scripts, Inc. *      21,900    
    1,600     Exxon Mobil Corp.     137,168    
    1,400     Fannie Mae     91,854    
    386     Fidelity National Title Group, Inc.-Class A     7,021    
    300     Franklin Resources, Inc.     39,531    
    200     Freeport-McMoran Copper & Gold Inc.     17,484    
    1,400     Gap (The), Inc.     26,264    
    600     Genentech, Inc. *      44,886    
    400     Gilead Sciences, Inc. *      14,548    
    300     Goldman Sachs Group, Inc.     52,803    
    200     Google, Inc.-Class A *      103,050    
    800     Harley-Davidson, Inc.     43,032    
    2,200     Hewlett-Packard Co.     108,570    
    3,700     Home Depot, Inc.     141,747    
    300     Honeywell International, Inc.     16,845    
    400     Illinois Tool Works, Inc.     23,268    
    100     IntercontinentalExchange, Inc. *      14,587    
    1,200     International Business Machines Corp.     140,028    
    3,800     Johnson & Johnson     234,802    
    2,000     JPMorgan Chase & Co.     89,040    
    300     KB Home     9,102    
    900     King Pharmaceuticals, Inc. *      13,527    
    400     Kohls Corp. *      23,720    
    600     Kroger Co.     15,948    
    400     Lehman Brothers Holdings, Inc.     21,932    
    500     Lennar Corp.-Class A     14,135    
    400     Lockheed Martin Corp.     39,656    
    2,500     Lowe's Cos., Inc.     77,650    
    400     Marathon Oil Corp.     21,556    
    400     Marriott International, Inc.-Class A     17,768    

 

See accompanying notes to the financial statements.


11


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United States — continued          
    200     Mastercard, Inc.     27,398    
    1,500     McDonald's Corp.     73,875    
    200     McGraw-Hill, Inc.     10,092    
    200     McKesson Corp.     11,442    
    200     Medco Health Solutions, Inc. *      17,090    
    700     Medtronic, Inc.     36,988    
    500     Merck & Co., Inc.     25,085    
    700     Merrill Lynch & Co., Inc.     51,590    
    500     MetLife, Inc.     32,025    
    300     MGIC Investment Corp.     9,048    
    300     MGM Mirage *      25,191    
    3,500     Microsoft Corp.     100,555    
    300     Mirant Corp. *      11,691    
    100     Molson Coors Brewing Co.-Class B     8,946    
    300     Monsanto Co.     20,922    
    300     Moody's Corp.     13,755    
    800     Morgan Stanley     49,896    
    200     National Oilwell Varco, Inc. *      25,600    
    400     Nordstrom, Inc.     19,240    
    700     Nvidia Corp. *      35,812    
    800     Occidental Petroleum Corp.     45,352    
    5,000     Oracle Corp. *      101,400    
    200     Overseas Shipholding Group, Inc.     14,280    
    400     Paccar, Inc.     34,220    
    300     Pepsi Bottling Group, Inc.     10,377    
    9,200     Pfizer, Inc.     228,528    
    66     Pharmericap Corp. *      1,170    
    300     Praxair, Inc.     22,698    
    300     Precision Castparts Corp.     39,093    
    900     Procter & Gamble Co.     58,779    
    400     Prudential Financial, Inc.     35,912    
    900     Pulte Homes, Inc.     14,976    
    600     Qualcomm, Inc.     23,934    

 

See accompanying notes to the financial statements.


12


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United States — continued          
    300     Radian Group, Inc.     5,292    
    500     Safeway, Inc.     15,865    
    1,000     Schering-Plough Corp.     30,020    
    500     Schlumberger Ltd.     48,250    
    300     Southern Copper Corp.     31,575    
    300     SPX Corp.     27,015    
    600     Stryker Corp.     40,080    
    500     Supervalu, Inc.     21,075    
    1,900     Symantec Corp. *      35,739    
    300     Target Corp.     19,779    
    200     Tesoro Corp.     9,866    
    800     Texas Instruments, Inc.     27,392    
    400     Thermo Fisher Scientific, Inc. *      21,692    
    400     Toll Brothers, Inc. *      8,544    
    100     Transocean, Inc. *      10,509    
    800     Tyson Foods, Inc.-Class A     17,240    
    100     Union Pacific Corp.     11,157    
    100     United States Steel Corp.     9,448    
    600     United Technologies Corp.     44,778    
    300     UnitedHealth Group, Inc.     15,003    
    400     Valero Energy Corp.     27,404    
    100     Vulcan Materials Co.     9,001    
    800     Walgreen Co.     36,056    
    600     Wal-Mart Stores, Inc.     26,178    
    800     Walt Disney Co. (The)     26,880    
    400     Waste Management, Inc.     15,068    
    300     WellPoint, Inc. *      24,177    
    300     Wyeth     13,890    
    300     YRC Worldwide, Inc. *      9,243    
    500     Zimmer Holdings, Inc. *      39,165    
    Total United States     5,333,438    
    TOTAL COMMON STOCKS (COST $10,570,527)     12,119,847    

 

See accompanying notes to the financial statements.


13


GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
            PREFERRED STOCKS — 0.8%          
            Germany — 0.8%          
    309     Henkel KGaA 1.33%     15,993    
    13     Porsche AG (Non Voting) 0.46%     23,247    
    535     Volkswagen AG 1.39%     66,544    
    Total Germany     105,784    
    TOTAL PREFERRED STOCKS (COST $45,442)     105,784    
            SHORT-TERM INVESTMENTS — 0.8%          
    100,000     Royal Bank of Canada Time Deposit, 5.13%, due 09/04/07     100,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $100,000)     100,000    
    TOTAL INVESTMENTS — 98.1%
(Cost $10,715,969)		     12,325,631    
          Other Assets and Liabilities (net) — 1.9%     236,967    
    TOTAL NET ASSETS — 100.0%   $ 12,562,598    

 

See accompanying notes to the financial statements.


14


GMO Global Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
11/20/07   CAD     475,963     $ 451,344     $ 318    
11/20/07   CHF     503,295       419,022       (1,136 )  
11/20/07   JPY     107,005,054       933,990       (7,625 )  
11/20/07   NZD     89,533       62,441       444    
11/20/07   SEK     1,258,584       183,137       598    
11/20/07   SGD     328,899       217,021       348    
    $ 2,266,955     $ (7,053 )  
Sales  
11/20/07   AUD     228,190     $ 186,320     $ (3,376 )  
11/20/07   DKK     275,000       50,452       626    
11/20/07   DKK     567,842       104,176       (1,159 )  
11/20/07   EUR     596,698       815,181       (9,036 )  
11/20/07   GBP     252,386       508,060       (8,063 )  
11/20/07   HKD     1,082,641       139,063       (320 )  
11/20/07   JPY     6,841,000       59,712       (896 )  
11/20/07   NOK     236,000       40,529       528    
11/20/07   NOK     629,420       108,093       (1,819 )  
    $ 2,011,586     $ (23,515 )  

 

Notes to Schedule of Investments:

*  Non-income producing security.

As of August 31, 2007, 51.97% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krone
EUR - Euro
GBP - British Pound		   HKD - Hong Kong Dollar
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
SGD - Singapore Dollar		  

 

See accompanying notes to the financial statements.


15



GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $10,715,969) (Note 2)   $ 12,325,631    
Cash     97,415    
Foreign currency, at value (cost $193,240) (Note 2)     181,217    
Dividends and interest receivable     24,026    
Foreign taxes receivable     5,111    
Unrealized appreciation on open forward currency contracts (Note 2)     2,862    
Receivable for expenses reimbursed by Manager (Note 3)     19,251    
Total assets     12,655,513    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     4,893    
Shareholder service fee     1,562    
Unrealized depreciation on open forward currency contracts (Note 2)     33,430    
Accrued expenses     53,030    
Total liabilities     92,915    
Net assets   $ 12,562,598    
Net assets consist of:  
Paid-in capital   $ 997,510    
Accumulated undistributed net investment income     81,320    
Accumulated net realized gain     9,916,365    
Net unrealized appreciation     1,567,403    
    $ 12,562,598    
Net assets attributable to:  
Class III shares   $ 12,562,598    
Shares outstanding:  
Class III     483,550    
Net asset value per share:  
Class III   $ 25.98    

 

See accompanying notes to the financial statements.


16


GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $19,722)   $ 192,155    
Interest     5,206    
Securities lending income     3,083    
Total investment income     200,444    
Expenses:  
Management fee (Note 3)     33,112    
Shareholder service fee – Class III (Note 3)     10,568    
Custodian and fund accounting agent fees     40,952    
Transfer agent fees     13,800    
Audit and tax fees     34,224    
Legal fees     184    
Trustees fees and related expenses (Note 3)     8    
Registration fees     92    
Total expenses     132,940    
Fees and expenses reimbursed by Manager (Note 3)     (89,252 )  
Net expenses     43,688    
Net investment income (loss)     156,756    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     9,688,288    
Closed futures contracts     94,394    
Foreign currency, forward contracts and foreign currency related transactions     137,543    
Net realized gain (loss)     9,920,225    
Change in net unrealized appreciation (depreciation) on:  
Investments     (9,964,966 )  
Open futures contracts     (102,607 )  
Foreign currency, forward contracts and foreign currency related transactions     (63,785 )  
Net unrealized gain (loss)     (10,131,358 )  
Net realized and unrealized gain (loss)     (211,133 )  
Net increase (decrease) in net assets resulting from operations   $ (54,377 )  

 

See accompanying notes to the financial statements.


17


GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 156,756     $ 794,292    
Net realized gain (loss)     9,920,225       3,889,761    
Change in net unrealized appreciation (depreciation)     (10,131,358 )     3,319,656    
Net increase (decrease) in net assets from operations     (54,377 )     8,003,709    
Distributions to shareholders from:  
Net investment income  
Class III     —       (474,914 )  
Net realized gains  
Class III     (1,310,484 )     (8,279,516 )  
      (1,310,484 )     (8,754,430 )  
Net share transactions (Note 7):  
Class III     (56,304,887 )     18,749,599    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     7,677       30,368    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (56,297,210 )     18,779,967    
Total increase (decrease) in net assets     (57,662,071 )     18,029,246    
Net assets:  
Beginning of period     70,224,669       52,195,423    
End of period (including accumulated undistributed net investment
income of $81,320 and distributions in excess of net investment
income of $75,436, respectively)		   $ 12,562,598     $ 70,224,669    

 

See accompanying notes to the financial statements.


18



GMO Global Growth Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006   2005(a)   
Net asset value, beginning of period   $ 24.59     $ 25.13     $ 22.67     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.29       0.31       0.33       0.15    
Net realized and unrealized gain (loss)     1.64       2.56       2.72       2.79    
Total from investment operations     1.93       2.87       3.05       2.94    
Less distributions to shareholders:  
From net investment income     —       (0.17 )     (0.10 )     (0.27 )  
From net realized gains     (0.54 )     (3.24 )     (0.49 )     —    
Total distributions     (0.54 )     (3.41 )     (0.59 )     (0.27 )  
Net asset value, end of period   $ 25.98     $ 24.59     $ 25.13     $ 22.67    
Total Return(b)      8.00 %**      12.45 %     13.61 %     14.72 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 12,563     $ 70,225     $ 52,195     $ 57,960    
Net expenses to average daily net assets     0.62 %*      0.62 %     0.62 %     0.62 %*   
Net investment income to average daily net assets     2.22 %*      1.27 %     1.40 %     1.17 %*   
Portfolio turnover rate     16 %**      43 %     53 %     40 %**   
Fees and expenses reimbursed by the Manager to
average daily net assets:		     1.27 %*      0.37 %     0.34 %     0.51 %*   
Purchase premiums and redemption fees
consisted of the following per share amounts:† 		   $ 0.01     $ 0.01     $ 0.02       — (c)   

 

(a)  Period from July 20, 2004 (commencement of operations) through February 28, 2005.

(b)  The total return would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(c)  For the period ended February 28, 2005, the Fund received no purchase premiums or redemption fees.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


19



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Global 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 of the Trust to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P/Citigroup Primary Market Index ("PMI") World Growth Index. The Fund typically makes equity investments in companies from the world's developed countries, including the U.S.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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


20


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 currencies and forward 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 accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each


21


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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


22


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

principal. Total return swap agreements 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.


23


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had no securities on loan.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.


24


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 10,819,161     $ 1,892,834     $ (386,364 )   $ 1,506,470    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

For the period ended August 31, 2007, the Fund had realized gross gains attributed to redemption in-kind transactions of $10,658,015.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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.

Purchase and redemption of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares are each 0.30% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in-capital. For the period ended


25


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

August 31, 2007 and the year ended February 28, 2007, the Fund received $7,677 and $30,368 in purchase premiums respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


26


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.47% 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 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act)), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (inclu ding taxes) exceed 0.47% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $8 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $3,214,560 and $59,757,909, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


27


GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 98.89% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.08% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     3,256     $ 77,498       411,925     $ 10,092,340    
Shares issued to shareholders
in reinvestment of distributions		     54,400       1,310,484       367,063       8,657,259    
Shares repurchased     (2,430,021 )     (57,692,869 )     —       —    
Purchase premiums and
redemption fees		     —       7,677       —       30,368    
Net increase (decrease)     (2,372,365 )   $ (56,297,210 )     778,988     $ 18,779,967    

 


28



GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of t he Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


29


GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


30


GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


31


GMO Global Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.62 %   $ 1,000.00     $ 1,080.00     $ 3.24    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.02     $ 3.15    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


32



GMO Taiwan Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Taiwan Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     93.5 %  
Short-Term Investments     4.5    
Other     2.0    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Information Technology     51.4 %  
Materials     20.4    
Financials     10.7    
Consumer Discretionary     7.0    
Telecommunication Services     5.3    
Industrials     3.6    
Energy     1.1    
Consumer Staples     0.5    
      100.0 %  

 


1



GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 93.5%  
        Taiwan — 93.5%  
    114,908     Acer Inc     202,089    
    1,188,676     Advantech Co Ltd     3,601,461    
    126,000     Altek Corp *      278,976    
    566,000     Arima Computer Corp *      138,179    
    3,935,758     Asia Cement Corp     5,520,795    
    4,425,452     Asustek Computer Inc     13,206,796    
    1,288,180     Cheng Loong Corp     503,366    
    1,468,280     Chi Mei Optoelectronics Corp     1,486,633    
    7,702,000     China Bills Finance Corp *      1,879,265    
    11,876,848     China Development Financial Holding Corp     4,843,307    
    333,000     China Manmade Fibers *      126,731    
    307,530     China Motor Corp     272,718    
    463,000     China Petrochemical Development Corp *      207,149    
    10,567,290     China Steel Corp     14,367,896    
    2,164,000     Chunghwa Picture Tubes Ltd *      556,305    
    5,206,982     Chunghwa Telecom Co Ltd     9,253,990    
    5,946     Chunghwa Telecom Co Ltd ADR     104,174    
    1,722,000     CMC Magnetics Corp *      756,308    
    1,616,375     Compal Electronics Inc     1,789,430    
    3,665,700     Continental Engineering Corp     2,124,462    
    59,302     DFI     177,131    
    259,403     Dimerco Express Taiwan Corp     424,723    
    6,740,160     D-Link Corp     14,878,862    
    431,570     Elite Semiconductor Memory Technology Inc     1,192,891    
    5,494,720     Eternal Chemical Co Ltd     6,397,136    
    160,667     Everlight Electronics Co     697,920    
    8,445,840     Far Eastern Department Stores Ltd     8,426,184    
    5,226,027     Far Eastern International Bank     2,336,050    
    3,425,025     Far Eastern Textile Co Ltd     4,027,653    
    725,000     Farglory Developers Co *      1,525,679    
    1,991,402     Federal Corp     1,354,238    
    227,000     Feng Hsin Iron & Steel     306,376    

 

See accompanying notes to the financial statements.


2


GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    4,348,169     Formosa Chemicals & Fibre Co     10,588,424    
    1,247,077     Formosa Petrochemical Corp     3,473,091    
    6,023,424     Formosa Plastics Corp     14,963,408    
    2,860,260     Formosa Taffeta Co Ltd     3,249,082    
    33,000     Gemtek Technology Corp     81,914    
    1,060,000     Gigabyte Technology Co Ltd     965,795    
    978,841     Goldsun Development & Construction Co Ltd     554,187    
    2,154,000     Grand Pacific Petrochem *      825,524    
    1,901,000     Hannstar Display Corp *      510,678    
    1,965     High Tech Computer Corp     26,694    
    4,602,553     Hon Hai Precision Industry Co Ltd     34,156,885    
    1,774,000     Hotai Motor Company Ltd     4,542,537    
    685,000     Hsinchu International Bank *      504,409    
    1,164,620     Innolux Display Corp     4,944,172    
    6,404,858     Inventec Co Ltd     4,077,449    
    2,247,920     KGI Securities Co Ltd     1,079,574    
    171,895     Kings Town Construction *      125,013    
    2,611,093     Kinpo Electronics     997,659    
    195,800     Kinsus Interconnect Technology Corp     675,649    
    162,400     Lee Chang Yung Chem Industries *      206,510    
    319,555     Les Enphants Co Ltd     311,360    
    570,150     Lite-On Technology Corp     899,586    
    1,509,789     MediaTek Inc     25,519,648    
    4,751,000     Mega Financial Holdings Co Ltd     2,957,973    
    161,000     Mercuries & Associates Ltd     115,845    
    97,038     Micro-Star International Co Ltd     100,105    
    100,367     Mitac International Corp     125,282    
    2,087,810     Mosel Vitelic Inc     2,468,304    
    1,800,000     Nan Ya Plastics Corp     4,367,962    
    7,000     Nien Hsing Textile Co Ltd     4,882    
    308,269     Nien Made Enterprise     377,373    
    1,032,000     Optimax Technology Corp *      468,481    
    1,287,000     Orient Semiconductor Electronics Ltd *      467,255    
    2,160,931     Oriental Union Chemical     2,194,661    
    118,800     PixArt Imaging Inc     1,057,194    

 

See accompanying notes to the financial statements.


3


GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    3,993,191     Powerchip Semiconductor Corp     1,967,554    
    7,775,000     Prodisc Technology Inc *      1,793,763    
    2,045,000     Promos Technologies Inc     631,595    
    1,680,631     Quanta Computer Inc     2,734,443    
    802,994     Realtek Semiconductor Corp     3,929,364    
    162,150     Richtek Technology Corp     1,783,526    
    1,965,802     Sampo Corp *      406,564    
    1,405,552     Shin Kong Financial Holdings     1,369,054    
    783,521     Shinkong Synthetic Fibers *      293,146    
    2,260,738     Siliconware Precision Industries Co     4,612,577    
    332,000     Sincere Navigation Corp     703,004    
    19,948     Sino American Silicon Products Inc     173,743    
    255,150     Synnex Technology International Corp     703,196    
    36,650     Systex Corp     50,225    
    225,232     Taichung Commercial Bank *      92,196    
    5,665,634     Taishin Financial Holdings Co Ltd *      2,839,581    
    6,313,000     Taiwan Cellular Corp     8,032,661    
    301,889     Taiwan Cement Corp     388,473    
    288,000     Taiwan Fertilizer Co Ltd     591,484    
    218,000     Taiwan Pulp & Paper Corp *      72,735    
    13,726,471     Taiwan Semiconductor Manufacturing Co Ltd     26,061,369    
    5,395     Taiwan Semiconductor Manufacturing Co Ltd ADR     53,518    
    2,802,000     Taiwan TEA Corp *      1,558,073    
    760,000     Ton Yi Industrial Corp     432,258    
    112,000     Transcend Information Inc     421,228    
    213,180     Tripod Technology Corp     881,977    
    181,607     Tsann Kuen Enterprises Co Ltd *      243,454    
    235,900     TSRC Corp     326,874    
    1,119,000     Tung Ho Steel Enterprise     1,501,844    
    82,192     TXC Corp     173,819    
    516,000     U-Ming Marine Transport Co *      1,539,689    
    657,900     Unimicron Technology Corp     1,032,456    
    190,000     USI Corp     82,244    
    3,016,578     Walsin Lihwa Corp     1,481,835    
    1,697,209     Wan Hai Lines Ltd     1,198,065    

 

See accompanying notes to the financial statements.


4


GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Taiwan — continued  
    4,060,620     Waterland Financial Holdings     1,255,519    
    2,165,000     Wintek Corp     2,481,844    
    497,093     Wistron Corp     903,421    
    2,968,195     Ya Hsin Industrial Co Ltd * (a)      899    
    423,000     Yang Ming Marine Transport *      298,833    
    4,044,600     Yieh Phui Enterprise     1,791,047    
    24,479,000     Yuanta Financial Holding Co Ltd *      13,959,558    
    3,029,411     Yulon Motor Co Ltd     3,312,661    
    706,506     Zyxel Communications Corp     1,228,774    
    Total Taiwan     326,339,581    
    TOTAL COMMON STOCKS (COST $268,050,552)     326,339,581    
        SHORT-TERM INVESTMENTS — 4.5%  
    15,600,000     Bank of Montreal Time Deposit, 5.05%, due 09/04/07     15,600,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $15,600,000)     15,600,000    
    TOTAL INVESTMENTS — 98.0%
(Cost $283,650,552)		     341,939,581    
          Other Assets and Liabilities (net) — 2.0%     6,928,599    
    TOTAL NET ASSETS — 100.0%   $ 348,868,180    

 

Notes to Schedule of Investments:

ADR - American Depositary Receipt

*  Non-income producing security.

(a)  Bankrupt issuer.

As of August 31, 2007, 93.35% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


5



GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $283,650,552) (Note 2)   $ 341,939,581    
Foreign currency, at value (cost $5,117,775) (Note 2)     5,115,750    
Dividends and interest receivable     2,370,144    
Total assets     349,425,475    
Liabilities:  
Due to custodian     15,353    
Payable to affiliate for (Note 3):  
Management fee     232,167    
Shareholder service fee     42,994    
Trustees and Chief Compliance Officer of GMO Trust fees     556    
Accrued expenses     266,225    
Total liabilities     557,295    
Net assets   $ 348,868,180    
Net assets consist of:  
Paid-in capital   $ 250,362,194    
Accumulated undistributed net investment income     7,252,218    
Accumulated net realized gain     32,972,557    
Net unrealized appreciation     58,281,211    
    $ 348,868,180    
Net assets attributable to:  
Class III shares   $ 348,868,180    
Shares outstanding:  
Class III     10,322,858    
Net asset value per share:  
Class III   $ 33.80    

 

See accompanying notes to the financial statements.


6


GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $2,238,015)   $ 9,102,777    
Interest     192,909    
Total investment income     9,295,686    
Expenses:  
Management fee (Note 3)     1,311,757    
Shareholder service fee – Class III (Note 3)     242,918    
Custodian and fund accounting agent fees     416,944    
Transfer agent fees     13,800    
Audit and tax fees     37,444    
Legal fees     3,588    
Trustees fees and related expenses (Note 3)     7,764    
Miscellaneous     2,576    
Total expenses     2,036,791    
Net investment income (loss)     7,258,895    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     33,203,492    
Net increase from payments by affiliates (Note 3)     56,687    
Foreign currency, forward contracts and foreign currency related transactions     88,454    
Net realized gain (loss)     33,348,633    
Change in net unrealized appreciation (depreciation) on:  
Investments     9,102,780    
Foreign currency, forward contracts and foreign currency related transactions     (7,823 )  
Net unrealized gain (loss)     9,094,957    
Net realized and unrealized gain (loss)     42,443,590    
Net increase (decrease) in net assets resulting from operations   $ 49,702,485    

 

See accompanying notes to the financial statements.


7


GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,258,895     $ 4,701,705    
Net realized gain (loss)     33,348,633       34,885,028    
Change in net unrealized appreciation (depreciation)     9,094,957       9,642,412    
Net increase (decrease) in net assets from operations     49,702,485       49,229,145    
Distributions to shareholders from:  
Net investment income  
Class III     —       (4,289,930 )  
Net realized gains  
Class III     (23,282,560 )     (18,170,015 )  
      (23,282,560 )     (22,459,945 )  
Net share transactions (Note 7):  
Class III     5,423,803       (1,464,219 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     137,756       331,242    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     5,561,559       (1,132,977 )  
Total increase (decrease) in net assets     31,981,484       25,636,223    
Net assets:  
Beginning of period     316,886,696       291,250,473    
End of period (including accumulated undistributed net
investment income of $7,252,218 and distributions in
excess of net investment income of $6,677, respectively)		   $ 348,868,180     $ 316,886,696    

 

See accompanying notes to the financial statements.


8



GMO Taiwan Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value, beginning
of period		   $ 30.98     $ 28.34     $ 26.79     $ 29.67     $ 20.28     $ 20.00    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.73       0.46       0.52       0.13       (0.10 )     (0.12 )  
Net realized and unrealized
gain (loss)		     4.51       4.32       1.91       (1.45 )     10.03       0.40    
Total from investment
operations		     5.24       4.78       2.43       (1.32 )     9.93       0.28    
Less distributions to shareholders:  
From net investment income     —       (0.39 )     (0.59 )     —       (0.02 )     —    
From net realized gains     (2.42 )     (1.75 )     (0.29 )     (1.56 )     (0.52 )     —    
Total distributions     (2.42 )     (2.14 )     (0.88 )     (1.56 )     (0.54 )     —    
Net asset value, end of period   $ 33.80     $ 30.98     $ 28.34     $ 26.79     $ 29.67     $ 20.28    
Total Return(b)      16.77 %(c)**      17.12 %     9.13 %     (3.82 )%     49.53 %     1.40 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 348,868     $ 316,887     $ 291,250     $ 224,466     $ 181,313     $ 41,167    
Net expenses to average daily
net assets		     1.26 %*      1.26 %     1.28 %     1.34 %     1.36 %     1.76 %*   
Net investment income to average
daily net assets		     2.25 %(d)**      1.56 %     1.95 %     0.53 %     (0.40 )%     (1.43 )%*   
Portfolio turnover rate     32 %**      41 %     31 %     88 %     86 %     50 %**   
Purchase premiums and redemption
fees consisted of the following
per share amounts:† 		   $ 0.01     $ 0.03     $ 0.04     $ 0.05     $ 0.04     $ 0.01    

 

(a)  Period from October 4, 2002 (commencement of operations) through February 28, 2003.

(b)  Calculation excludes purchase premiums and redemption fees which are borne by the shareholders and assumes the effect of reinvested distributions.

(c)  The effect of losses in the amount of $56,687, resulting from compliance violations and the Manager's reimbursement of such losses, had no effect on the total return.

(d)  The ratio for the six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Taiwan 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the MSCI Taiwan Index. The Fund typically makes equity investments in companies doing business in, or otherwise tied economically to, Taiwan.

Shares of the Fund are not publicly offered and are principally available to other GMO funds and certain accredited investors.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.


10


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price,


11


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


12


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.


13


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund.

The Fund is currently subject to a Taiwanese security transaction tax of 0.3% of the transaction amount on equities, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to such tax.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.


14


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 283,957,648     $ 68,335,060     $ (10,353,127 )   $ 57,981,933    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.

Taiwanese companies typically declare dividends in the Fund's third calendar quarter of each year. As a result, the Fund receives substantially more dividend income in the first half of its fiscal year.

Dividend and interest income generated in Taiwan is subject to a 20% withholding tax. Stock dividends received (except those which have resulted from capitalization of capital surplus) are taxable at 20% of the par value of the stock dividends received.

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

As of August 31, 2007, the premium on cash purchases of Fund shares is 0.15% of the amount invested. In the case of cash redemptions, the fee is currently 0.45% of the amount redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in the


15


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $14,364 and $55,783 in purchase premiums and $123,392 and $275,459 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent t hose transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

Investments in emerging countries, such as Taiwan, 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 Taiwanese markets are relatively illiquid. Accordingly, the Fund may not be able to realize in an actual sale amounts approximating those used to value its holdings. The Fund may concentrate investments in the securities of a small number of issuers. As a result, the value of the Fund's shares can be expected to change in light of factors affecting those issuers and may fluctuate more widely than the value of shares of a portfolio that invests in a broader range of securities.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.


16


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.81% 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 average daily net assets at the annual rate of 0.15% for class III shares.

The Fund's portion of the fees paid by the Trust to the independent Trustees and the Chief Compliance Officer ("CCO") during the period ended August 31, 2007 was $7,304 and $920, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

The Manager compensated the Fund $56,687 in connection with a purchase of securities in excess of amounts permitted under the Fund's investment restrictions.

4.  Purchases and sales of securities

Cost of purchase and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $99,236,903 and $122,872,155, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


17


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 98.83% 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 may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and all of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     293,462     $ 9,561,636       1,278,137     $ 38,531,217    
Shares issued to shareholders
in reinvestment of distributions		     675,444       23,282,560       735,687       22,459,945    
Shares repurchased     (876,355 )     (27,420,393 )     (2,060,006 )     (62,455,381 )  
Purchase premiums and
redemption fees		     —       137,756       —       331,242    
Net increase (decrease)     92,551     $ 5,561,559       (46,182 )   $ (1,132,977 )  

 


18



GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and


19


GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationship s (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


20


GMO Taiwan Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     1.26 %   $ 1,000.00     $ 1,167.70     $ 6.87    
2) Hypothetical     1.26 %   $ 1,000.00     $ 1,018.80     $ 6.39    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


21



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.5 %  
Short-Term Investments     4.2    
Futures     1.3    
Options Purchased     0.5    
Loan Participations     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.2 )  
Forward Currency Contracts     (0.4 )  
Reverse Repurchase Agreements     (0.4 )  
Swaps     (0.6 )  
Other     (0.1 )  
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region     91.8 %  
Sweden     22.5    
Switzerland     10.7    
Australia     10.4    
Canada     5.7    
United Kingdom     4.6    
Emerging     2.9    
Japan     (19.2 )  
United States     (29.4 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value /
Principal Amount /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 7.8%  
        United States — 7.8%  
        U.S. Government  
USD     19,055,400     U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (a) (b)      19,323,366    
    TOTAL DEBT OBLIGATIONS (COST $19,647,036)     19,323,366    
        OPTIONS PURCHASED — 0.2%  
        Currency Options — 0.2%  
EUR     8,800,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     434,407    
JPY     1,820,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     23,842    
    Total Currency Options     458,249    
    TOTAL OPTIONS PURCHASED (COST $351,868)     458,249    
        MUTUAL FUNDS — 92.5%  
        United States — 92.5%  
        Affiliated Issuers  
      694,341     GMO Emerging Country Debt Fund, Class III     7,221,151    
      6,679,798     GMO Short-Duration Collateral Fund     172,472,374    
      5,496     GMO Special Purpose Holding Fund (c) (d)      7,914    
      1,883,979     GMO World Opportunity Overlay Fund     49,661,675    
    Total United States     229,363,114    
    TOTAL MUTUAL FUNDS (COST $228,328,268)     229,363,114    

 

See accompanying notes to the financial statements.


2


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 0.4%  
        Money Market Funds — 0.4%  
    1,005,892     Merrimac Cash Series - Premium Class     1,005,892    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,005,892)     1,005,892    
    TOTAL INVESTMENTS — 100.9%
(Cost $249,333,064)		     250,150,621    
        Other Assets and Liabilities (net) — (0.9%)     (2,214,784 )  
    TOTAL NET ASSETS — 100.0%   $ 247,935,837    

 

See accompanying notes to the financial statements.


3


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
9/11/07   CHF     34,000,000     $ 28,143,102     $ 123,453    
9/11/07   CHF     13,600,000       11,257,241       970    
9/11/07   CHF     6,100,000       5,049,204       2,551    
9/11/07   CHF     17,000,000       14,071,551       (154,114 )  
9/11/07   CHF     4,300,000       3,559,275       (37,516 )  
9/25/07   EUR     1,200,000       1,636,271       (9,959 )  
9/04/07   GBP     12,200,000       24,598,250       541,424    
9/04/07   GBP     600,000       1,209,750       15,276    
11/06/07   GBP     3,400,000       6,846,846       19,646    
10/02/07   JPY     1,095,000,000       9,494,351       233,292    
10/02/07   JPY     1,310,000,000       11,358,538       (63,969 )  
10/02/07   JPY     530,000,000       4,595,439       (55,528 )  
9/18/07   NZD     18,500,000       12,972,262       (1,074,325 )  
9/18/07   NZD     3,000,000       2,103,610       (297,779 )  
    $ 136,895,690     $ (756,578 )  
Sales  
10/16/07   AUD     9,600,000     $ 7,847,844     $ 369,756    
10/16/07   AUD     2,000,000       1,634,968       61,512    
10/16/07   AUD     3,300,000       2,697,696       81,300    
10/23/07   CAD     6,300,000       5,971,401       11,107    
9/11/07   CHF     1,600,000       1,324,381       6,621    
9/11/07   CHF     1,900,000       1,572,703       8,311    
9/25/07   EUR     36,600,000       49,906,257       545,532    
9/25/07   EUR     900,000       1,227,203       8,713    
9/25/07   EUR     3,200,000       4,363,389       22,160    
9/25/07   EUR     1,500,000       2,045,338       (21,726 )  
9/04/07   GBP     4,200,000       8,468,250       32,311    
9/04/07   GBP     3,300,000       6,653,625       52,174    
9/04/07   GBP     1,900,000       3,830,875       30,955    
9/04/07   GBP     3,400,000       6,855,250       (18,870 )  
10/02/07   JPY     7,090,000,000       61,474,836       (2,870,108 )  
10/02/07   JPY     100,000,000       867,064       (28,693 )  
9/18/07   NZD     1,600,000       1,121,925       122,339    
9/18/07   NZD     1,600,000       1,121,925       126,683    
9/18/07   NZD     3,200,000       2,243,851       257,637    
9/18/07   NZD     13,200,000       9,255,885       844,106    
    $ 180,484,666     $ (358,180 )  

 

See accompanying notes to the financial statements.


4


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation		  
10/09/07   EUR 400,000     NOK 3,189,000     $ 1,780    
10/09/07   EUR 13,100,000     NOK 104,782,970       117,207    
10/30/07   SEK 21,528,000     EUR 2,300,000       10,369    
    $ 129,356    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  80     Australian Government Bond 10 Yr.   September 2007   $ 6,581,805     $ 144,994    
  204     Australian Government Bond 3 Yr.   September 2007     16,608,478       116,860    
  129     Canadian Government Bond 10 Yr.   December 2007     13,629,290       (54,137 )  
  456     Euro BOBL   September 2007     67,103,618       1,067,955    
  970     Euro Bund   September 2007     150,333,687       3,308,839    
  1,000     Federal Fund 30 day   September 2007     395,885,835       (7,521 )  
  65     UK Gilt Long Bond   December 2007     14,029,571       37,811    
    $ 4,614,801    
Sales      
  37     Japanese Government Bond 10 Yr.
(TSE)		   September 2007   $ 43,250,280     $ (982,676 )  
  101     U.S. Long Bond (CBT)   December 2007     11,267,812       (90,306 )  
  120     U.S. Treasury Note 10 Yr.   December 2007     13,085,625       (85,732 )  
  243     U.S. Treasury Note 2 Yr. (CBT)   December 2007     50,095,969       (92,411 )  
  65     U.S. Treasury Note 5 Yr. (CBT)   December 2007     6,935,703       (42,884 )  
    $ (1,294,009 )  

 

See accompanying notes to the financial statements.


5


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  129,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month SEK STIBOR   $ (177,483 )  
  35,000,000     SEK   9/19/2012   Citigroup   Receive     4.15 %   3 month SEK STIBOR     (118,522 )  
  42,000,000     SEK   9/19/2012   Deutsche Bank AG   Receive     4.15 %   3 month SEK STIBOR     (142,227 )  
  30,000,000     SEK   9/19/2012   JP Morgan
Chase Bank		   Receive     4.15%     3 month SEK STIBOR     (101,590)    
  1,400,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month CHF LIBOR     (25,152 )  
  18,500,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month CHF LIBOR     (332,369 )  
  13,300,000     CHF   9/19/2012   JP Morgan
Chase Bank		   Receive     2.70%     6 month CHF LIBOR     (238,946)    
  4,100,000     AUD   9/17/2017   JP Morgan
Chase Bank		   Receive     6.83%     6 month AUD BBSW     48,031    
  34,900,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month SEK STIBOR     (208,826 )  
    Premiums to (Pay) Receive   $ 652,070     $ (1,297,084 )  

 

Notes to Schedule of Investments:

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

STIBOR - Stockholm Interbank Offered Rate

(a)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(b)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(c)  Bankrupt issuer.

(d)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - B ritish Pound		   JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar		  

 

See accompanying notes to the financial statements.


6



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $21,004,796) (Note 2)   $ 20,787,507    
Investments in affiliated issuers, at value (cost $228,328,268) (Notes 2 and 8)     229,363,114    
Foreign currency, at value (cost $332,602) (Note 2)     327,085    
Interest receivable     108,826    
Unrealized appreciation on open forward currency contracts (Note 2)     3,647,185    
Receivable for open swap contracts (Note 2)     48,031    
Receivable for expenses reimbursed by Manager (Note 3)     16,758    
Total assets     254,298,506    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     53,334    
Shareholder service fee     32,000    
Trustees and Chief Compliance Officer of GMO Trust fees     433    
Unrealized depreciation on open forward currency contracts (Note 2)     4,632,587    
Payable for open swap contracts (Note 2)     1,345,115    
Payable for variation margin on open futures contracts (Note 2)     204,171    
Accrued expenses     95,029    
Total liabilities     6,362,669    
Net assets   $ 247,935,837    
Net assets consist of:  
Paid-in capital   $ 257,046,680    
Distributions in excess of net investment income     (17,593,829 )  
Accumulated net realized gain     5,980,570    
Net unrealized appreciation     2,502,416    
    $ 247,935,837    
Net assets attributable to:  
Class III shares   $ 247,935,837    
Shares outstanding:  
Class III     27,499,106    
Net asset value per share:  
Class III   $ 9.02    

 

See accompanying notes to the financial statements.


7


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,361,761    
Interest     810,745    
Total investment income     2,172,506    
Expenses:  
Management fee (Note 3)     302,956    
Shareholder service fee – Class III (Note 3)     181,774    
Custodian, fund accounting agent and transfer agent fees     49,404    
Audit and tax fees     33,488    
Legal fees     3,404    
Trustees fees and related expenses (Note 3)     1,247    
Registration fees     736    
Miscellaneous     1,472    
Total expenses     574,481    
Fees and expenses reimbursed by Manager (Note 3)     (87,032 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (15,855 )  
Shareholder service fee waived (Note 3)     (5,701 )  
Net expenses     465,893    
Net investment income (loss)     1,706,613    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     69,784    
Realized gains distributions from affiliated issuers (Note 8)     230,223    
Closed futures contracts     (10,933,420 )  
Closed swap contracts     (808,525 )  
Foreign currency, forward contracts and foreign currency related transactions     (511,380 )  
Net realized gain (loss)     (11,953,318 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     154,417    
Investments in affiliated issuers     98,627    
Open futures contracts     7,240,148    
Open swap contracts     (743,099 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,524,129 )  
Net unrealized gain (loss)     5,225,964    
Net realized and unrealized gain (loss)     (6,727,354 )  
Net increase (decrease) in net assets resulting from operations   $ (5,020,741 )  

 

See accompanying notes to the financial statements.


8


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,706,613     $ 10,998,262    
Net realized gain (loss)     (11,953,318 )     5,806,574    
Change in net unrealized appreciation (depreciation)     5,225,964       (5,959,340 )  
Net increase (decrease) in net assets from operations     (5,020,741 )     10,845,496    
Distributions to shareholders from:  
Net realized gains  
Class III     —       (6,799,302 )  
Return of capital  
Class III     —       (239,876 )  
      —       (7,039,178 )  
Net share transactions (Note 7):  
Class III     (21,465,164 )     (683,279,021 )  
Total increase (decrease) in net assets     (26,485,905 )     (679,472,703 )  
Net assets:  
Beginning of period     274,421,742       953,894,445    
End of period (including distributions in excess of net investment
income of $17,593,829 and $19,300,442, respectively)		   $ 247,935,837     $ 274,421,742    

 

See accompanying notes to the financial statements.


9



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 9.21     $ 9.04     $ 9.59     $ 9.16     $ 8.85     $ 9.04    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.06       0.17       0.18       0.14       0.06       0.09    
Net realized and unrealized
gain (loss)		     (0.25 )     0.15       0.39       0.44       0.76       0.32    
Total from investment
operations		     (0.19 )     0.32       0.57       0.58       0.82       0.41    
Less distributions to shareholders:  
From net investment income     —       —       (1.00 )(d)      (0.15 )     (0.51 )     (0.60 )  
From net realized gains     —       (0.14 )     (0.12 )     —       —       —    
Return of capital     —       (0.01 )     —       —       —       —    
Total distributions     —       (0.15 )     (1.12 )     (0.15 )     (0.51 )     (0.60 )  
Net asset value, end of period   $ 9.02     $ 9.21     $ 9.04     $ 9.59     $ 9.16     $ 8.85    
Total Return(b)      (2.06 )%**      3.58 %     6.01 %     6.35 %     9.53 %     4.81 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 247,936     $ 274,422     $ 953,894     $ 1,015,009     $ 222,872     $ 20,219    
Net expenses to average daily
net assets(c) 		     0.38 %*      0.39 %     0.39 %     0.39 %     0.38 %     0.40 %  
Net investment income to average
daily net assets(a) 		     1.41 %*      1.93 %     1.91 %     1.51 %     0.68 %     0.97 %  
Portfolio turnover rate     27 %**      25 %     49 %     44 %     36 %     66 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.09 %*      0.06 %     0.06 %     0.09 %     0.24 %     0.51 %  

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(d)  Distributions from net investment income include amounts (approximately $0.49 per share) from foreign currency transactions which are treated as realized capital gain for book purposes.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the JPMorgan Non-U.S. Government Bond Index (Hedged) (ex-Japan). The Fund typically invests in bonds included in the JPMorgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) and in securities and instruments with similar characteristics. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its assets in shares of Short-Duration Collateral Fund; futures contracts, currency options, currency forwards, swap contracts, and other types of derivatives; investment-grade bonds denominated in various currencies, including foreign and U.S. government securities and asset-backed securities issued by foreign governments and U.S. government agencies (including securities neither guaranteed nor insured by the U.S. government), corporate bonds, and mortgage-backed and other asset-backe d securities issued by private issuers; shares of World Opportunity Overlay Fund; and up to 5% of the Fund's total assets in sovereign debt of emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund ("ECDF"). The Fund generally attempts to hedge at least 75% of the Fund's net foreign currency exposure into the U.S. dollar.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect). Shares of GMO Special Purpose Holding Fund, GMO World Opportunity Overlay Fund and GMO Short-Duration Collateral Fund are not publicly available.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market


11


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $33,663 in conjunction with a settlement agreement related to the default of those asset-backed securities.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


12


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund


13


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.


14


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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


15


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

the benefit of the Fund and the counterparty. In connection with transactions in repurchase agreements, if the seller defaults or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements outstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


16


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $1,192,006, expiring in 2009. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 249,888,221     $ 1,263,681     $ (1,001,281 )   $ 262,400    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. securities. These risks may involve adverse political and economic developments


17


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.25% 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 0.15% for Class III shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by the Fund exceeds 0.15%; provided, however, that the amount of this waiver will not exceed 0.15%.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the


18


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to th e extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.015 %     0.005 %     0.048 %     0.068 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $971 and $736, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration is paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ —     $ 5,000,000    
Investments (non-U.S. Government securities)     65,858,322       84,575,000    

 


19


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 99.31% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.01% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts, and 85.70% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     5,110,611     $ 46,047,464       3,950,878     $ 35,845,055    
Shares issued to shareholders
in reinvestment of distributions		     —       —       760,271       6,974,406    
Shares repurchased     (7,423,648 )     (67,512,628 )     (80,460,422 )     (726,098,482 )  
Net increase (decrease)     (2,313,037 )   $ (21,465,164 )     (75,749,273 )   $ (683,279,021 )  

 


20


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging Country
Debt Fund, Class III		   $ 8,433,652     $ 295,607     $ 1,300,000     $ 99,047     $ 196,560     $ 7,221,151    
GMO Short-Duration
Collateral Fund		     183,379,841       56,162,714       67,875,000       1,262,714       —       172,472,374    
GMO Special Purpose
Holding Fund		     7,749       —       —       —       33,663       7,914    
GMO World Opportunity
Overlay Fund		     55,039,560       9,400,000       15,400,000       —       —       49,661,675    
Totals   $ 246,860,802     $ 65,858,321     $ 84,575,000     $ 1,361,761     $ 230,223     $ 229,363,114    

 


21



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager


22


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees c onsidered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's


23


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


24


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.45 %   $ 1,000.00     $ 979.40     $ 2.24    
2) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.87     $ 2.29    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


25



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Short-Duration Investment Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.2 %  
Short-Term Investments     2.3    
Swaps     0.1    
Futures     0.0    
Forward Currency Contracts     (0.0 )  
Other     2.4    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1



GMO Short-Duration Investment Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 20.7%  
        U.S. Government Agency — 20.7%  
    128,322     Agency for International Development Floater (Support of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.18%, due 10/01/12		     128,002    
    826,425     Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.18%, due 10/01/12		     824,367    
    753,582     Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.57%, due 10/01/11		     749,344    
    41,994     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 4.90%, due 05/01/14		     41,784    
    275,175     Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18%, 6.06%, due 08/25/18		     276,679    
    Total U.S. Government Agency     2,020,176    
    TOTAL DEBT OBLIGATIONS (COST $2,026,397)     2,020,176    
        MUTUAL FUNDS — 77.9%  
        Affiliated Issuers — 77.9%  
    293,445     GMO Short-Duration Collateral Fund     7,576,759    
    9,192     GMO Special Purpose Holding Fund (a) (b)      13,236    
    TOTAL MUTUAL FUNDS (COST $7,557,468)     7,589,995    
    TOTAL INVESTMENTS — 98.6%
(Cost $9,583,865)		     9,610,171    
          Other Assets and Liabilities (net) — 1.4%     133,766    
    TOTAL NET ASSETS — 100.0%   $ 9,743,937    

 

See accompanying notes to the financial statements.


2


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Schedule of Investments – (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

C.A.B.E.I. - Central American Bank of Economic Integration

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

(a)  Bankrupt issuer.

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

See accompanying notes to the financial statements.


3



GMO Short-Duration Investment Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $2,026,397) (Note 2)   $ 2,020,176    
Investments in affiliated issuers, at value (cost $7,557,468) (Notes 2 and 8)     7,589,995    
Cash     114,936    
Receivable for investments sold     1,479    
Interest receivable     33,844    
Receivable for expenses reimbursed by Manager (Note 3)     8,196    
Total assets     9,768,626    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     417    
Shareholder service fee     1,254    
Trustees and Chief Compliance Officer of GMO Trust fees     51    
Accrued expenses     22,967    
Total liabilities     24,689    
Net assets   $ 9,743,937    
Net assets consist of:  
Paid-in capital   $ 13,926,158    
Accumulated undistributed net investment income     73,897    
Accumulated net realized loss     (4,282,424 )  
Net unrealized appreciation     26,306    
    $ 9,743,937    
Net assets attributable to:  
Class III shares   $ 9,743,937    
Shares outstanding:  
Class III     1,078,943    
Net asset value per share:  
Class III   $ 9.03    

 

See accompanying notes to the financial statements.


4


GMO Short-Duration Investment Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 70,717    
Interest     106,557    
Total investment income     177,274    
Expenses:  
Management fee (Note 3)     5,186    
Shareholder service fee – Class III (Note 3)     15,558    
Custodian, fund accounting agent and transfer agent fees     2,392    
Audit and tax fees     16,744    
Legal fees     4,876    
Trustees fees and related expenses (Note 3)     108    
Registration fees     1,104    
Miscellaneous     184    
Total expenses     46,152    
Fees and expenses reimbursed by Manager (Note 3)     (25,208 )  
Net expenses     20,944    
Net investment income (loss)     156,330    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (113,566 )  
Investments in affiliated issuers     364,906    
Realized gains distributions from affiliated issuers (Note 8)     56,305    
Net realized gain (loss)     307,645    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     104,283    
Investments in affiliated issuers     (96,048 )  
Net unrealized gain (loss)     8,235    
Net realized and unrealized gain (loss)     315,880    
Net increase (decrease) in net assets resulting from operations   $ 472,210    

 

See accompanying notes to the financial statements.


5


GMO Short-Duration Investment Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 156,330     $ 1,648,053    
Net realized gain (loss)     307,645       483,475    
Change in net unrealized appreciation (depreciation)     8,235       (118,646 )  
Net increase (decrease) in net assets from operations     472,210       2,012,882    
Distributions to shareholders from:  
Net investment income  
Class III     (80,941 )     (1,646,299 )  
Net share transactions (Note 7):  
Class III     (21,962,058 )     1,493,876    
Total increase (decrease) in net assets     (21,570,789 )     1,860,459    
Net assets:  
Beginning of period     31,314,726       29,454,267    
End of period (including accumulated undistributed net investment
income of $73,897 and distributions in excess of
net investment income of $1,492, respectively)		   $ 9,743,937     $ 31,314,726    

 

See accompanying notes to the financial statements.


6



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 8.93     $ 8.82     $ 8.77     $ 8.75     $ 8.68     $ 9.62    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.07       0.47       0.27       0.23       0.12       0.08    
Net realized and unrealized
gain (loss)		     0.08       0.11       0.07       (0.01 )     0.07       (0.54 )  
Total from investment
operations		     0.15       0.58       0.34       0.22       0.19       (0.46 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.47 )     (0.29 )     (0.20 )     (0.12 )     (0.33 )  
From net realized gains     —       —       —       —       —       (0.15 )  
Return of capital     —       —       —       —       (0.00 )(b)      —    
Total distributions     (0.05 )     (0.47 )     (0.29 )     (0.20 )     (0.12 )     (0.48 )  
Net asset value, end of period   $ 9.03     $ 8.93     $ 8.82     $ 8.77     $ 8.75     $ 8.68    
Total Return(c)      1.67 %**      6.62 %     3.83 %     2.49 %     2.24 %     (4.91 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 9,744     $ 31,315     $ 29,454     $ 29,607     $ 44,156     $ 55,316    
Net expenses to average daily
net assets(d) 		     0.20 %*      0.20 %     0.20 %     0.20 %     0.21 %     0.21 %  
Net investment income to average
daily net assets(a) 		     1.51 %*      5.21 %     3.01 %     2.57 %     1.36 %     0.88 %  
Portfolio turnover rate     2 %**      12 %     17 %     101 %     4 %     43 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.24 %*      0.14 %     0.13 %     0.10 %     0.10 %     0.08 %  

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Return of capital distribution was less than $0.01.

(c)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Short-Duration Investment 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks to provide current income. The Fund seeks to achieve this objective by investing a substantial portion of its assets in GMO Short-Duration Collateral Fund, which primarily invests in high quality U.S. and foreign floating rate fixed income securities, in particular asset-backed securities, issued by a wide range of private and government issuers. In addition, the Fund makes investments in high quality fixed income securities. The Fund's benchmark is the JPMorgan U.S. 3 Month Cash Index.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of the GMO Special Purpose Holding Fund and the GMO Short-Duration Collateral Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.


8


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $56,305 in conjunction with a settlement agreement related to the default of those asset-backed securities.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the


9


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended August 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $500,299, $708 and $3,024,063 expiring in 2012, 2013 and 2014, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross
Unrealized
Appreciation		   Gross
Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 10,126,147     $ 32,599     $ (548,575 )   $ (515,976 )  

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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


10


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


11


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.05% 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 average daily net assets at the annual rate of 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expense indirectly incurred by investment in underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extr aordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.05% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.001 %     0.000 %     0.000 %     0.001 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $108 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


12


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ —     $ 3,202,617    
Investments (non-U.S. Government securities)     410,717       19,081,524    

 

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 46.63% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is another fund of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 12.20% of the Fund's shares were held by ten related parties comprised of certain GMO employee accounts, and 64.68% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       343,252     $ 3,089,088    
Shares issued to shareholders
in reinvestment of distributions		     8,957       80,936       184,742       1,642,384    
Shares repurchased     (2,438,384 )     (22,042,994 )     (360,524 )     (3,237,596 )  
Net increase (decrease)     (2,429,427 )   $ (21,962,058 )     167,470     $ 1,493,876    

 


13


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Short-Duration
Collateral Fund		   $ 25,797,458     $ 410,717     $ 18,900,000     $ 70,717     $ —     $ 7,576,759    
GMO Special Purpose
Holding Fund		     12,961       —       —       —       56,305       13,236    
Totals   $ 25,810,419     $ 410,717     $ 18,900,000     $ 70,717     $ 56,305     $ 7,589,995    

 


14



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


15


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that the underlying funds do not charge any advisory fees. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associat ed with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax


16


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


17


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.20 %   $ 1,000.00     $ 1,016.70     $ 1.01    
2) Hypothetical     0.20 %   $ 1,000.00     $ 1,024.13     $ 1.02    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


18



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Special Purpose Holding Fund

(A Series of GMO Trust)
Consolidated Investments Concentration Summary (a)
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     0.0 %  
Other     100.0    
      100.0 %  

 

(a)  GMO SPV I, LLC is a 74.7% owned subsidiary of GMO Special Purpose Holding Fund.


1



GMO Special Purpose Holding Fund

(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Description   Value ($)  
DEBT OBLIGATIONS — 0.0% (a)   
Asset-Backed Securities — 0.0%  
Health Care Receivables — 0.0%  
Interest related to the Bankruptcy Estate of NPF VI Inc. Series 02-1 Class A (b) (c)      —    
Interest related to the Bankruptcy Estate of NPF XII Inc. Series 00-3 Class A (b) (c)      —    
Interest related to the Bankruptcy Estate of NPF XII Inc. Series 02-1 Class A (b) (c)      —    
      —    
Total Asset-Backed Securities     —    
TOTAL DEBT OBLIGATIONS (COST $0)     —    
TOTAL INVESTMENTS — 0.0%
(Cost $0)		     —    
Other Assets and Liabilities (net) — 100.0%     798,855    
TOTAL NET ASSETS — 100.0%   $ 798,855    

 

Notes to Schedule of Investments:

(a)  Owned by GMO SPV I, LLC. GMO SPV I, LLC is a 74.7% subsidiary of GMO Special Purpose Holding Fund.

(b)  Security in default.

(c)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

See accompanying notes to the financial statements.


2



GMO Special Purpose Holding Fund

(A Series of GMO Trust)


Consolidated Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

    GMO
Special Purpose
Holding Fund		   GMO
SPV I, LLC		   Minority
Interest		   Eliminations   Consolidated
Totals		  
Assets:  
Investments in affiliated issuers,
at value (cost $0) (Note 2)		   $ 385,629     $ —     $ —     $ (385,629 )   $ —    
Cash     499,248       631,101       —       —       1,130,349    
Interest receivable     1,501       1,898       —       —       3,399    
Receivable for expenses reimbursed
by Manager (Note 3)		     4,216       2,523       —       —       6,739    
Total assets     890,594       635,522       —       (385,629 )     1,140,487    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance
Officer of GMO Trust fees		     6       —       —       —       6    
Accrued expenses     91,733       119,560       —       —       211,293    
Minority interest     —       —       130,333       —       130,333    
Total liabilities     91,739       119,560       130,333       —       341,632    
Net assets   $ 798,855     $ 515,962     $ (130,333 )   $ (385,629 )   $ 798,855    
Shareholders capital  
Net capital(1)    $ 413,226     $ 515,962     $ (130,333 )   $ —     $ 798,855    
Net unrealized appreciation
(depreciation)		     385,629       —       —       (385,629 )     —    
    $ 798,855     $ 515,962     $ (130,333 )   $ (385,629 )   $ 798,855    
Shares outstanding     554,071                               554,071    
Net asset value per share   $ 1.44                             $ 1.44    

 

(1)  Net capital includes cumulative net investment gains/(losses) and net realized gains/(losses).

See accompanying notes to the financial statements.


3


GMO Special Purpose Holding Fund

(A Series of GMO Trust)


Consolidated Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

    GMO
Special Purpose
Holding Fund		   GMO
SPV I, LLC		   Minority
Interest		   Eliminations   Consolidated
Totals		  
Investment Income:  
Interest   $ 9,299     $ 13,582     $ —     $ —     $ 22,881    
Total income     9,299       13,582       —       —       22,881    
Expenses:  
Custodian and transfer agent fees     367       14,168       —       —       14,535    
Audit and tax fees     27,600       3,128       —       —       30,728    
Trustees fees and related expenses (Note 3)     1       —       —       —       1    
Miscellaneous     —       200       —       —       200    
Total expenses     27,968       17,496       —       —       45,464    
Fees and expenses reimbursed by
Manager (Note 3)		     (27,968 )     (17,496 )     —       —       (45,464 )  
Net expenses     —       —       —       —       —    
Net income (loss)     9,299       13,582       —       —       22,881    
Minority Interest     —       —       (3,431 )     —       (3,431 )  
Net investment income (loss)
after minority interest		     9,299       13,582       (3,431 )     —       19,450    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     —       4,530,791       —               4,530,791    
Realized gains distributions from
affiliated issuers		     3,393,954       —       —       (3,393,954 )     —    
Net realized gain (loss)     3,393,954       4,530,791       —       (3,393,954 )     4,530,791    
Change in net unrealized appreciation
(depreciation) on:		  
Investments     9,887       —       —       (9,887 )     —    
Net unrealized gain (loss)     9,887       —       —       (9,887 )     —    
Net realized and unrealized gain (loss)     3,403,841       4,530,791       —       (3,403,841 )     4,530,791    
Minority interest in realized and
unrealized gain (loss)		     —       —       (1,137,101 )     —       (1,137,101 )  
Net increase (decrease) in net assets
resulting from operations		   $ 3,413,140     $ 4,544,373     $ (1,140,532 )   $ (3,403,841 )   $ 3,413,140    

 

See accompanying notes to the financial statements.


4


GMO Special Purpose Holding Fund

(A Series of GMO Trust)


Consolidated Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations (after minority interest):  
Net investment income (loss)   $ 22,881     $ 32,527    
Net realized gain (loss)     4,530,791       34,577,048    
Change in net unrealized appreciation (depreciation)     —       (4,162,820 )  
      4,553,672       30,446,755    
Minority Interest     (1,140,532 )     (7,632,005 )  
Net increase (decrease) in net assets from operations     3,413,140       22,814,750    
Cash distributions to shareholders     (3,393,954 )     (26,587,616 )  
      (3,393,954 )     (26,587,616 )  
Fund share transactions: (Note 7)  
Proceeds from sale of shares     —       139,034    
Cost of shares repurchased     —       (139,034 )  
Net increase (decrease) in Fund share transactions     —       —    
Total increase (decrease) in net assets     19,186       (3,772,866 )  
Net assets:  
Beginning of period     779,669       4,552,535    
End of period   $ 798,855     $ 779,669    

 

See accompanying notes to the financial statements.


5



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Financial Highlights
(For a share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006   2005  
Net asset value, beginning of period   $ 1.41     $ 8.22     $ 15.51     $ 24.11    
Income from investment operations:  
Net investment income (loss)†      0.04       0.02       (0.08 )     0.41    
Net realized and unrealized gain (loss)     6.12       41.16       8.57       9.08    
Total from investment operations     6.16       41.18       8.49       9.49    
Less distributions to shareholders:  
From net investment income     —       —       —       (0.74 )  
From net realized gains     —       —       —       —    
From cash distributions     (6.13 )     (47.99 )     (15.78 )     (17.29 )  
From return of capital     —       —       —       (0.06 )  
Total distributions     (6.13 )     (47.99 )     (15.78 )     (18.09 )  
Net asset value, end of period   $ 1.44     $ 1.41     $ 8.22     $ 15.51    
Total Return(c)      445.80 %**(d)      3613.95 %(d)      124.75 %(d)      36.35 %(d)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 799     $ 780     $ 4,553     $ 8,595    
Net operating expenses to average daily
net assets		     0.00 %*      0.85 %     1.26 %     (0.01 )%  
Interest expense to average daily net assets     —       —       —       —    
Total net expenses to average daily net assets     0.00 %*      0.85 %     1.26 %     (0.01 )%  
Net investment income to average daily
net assets		     4.29 %*      1.05 %     (0.65 )%     1.83 %  
Portfolio turnover rate     0 %**      0 %     0 %     0 %  
Fees and expenses reimbursed by the Manager
to average daily net assets:		     9.06 %*      3.74 %     1.39 %     0.67 %  

 

(a)  The Fund changed its fiscal year end from November 30 to February 28.

(b)  The Fund changed its fiscal year end from February 28 to November 30.

(c)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the
effect of reinvested distributions.

(d)  Had the effect of reinvested distributions not been assumed and income from investment operations been retained, the total
returns would have been 7.40% for the six months ended August 31, 2007, and 97.84%, 25.27%, and 39.36% for the fiscal years
ended 2007, 2006, and 2005, respectively.

(e)  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.

(f)  Interest expense as a percentage of average daily net assets was less than 0.01%.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Financial Highlights — (Continued)
(For a share outstanding throughout each period)

    Period from
December 1, 2003
through		   Year
Ended		   March 1, 2002
through		  
    February 29, 2004(a)    November 30, 2003   November 30, 2002(b)   
Net asset value, beginning of period   $ 23.89     $ 23.77     $ 25.66    
Income from investment operations:  
Net investment income (loss)†      0.13       0.75       0.73    
Net realized and unrealized gain (loss)     0.09       (0.63 )     (2.39 )  
Total from investment operations     0.22       0.12       (1.66 )  
Less distributions to shareholders:  
From net investment income     —       —       (0.15 )  
From net realized gains     —       —       (0.08 )  
From cash distributions     —       —       —    
From return of capital     —       —       —    
Total distributions     —       —       (0.23 )  
Net asset value, end of period   $ 24.11     $ 23.89     $ 23.77    
Total Return(c)      0.92 %**      0.50 %     (6.53 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 225,727     $ 224,113     $ 281,715    
Net operating expenses to average daily
net assets		     0.08 %*      0.13 %     0.01 %*   
Interest expense to average daily net assets     0.04 %(e)*      0.00 %(e)(f)      0.03 %(e)   
Total net expenses to average daily net assets     0.12 %*      0.13 %     0.04 %*   
Net investment income to average daily
net assets		     0.49 %*      3.11 %     3.76 %*   
Portfolio turnover rate     4 %**      80 %     39 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.11 %*      0.10 %     0.02 %*   

 

See accompanying notes to the financial statements.


7



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Special Purpose Holding 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 Funds into classes.

The Fund seeks total return. The Fund's investments consist primarily of: (i) units of GMO SPV I, LLC ("SPV"), a special purpose vehicle that holds an interest in liquidating trusts related to certain defaulted asset-backed securities (the "NPF Securities") issued by NPF VI, Inc. and NPF XII, Inc., and (ii) cash and cash items.

Shares of the Fund are not publicly offered and are principally available only to other GMO Funds of the Trust and certain accredited investors. Presently the Fund is closed to new investment.

In April 2004, a plan of liquidation ("the Plan") was approved by the bankruptcy court with respect to National Century Financial Enterprises and the NPF Securities. Pursuant to the Plan, the Fund received a cash distribution, less expenses associated with the transaction and an interest in additional amounts recovered by the bankruptcy estate. The Fund, together with other creditors, are continuing to pursue various claims resulting from its holdings of the NPF Securities. The ultimate amount of losses and costs associated with the NPF Securities that may be recovered by the Fund (through its investment in SPV) is not known at this time.

The Fund has litigation pending against various entities related to the default of the NPF Securities. For the period ended August 31, 2007, the Fund indirectly received $3,393,954 in conjunction with a settlement agreement related to the default of those securities. The outcome of the lawsuits against the remaining defendants is not predictable and any potential recoveries are not reflected in the net asset value of the Fund. To the extent additional recoveries are realized, such recoveries may be material to the net asset value of the Fund.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the


8


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements include the accounts of the Fund and its majority owned investment in SPV. The consolidated financial statements include 100% of the assets and liabilities of SPV and the ownership interests of minority participants are recorded as "Minority Interest". All significant interfund accounts and transactions have been eliminated in consolidation.

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Taxes

Effective April 1, 2004, the Fund elected to be taxed as a partnership for federal income tax purposes and, accordingly, the Fund is no longer a regulated investment company for federal income tax purposes. As a partnership, the Fund will not be subject to federal and state income tax. Instead, each shareholder is responsible for the tax liability or benefit related to his/her allocable share of taxable income or loss. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.


9


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:



Aggregate Cost		  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ —     $ —     $ —     $ —    

 

SPV is also treated as a partnership for federal income tax purposes and subject to the same rules as the Fund with respect to federal income taxation of partnerships.

Distributions

The Fund will distribute proceeds and other cash receipts received from its underlying investments. Distributions made by the Fund, other than a distribution in partial or complete redemption of a shareholder's interest in the Fund, are reported in the Fund's financial statements as cash distributions.

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 amortization of premiums and accretion of discounts. Income is not recognized, nor are premiums amortized or discounts accreted 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.

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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial


10


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO does not charge the Fund any management or service fees for its services. In addition, the Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO")(excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expen ses (including taxes)). The costs incurred in connection with the Fund's pursuit of legal claims arising from the Fund's investment in the NPF securities are being treated for the purposes of the expense reimbursement as extraordinary expenses.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $1 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

There were no purchases or sales of securities, excluding short-term investments, for the period ended August 31, 2007.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that


11


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders

At August 31, 2007, 61.72% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is another fund of GMO Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 99.95% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Shares sold     —       28,918    
Shares repurchased     —       (28,918 )  
Net decrease     —       —    
Fund shares:  
Beginning of period     554,071       554,071    
End of period     554,071       554,071    

 

8.  Subsequent event

On October 9, 2007, the Fund received $199,736 in conjunction with a settlement agreement related to the default of the NPF Securities.


12



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees took note of the fact that the Fund has a limited investment program and primarily serves as a limited purpose holding vehicle. The Trustees also took into account the time and attention devoted by the Manager's senior management and other personnel to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees considered the Fund's investment performance and noted that, because of the limited nature of the Fund's investment program, no comparable accounts managed by the Manager or other funds managed by other managers existed to which the Fund could be compared for purposes of evaluating the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement. The Trustees did not consider possible economies of scale to the Manager because the Manager does not receive an advisory fee from the Fund.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with


13


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the execution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


14


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
1) Actual     0.00 %   $ 1,000.00     $ 1.074.00     $ 0.00    
2) Hypothetical     0.00 %   $ 1,000.00     $ 1,025.14     $ 0.00    

 

*  Expenses are calculated using the annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


15



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.0 %  
Short-Term Investments     5.0    
Futures     0.0    
Other     1.0    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     31.5 %  
Retail Stores     18.8    
Technology     18.6    
Utility     10.3    
Oil & Gas     9.5    
Food & Beverage     4.8    
Consumer Goods     3.6    
Services     1.3    
Financial     0.7    
Automotive     0.5    
Manufacturing     0.2    
Industrials     0.1    
Consumer Discretionary     0.1    
      100.0 %  

 


1



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
    COMMON STOCKS — 94.0%  
    Automotive — 0.5%  
  397,400     Paccar, Inc.     33,997,570    
    Consumer Goods — 3.4%  
  1,187,000     Coach, Inc. *      52,857,110    
  378,000     Estee Lauder Cos. (The), Inc.-Class A     15,721,020    
  840,500     Kimberly-Clark Corp.     57,733,945    
  667,900     Liz Claiborne, Inc.     22,822,143    
  314,800     Nike, Inc.     17,735,832    
  760,200     VF Corp.     60,701,970    
    Total Consumer Goods     227,572,020    
    Financial — 0.6%  
  623,000     Allstate Corp. (The)     34,109,250    
  234,700     Brown & Brown, Inc.     6,318,124    
  77,500     Chubb Corp.     3,962,575    
    Total Financial     44,389,949    
    Food & Beverage — 4.5%  
  5,640,700     Coca-Cola Co. (The)     303,356,846    
  95,300     HJ Heinz Co.     4,297,077    
    Total Food & Beverage     307,653,923    
    Health Care — 29.6%  
  992,000     Abbott Laboratories     51,494,720    
  252,200     Coventry Health Care, Inc. *      14,468,714    
  500,600     Express Scripts, Inc. *      27,407,850    
  2,623,900     Forest Laboratories, Inc. *      98,737,357    
  7,055,200     Johnson & Johnson     435,940,808    
  290,700     King Pharmaceuticals, Inc. *      4,369,221    
  79,900     McKesson Corp.     4,571,079    
  8,665,000     Merck & Co., Inc.     434,723,050    
  18,708,800     Pfizer, Inc.     464,726,592    

 

See accompanying notes to the financial statements.


2


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
    Health Care — continued  
  114,200     St. Jude Medical, Inc. *      4,975,694    
  289,400     Stryker Corp.     19,331,920    
  6,607,400     UnitedHealth Group, Inc.     330,436,074    
  94,100     WellPoint, Inc. *      7,583,519    
  148,900     Wyeth     6,894,070    
  1,238,700     Zimmer Holdings, Inc. *      97,027,371    
    Total Health Care     2,002,688,039    
    Manufacturing — 0.1%  
  58,500     3M Co.     5,322,915    
  70,400     Illinois Tool Works, Inc.     4,095,168    
    Total Manufacturing     9,418,083    
    Oil & Gas — 9.0%  
  2,593,300     Chevron Corp.     227,588,008    
  4,417,500     Exxon Mobil Corp.     378,712,275    
    Total Oil & Gas     606,300,283    
    Retail Stores — 17.7%  
  420,800     Abercrombie & Fitch Co.-Class A     33,116,960    
  535,400     American Eagle Outfitters, Inc.     13,829,382    
  701,600     Bed Bath & Beyond, Inc. *      24,303,424    
  565,500     Family Dollar Stores, Inc.     16,557,840    
  8,462,400     Home Depot, Inc.     324,194,544    
  399,800     Kohls Corp. *      23,708,140    
  1,902,100     Kroger Co.     50,557,818    
  8,608,000     Lowe's Cos., Inc.     267,364,480    
  102,500     Supervalu, Inc.     4,320,375    
  496,300     Walgreen Co.     22,368,241    
  9,457,800     Wal-Mart Stores, Inc.     412,643,814    
    Total Retail Stores     1,192,965,018    

 

See accompanying notes to the financial statements.


3


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
    Services — 1.3%  
  95,600     Carnival Corp.     4,358,404    
  267,900     Gannett Co., Inc.     12,591,300    
  83,500     ITT Educational Services, Inc. *      9,168,300    
  1,036,500     McDonald's Corp.     51,047,625    
  67,800     McGraw-Hill, Inc.     3,421,188    
  99,600     Moody's Corp.     4,566,660    
    Total Services     85,153,477    
    Technology — 17.6%  
  5,723,200     Cisco Systems, Inc. *      182,684,544    
  772,900     Danaher Corp.     60,023,414    
  4,451,500     Dell, Inc. *      125,754,875    
  75,600     Energizer Holdings, Inc. *      8,008,308    
  989,600     Fiserv, Inc. *      46,036,192    
  2,312,600     International Business Machines Corp.     269,857,294    
  69,700     L-3 Communications Holdings, Inc.     6,866,147    
  15,088,400     Microsoft Corp.     433,489,732    
  302,300     Pitney Bowes, Inc.     13,503,741    
  1,025,100     Qualcomm, Inc.     40,891,239    
    Total Technology     1,187,115,486    
    Utility — 9.7%  
  8,670,895     AT&T, Inc.     345,708,584    
  7,400,600     Verizon Communications, Inc.     309,937,128    
    Total Utility     655,645,712    
    TOTAL COMMON STOCKS (COST $5,996,440,055)     6,352,899,560    

 

See accompanying notes to the financial statements.


4


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 5.0%  
  332,782,079     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $332,939,226 and an effective
yield of 4.25%, collateralized by various U.S. Treasury obligations
with an interest rate range of 7.13% - 9.00%, maturity date range of
05/15/17 - 02/15/23, and an aggregate market value, including accrued
interest, of $344,916,881.		     332,782,079    
  3,178,372     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $3,179,873 and an effective yield of
4.25%, collateralized by a Tri-party Repurchase Agreement with an
aggregate market value, including accrued interest, of $4,962,213.		     3,178,372    
    TOTAL SHORT-TERM INVESTMENTS (COST $335,960,451)     335,960,451    
    TOTAL INVESTMENTS — 99.0%
(Cost $6,332,400,506)		     6,688,860,011    
    Other Assets and Liabilities (net) — 1.0%     65,411,573    
    TOTAL NET ASSETS — 100.0%   $ 6,754,271,584    

 

See accompanying notes to the financial statements.


5


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  369     S&P 500   September 2007   $ 136,225,575     $ 1,870,450    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

*  Non-income producing security.

See accompanying notes to the financial statements.


6



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $6,332,400,506) (Note 2)   $ 6,688,860,011    
Receivable for Fund shares sold     74,272,739    
Dividends and interest receivable     18,790,835    
Receivable for collateral on open futures contracts (Note 2)     5,811,750    
Receivable for expenses reimbursed by Manager (Note 3)     77,839    
Total assets     6,787,813,174    
Liabilities:  
Payable for Fund shares repurchased     30,150,145    
Payable to affiliate for (Note 3):  
Management fee     1,820,817    
Shareholder service fee     495,848    
Trustees and Chief Compliance Officer of GMO Trust fees     11,152    
Payable for variation margin on open futures contracts (Note 2)     839,024    
Accrued expenses     224,604    
Total liabilities     33,541,590    
Net assets   $ 6,754,271,584    

 

See accompanying notes to the financial statements.


7


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 6,295,771,433    
Accumulated undistributed net investment income     24,516,504    
Accumulated net realized gain     75,653,692    
Net unrealized appreciation     358,329,955    
    $ 6,754,271,584    
Net assets attributable to:  
Class III shares   $ 2,010,219,976    
Class IV shares   $ 597,574,903    
Class V shares   $ 497,937,456    
Class VI shares   $ 3,648,539,249    
Shares outstanding:  
Class III     90,179,227    
Class IV     26,791,214    
Class V     22,335,352    
Class VI     163,642,363    
Net asset value per share:  
Class III   $ 22.29    
Class IV   $ 22.30    
Class V   $ 22.29    
Class VI   $ 22.30    

 

See accompanying notes to the financial statements.


8


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 66,209,081    
Interest     6,737,260    
Total investment income     72,946,341    
Expenses:  
Management fee (Note 3)     9,963,952    
Shareholder service fee – Class III (Note 3)     1,335,665    
Shareholder service fee – Class IV (Note 3)     369,828    
Shareholder service fee – Class V (Note 3)     166,169    
Shareholder service fee – Class VI (Note 3)     869,674    
Custodian, fund accounting agent and transfer agent fees     295,596    
Audit and tax fees     25,392    
Legal fees     66,148    
Trustees fees and related expenses (Note 3)     32,613    
Registration fees     6,808    
Miscellaneous     36,708    
Total expenses     13,168,553    
Fees and expenses reimbursed by Manager (Note 3)     (413,356 )  
Net expenses     12,755,197    
Net investment income (loss)     60,191,144    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     93,734,631    
Closed futures contracts     (459,412 )  
Net realized gain (loss)     93,275,219    
Change in net unrealized appreciation (depreciation) on:  
Investments     62,078,389    
Open futures contracts     2,043,400    
Net unrealized gain (loss)     64,121,789    
Net realized and unrealized gain (loss)     157,397,008    
Net increase (decrease) in net assets resulting from operations   $ 217,588,152    

 

See accompanying notes to the financial statements.


9


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 60,191,144     $ 66,894,724    
Net realized gain (loss)     93,275,219       67,446,920    
Change in net unrealized appreciation (depreciation)     64,121,789       159,498,624    
Net increase (decrease) in net assets from operations     217,588,152       293,840,268    
Distributions to shareholders from:  
Net investment income  
Class III     (14,383,675 )     (19,080,483 )  
Class IV     (6,622,955 )     (34,152,852 )  
Class V     (2,819,332 )     (1,484,773 )  
Class VI     (25,698,058 )     (9,870,862 )  
Total distributions from net investment income     (49,524,020 )     (64,588,970 )  
Net realized gains  
Class III     (14,909,962 )     (10,201,001 )  
Class IV     (6,173,061 )     (6,234,488 )  
Class V     (3,298,564 )     (2,285,549 )  
Class VI     (26,354,673 )     (15,025,646 )  
Total distributions from net realized gains     (50,736,260 )     (33,746,684 )  
      (100,260,280 )     (98,335,654 )  
Net share transactions (Note 7):  
Class III     395,391,204       396,663,232    
Class IV     (226,666,481 )     (1,347,093,160 )  
Class V     236,297,440       259,783,734    
Class VI     1,008,616,680       2,604,941,562    
Increase (decrease) in net assets resulting from net
share transactions		     1,413,638,843       1,914,295,368    
Total increase (decrease) in net assets     1,530,966,715       2,109,799,982    
Net assets:  
Beginning of period     5,223,304,869       3,113,504,887    
End of period (including accumulated undistributed
net investment income of $24,516,504 and
$13,849,380, respectively)		   $ 6,754,271,584     $ 5,223,304,869    

 

See accompanying notes to the financial statements.


10



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning
of period		   $ 21.78     $ 20.81     $ 20.03     $ 19.93     $ 20.00    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.22       0.35       0.32       0.39       0.01    
Net realized and unrealized
gain (loss)		     0.65       1.12       0.72       (0.05 )     (0.08 )  
Total from investment operations     0.87       1.47       1.04       0.34       (0.07 )  
Less distributions to shareholders:  
From net investment income     (0.18 )     (0.34 )     (0.22 )     (0.24 )     —    
From net realized gains     (0.18 )     (0.16 )     (0.04 )     —       —    
Total distributions     (0.36 )     (0.50 )     (0.26 )     (0.24 )     —    
Net asset value, end of period   $ 22.29     $ 21.78     $ 20.81     $ 20.03     $ 19.93    
Total Return(b)      4.00 %**      7.18 %     5.28 %     1.72 %     (0.35 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,010,220     $ 1,575,300     $ 1,108,088     $ 463,848     $ 18,966    
Net expenses to average daily
net assets		     0.48 %*      0.48 %     0.48 %     0.48 %     0.47 %*   
Net investment income to average
daily net assets		     1.93 %*      1.64 %     1.58 %     1.98 %     1.22 %*   
Portfolio turnover rate     19 %**      50 %     52 %     66 %     2 %**   
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.01 %*      0.02 %     0.02 %     0.04 %     1.59 %*   

 

(a)  Period from February 6, 2004 (commencement of operations) through February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


11


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning
of period		   $ 21.80     $ 20.82     $ 20.03     $ 19.93     $ 20.00    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.22       0.37       0.32       0.38       0.01    
Net realized and unrealized
gain (loss)		     0.65       1.11       0.74       (0.03 )     (0.08 )  
Total from investment operations     0.87       1.48       1.06       0.35       (0.07 )  
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.34 )     (0.23 )     (0.25 )     —    
From net realized gains     (0.18 )     (0.16 )     (0.04 )     —       —    
Total distributions     (0.37 )     (0.50 )     (0.27 )     (0.25 )     —    
Net asset value, end of period   $ 22.30     $ 21.80     $ 20.82     $ 20.03     $ 19.93    
Total Return(b)      3.98 %**      7.19 %     5.37 %     1.75 %     (0.35 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 597,575     $ 800,458     $ 2,005,417     $ 938,586     $ 137,835    
Net expenses to average daily
net assets		     0.44 %*      0.44 %     0.44 %     0.44 %     0.44 %*   
Net investment income to average
daily net assets		     1.92 %*      1.79 %     1.62 %     1.92 %     0.99 %*   
Portfolio turnover rate     19 %**      50 %     52 %     66 %     2 %**   
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.01 %*      0.02 %     0.02 %     0.04 %     1.59 %*   

 

(a)  Period from February 6, 2004 (commencement of operations) through February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


12


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class V share outstanding throughout each period)

    Six Months
Ended
August 31, 2007
(Unaudited)		   Period from
December 8, 2006
(commencement
of operations)
through
February 28, 2007		  
Net asset value, beginning of period   $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)†      0.23       0.07    
Net realized and unrealized gain (loss)     0.64       0.04    
Total from investment operations     0.87       0.11    
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.09 )  
From net realized gains     (0.18 )     (0.14 )  
Total distributions     (0.37 )     (0.23 )  
Net asset value, end of period   $ 22.29     $ 21.79    
Total Return(a)      3.98 %**      0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 497,937     $ 259,430    
Net expenses to average daily net assets     0.42 %*      0.42 %*   
Net investment income to average daily net assets     2.05 %*      1.40 %*   
Portfolio turnover rate     19 %**      50 %***   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.01 %*      0.02 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover rate of the Fund for the year ended February 28, 2007.

See accompanying notes to the financial statements.


13


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months
Ended
August 31, 2007
(Unaudited)		   Period from
December 8, 2006
(commencement
of operations)
through
February 28, 2007		  
Net asset value, beginning of period   $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)†      0.23       0.07    
Net realized and unrealized gain (loss)     0.65       0.04    
Total from investment operations     0.88       0.11    
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.09 )  
From net realized gains     (0.18 )     (0.14 )  
Total distributions     (0.37 )     (0.23 )  
Net asset value, end of period   $ 22.30     $ 21.79    
Total Return(a)      4.05 %**      0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,648,539     $ 2,588,116    
Net expenses to average daily net assets     0.39 %*      0.39 %*   
Net investment income to average daily net assets     2.04 %*      1.43 %*   
Portfolio turnover rate     19 %**      50 %***   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.01 %*      0.02 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover rate of the Fund for the year ended February 28, 2007.

See accompanying notes to the financial statements.


14



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. Quality 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P 500 Index. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index and in companies with similar market capitalizations. The Fund may hold fewer than 100 stocks. The Fund reserves the right to make tactical allocations of up to 20% of its net assets to investments in cash and other high quality investments.

As of August 31, 2007, the Fund had four classes of shares outstanding: Class III, Class IV, Class V and Class VI. Each class of shares bears a different level of shareholder service fees.

2.  Significant Accounting Policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.


15


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values


16


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.


17


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 6,347,391,032     $ 466,950,858     $ (125,481,879 )   $ 341,468,979    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.


18


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.33% 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 of each class at the annual rate of 0.15% for Class III shares, 0.105% for Class IV shares, 0.085% for Class V shares and 0.055% for Class VI shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses, (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (i ncluding taxes)) exceed 0.33% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $24,608 and $17,296, respectively. The compensation and expenses of the


19


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $2,370,207,125 and $1,101,614,827, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 14.77% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 0.08% of the Fund's shares were held by twelve related parties comprised of certain GMO employee accounts, and 44.91% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     29,867,955     $ 667,266,830       45,988,997     $ 967,561,064    
Shares issued to shareholders in
reinvestment of distributions		     1,125,107       25,533,705       1,185,522       25,054,083    
Shares repurchased     (13,126,651 )     (297,409,331 )     (28,107,538 )     (595,951,915 )  
Net increase (decrease)     17,866,411     $ 395,391,204       19,066,981     $ 396,663,232    

 


20


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     17,462,428     $ 395,172,881       70,184,522     $ 1,495,423,391    
Shares issued to shareholders in
reinvestment of distributions		     459,839       10,428,498       1,791,751       36,987,536    
Shares repurchased     (27,849,767 )     (632,267,860 )     (131,569,719 )     (2,879,504,087 )  
Net increase (decrease)     (9,927,500 )   $ (226,666,481 )     (59,593,446 )   $ (1,347,093,160 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from December 8, 2006
(commencement of operations)
through February 28, 2007		  
Class V:   Shares   Amount   Shares   Amount  
Shares sold     12,469,866     $ 281,530,580       16,874,493     $ 369,964,791    
Shares issued to shareholders in
reinvestment of distributions		     249,300       5,666,860       165,675       3,600,116    
Shares repurchased     (2,291,768 )     (50,900,000 )     (5,132,214 )     (113,781,173 )  
Net increase (decrease)     10,427,398     $ 236,297,440       11,907,954     $ 259,783,734    
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from December 8, 2006
(commencement of operations)
through February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     46,016,537     $ 1,035,325,070       118,076,664     $ 2,589,720,510    
Shares issued to shareholders in
reinvestment of distributions		     2,187,680       49,654,614       1,096,229       23,821,052    
Shares repurchased     (3,344,254 )     (76,363,004 )     (390,493 )     (8,600,000 )  
Net increase (decrease)     44,859,963     $ 1,008,616,680       118,782,400     $ 2,604,941,562    

 


21



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of t he Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


22


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


23


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


24


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


25


GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred		  
Class III      
1) Actual     0.48 %   $ 1,000.00     $ 1,040.00     $ 2.46    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.72     $ 2.44    
Class IV      
1) Actual     0.44 %   $ 1,000.00     $ 1,039.80     $ 2.26    
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.92     $ 2.24    
Class V      
1) Actual     0.42 %   $ 1,000.00     $ 1,039.80     $ 2.15    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.03     $ 2.14    
Class VI      
1) Actual     0.39 %   $ 1,000.00     $ 1,040.50     $ 2.00    
2) Hypothetical     0.39 %   $ 1,000.00     $ 1,023.18     $ 1.98    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


26



GMO Foreign Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Foreign Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.0 %  
Short-Term Investments     2.5    
Preferred Stocks     0.7    
Rights and Warrants     0.0    
Other     0.8    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     23.4 %  
Japan     20.5    
Germany     14.2    
France     7.2    
Netherlands     5.8    
Finland     4.9    
Italy     4.6    
Switzerland     3.1    
Spain     3.1    
Hong Kong     1.7    
Australia     1.5    
Taiwan     1.3    
Belgium     1.3    
Singapore     1.3    
Ireland     1.1    
Norway     1.0    
Brazil     1.0    
Sweden     0.8    
South Korea     0.6    
Austria     0.6    
Greece     0.3    
Philippines     0.2    
Thailand     0.1    
Malaysia     0.1    
Canada     0.1    
New Zealand     0.1    
Mexico     0.1    
Argentina     0.0    
Chile     0.0    
      100.0 %  

 


1


GMO Foreign Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     26.4 %  
Industrials     15.0    
Consumer Discretionary     14.8    
Energy     8.4    
Telecommunication Services     7.5    
Materials     6.7    
Information Technology     6.1    
Consumer Staples     6.0    
Utilities     5.8    
Health Care     3.3    
      100.0 %  

 


2



GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.0%  
        Argentina — 0.0%  
    201,900     Banco Patagonia SA *      4,424,924    
        Australia — 1.5%  
    1,655,100     Amcor Ltd     10,346,291    
    1,227,486     Coca Cola Amatil Ltd     9,571,367    
    3,959,600     Foster's Group Ltd     20,460,054    
    1,276,239     Insurance Australia Group Ltd     5,259,143    
    1,117,550     Multiplex Group     4,568,721    
    259,688     National Australia Bank Ltd     8,507,362    
    483,857     Publishing & Broadcasting Ltd     7,091,084    
    904,700     Santos Ltd     9,853,931    
    11,231,604     SP AusNet (a)      12,252,692    
    158,100     Suncorp-Metway Ltd     2,601,758    
    855,351     TABCORP Holdings Ltd     10,709,409    
    1,533,286     Telstra Corp Ltd     5,501,686    
    2,920,743     Telstra Corp-Installment Receipts     6,961,084    
    181,500     Westfarmers Ltd (a)      5,727,651    
    242,717     Westfield Group     4,156,191    
    563,627     Westpac Banking Corp     12,556,093    
    Total Australia     136,124,517    
        Austria — 0.5%  
    123,600     Erste Bank Der Oesterreichischen Sparkassen AG     8,974,895    
    29,330     Flughafen Wien AG     2,935,906    
    309,500     OMV AG     19,178,191    
    385,500     Telekom Austria AG     9,955,271    
    128,030     Wienerberger AG     9,139,932    
    Total Austria     50,184,195    
        Belgium — 1.2%  
    221,570     Belgacom SA     9,721,310    
      22,166     CIE Francois d' Enterprises (a)      43,553,578    

 

See accompanying notes to the financial statements.


3


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Belgium — continued  
    459,595     Fortis     16,856,416    
    67,475     Groupe Bruxelles Lambert SA     7,979,340    
    179,725     KBC Groep NV     22,555,023    
    54,437     Solvay SA     8,080,919    
    125,369     UCB SA     7,063,247    
    Total Belgium     115,809,833    
        Brazil — 0.8%  
    120,600     Banco ABC Brasil SA *      5,682,706    
    517,600     Cia Providencia Industria e Comercio *      3,825,280    
    232,700     Cremer SA *      2,372,069    
    1,114,500     Datasul SA     11,559,671    
    234,400     Gafisa SA     2,831,437    
    379,400     M Dias Branco SA     4,853,690    
    96,800     MMX Mineracao e Metalicos SA *      26,198,165    
    473,600     Ultrapetrol Ltd *      8,534,272    
    153,000     Usinas Siderurgicas de Minas Gerais SA     10,293,578    
    Total Brazil     76,150,868    
        Canada — 0.1%  
    831,000     Bayou Bend Petroleum Ltd *      920,710    
    220,100     KAP Resources Ltd * (b) (c)      2,084    
    574,500     SXR Uranium One Inc *      6,245,511    
    Total Canada     7,168,305    
        Chile — 0.0%  
    48,800     Banco Santander Chile SA ADR     2,322,880    
        Finland — 4.7%  
    1,026,100     Neste Oil Oyj     35,555,260    
    5,774,900     Nokia Oyj     190,245,789    
    2,338,400     Nokian Renkaat Oyj (a)      82,510,443    
    975,700     Poyry Oyj     22,034,737    
    738,000     Ramirent Oyj     17,567,119    

 

See accompanying notes to the financial statements.


4


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Finland — continued  
    239,236     Rautaruukki Oyj     13,081,204    
    250,700     SRV Group Plc *      2,773,111    
    334,800     UPM-Kymmene Oyj     7,598,451    
    1,114,700     Uponor Oyj     42,810,617    
    789,146     YIT Oyj     23,891,759    
    Total Finland     438,068,490    
        France — 7.0%  
    58,760     Accor SA     5,019,745    
    256,771     Arcelor Mittal     16,840,706    
    627,440     Axa     25,076,415    
    123,105     BIC SA     9,326,959    
    491,008     BNP Paribas     51,543,156    
    35,210     Casino Guichard-Perrachon SA     3,585,941    
    199,296     Cie de Saint-Gobain     21,583,234    
    388,788     Credit Agricole SA     14,603,973    
    1,804,192     France Telecom SA     54,346,493    
    251,752     Groupe Danone     19,115,781    
    17,475     Guyenne et Gascogne SA     3,012,527    
    110,492     Imerys SA     10,090,693    
    73,278     Lafarge SA     11,345,059    
    148,066     Lagardere SCA     12,052,798    
    139,000     L'Oreal SA     16,217,968    
    102,100     M6-Metropole Television     3,074,518    
    197,104     Michelin SA Class B     24,739,372    
    42,219     Pernod-Ricard     8,866,845    
    401,972     Peugeot SA     34,098,860    
    121,700     Publicis Groupe     5,261,213    
    314,233     Sanofi-Aventis     25,736,486    
    126,173     Schneider Electric SA     16,682,042    
    13,667     Sequana Capital     450,705    
    161,230     Societe Generale     25,889,740    
    137,852     Suez Lyon des Eaux VVPR Strip *      1,878    
    1,471,526     Suez SA     83,588,442    

 

See accompanying notes to the financial statements.


5


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    71,140     Technip SA     5,674,117    
    124,414     Thales SA     7,038,340    
    1,329,500     Total SA     99,704,217    
    220,300     Vivendi Universal SA     8,980,212    
    130,031     Wendel Investissement (a)      21,950,624    
    Total France     645,499,059    
        Germany — 13.3%  
    1,239,080     Adidas AG     72,996,343    
    579,376     Allianz SE (Registered)     124,465,507    
    110,200     Axel Springer AG     18,924,256    
    129,700     BASF AG     17,181,442    
    681,199     Bayer AG     53,950,768    
    715,600     Bayerische Motoren Werke AG     43,724,655    
    824,210     Commerzbank AG     33,885,503    
    110,720     Continental AG     14,456,985    
    889,581     DaimlerChrysler AG (Registered)     79,253,431    
    590,300     Depfa Bank Plc     11,193,576    
    158,100     Deutsche Bank AG (Registered)     19,641,901    
    3,219,700     Deutsche Post AG (Registered)     93,516,873    
    6,845,838     Deutsche Telekom (Registered) (a)      127,573,364    
    70,810     E. On AG     11,899,747    
    306,518     Heidelberger Druckmaschinen     13,866,138    
    428,476     Hypo Real Estate Holding AG (a)      23,581,134    
    719,100     Metro AG     61,981,752    
    89,000     MTU Aero Engines Holding     5,660,732    
    652,174     Muenchener Rueckversicherungs AG (Registered)     112,918,694    
    53,100     Puma AG Rudolf Dassler Sport (a)      21,376,630    
    500,400     RWE AG     56,298,572    
    888,800     SAP AG     48,104,410    
    1,245,337     Siemens AG (Registered)     156,579,895    
    329,400     Tognum AG *      9,867,466    
    Total Germany     1,232,899,774    

 

See accompanying notes to the financial statements.


6


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Greece — 0.2%  
    464,109     EFG Eurobank Ergasias     15,748,785    
    324,000     Greek Postal Savings Bank     6,657,389    
    Total Greece     22,406,174    
        Hong Kong — 1.6%  
    11,056,900     BOC Hong Kong Holdings Ltd     26,577,171    
    2,393,200     CLP Holdings Ltd     16,480,337    
    6,219,000     Hang Lung Properties Ltd     22,766,725    
    1,445,100     Hang Seng Bank Ltd     22,674,021    
    2,135,000     Jardine Strategic Holdings Ltd     29,622,698    
    8,975,000     New World Development Co Ltd     21,498,610    
    7,763,000     Shun Tak Holdings Ltd     11,642,832    
    Total Hong Kong     151,262,394    
        Ireland — 1.1%  
    1,679,640     Allied Irish Banks Plc     42,814,732    
    1,766,649     Bank of Ireland     32,456,848    
    366,275     CRH Plc     15,834,286    
    49,400     FBD Holdings Plc     1,713,590    
    235,500     Grafton Group Plc *      3,143,905    
    181,800     Irish Life & Permanent Plc     4,509,290    
    Total Ireland     100,472,651    
        Italy — 4.4%  
    827,100     Alleanza Assicurazioni SPA     10,688,037    
    851,544     Assicurazioni Generali SPA (a)      34,951,856    
    1,240,723     Banca Intesa SPA-Di RISP     8,647,273    
    1,187,324     Banca Monte dei Paschi di Siena SPA (a)      7,554,864    
    343,854     Buzzi Unicem SPA     9,893,161    
    4,700,335     Enel SPA (a)      48,568,273    
    2,678,121     ENI SPA     92,506,637    
    1,086,410     Fiat SPA     28,973,217    
    590,720     Finmeccanica SPA     17,359,973    
      266,246     Grouppo Editoriale L'Espresso (a)      1,373,122    

 

See accompanying notes to the financial statements.


7


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    1,926,128     Intesa San Paolo     14,556,432    
    657,970     Italcementi SPA-Di RISP     10,987,534    
    147,700     Mediobanca SPA (a)      3,187,177    
    58,000     Pagnossin SPA * (c)      790    
    2,851,000     Pirelli & Co SPA *      3,209,551    
    1,086,400     Snam Rete Gas SPA (a)      6,409,065    
    15,420,198     Telecom Italia SPA     43,615,100    
    12,550,476     Telecom Italia SPA-Di RISP     28,180,797    
    4,356,682     UniCredito Italiano SPA     37,426,010    
    Total Italy     408,088,869    
        Japan — 19.8%  
    906,000     Aozora Bank Ltd     3,006,392    
    747,500     Astellas Pharma Inc     34,649,067    
    904,000     Bridgestone Corp     18,106,455    
    1,549,100     Canon Inc     88,421,817    
    779,700     Chubu Electric Power Co Inc     20,783,226    
    754,000     Daiichi Sankyo Co Ltd     20,571,507    
    1,980,000     Daimaru Inc (The)     21,545,902    
    1,395,000     Daiwa House Industry Co Ltd     18,532,030    
    4,138,000     Daiwa Securities Group Inc     41,016,496    
    1,702,800     Denso Corp     59,624,447    
    6,217     East Japan Railway Co     49,546,508    
    370,200     Eisai Co Ltd     15,420,140    
    349,400     Fanuc Ltd     33,960,193    
    1,036,000     Fujitsu Ltd     7,077,805    
    729,000     Fukuoka Financial Group Inc *      4,200,581    
    2,591,500     Haseko Corp *      6,981,142    
    2,687,500     Honda Motor Co Ltd     88,332,636    
    1,027,400     Hoya Corp     35,622,311    
    153,600     Ito En Ltd (a)      3,846,816    
    4,820,000     Itochu Corp     52,050,693    
    992,600     JFE Holdings Inc     64,630,751    
    751,100     JSR Corp     16,807,922    

 

See accompanying notes to the financial statements.


8


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    663,000     Kao Corp     18,851,219    
    7,472     KDDI Corp     57,628,972    
    1,624,000     Komatsu Ltd     49,894,852    
    1,803,000     Kubota Corp     14,054,560    
    351,600     Kyushu Electric Power Co Inc     9,382,723    
    316,200     Lawson Inc     10,502,559    
    2,519,000     Marubeni Corp     20,485,289    
    3,508,000     Matsushita Electric Industrial Co Ltd     61,148,009    
    1,884,100     Mitsubishi Corp     52,883,704    
    8,727,000     Mitsubishi Electric Corp     102,334,683    
    1,436,000     Mitsui OSK Lines Ltd     21,094,389    
    5,030     Mizuho Financial Group Inc     31,614,613    
    319,400     Namco Bandai Holdings Inc     4,626,880    
    225,700     Nihon Kohden Corp     4,482,482    
    59,600     Nintendo Co Ltd     27,432,193    
    1,405     Nippon Commercial Investment Corp (REIT)     5,476,016    
    1,939,000     Nippon Mining Holdings Inc     17,493,332    
    5,121,000     Nippon Steel Corp     35,784,742    
    825,900     Nomura Holdings Inc     14,581,532    
    369     Nomura Real Estate Office Fund (REIT)     3,488,276    
    171,910     ORIX Corp     36,498,618    
    808,000     Ricoh Company Ltd     17,784,841    
    505,100     Seven & I Holdings Co Ltd     13,467,780    
    321,100     Shin-Etsu Chemical Co Ltd     23,214,658    
    1,260,200     Sony Corp     60,332,619    
    3,795,000     Sumitomo Chemical Co Ltd     28,330,283    
    3,242,600     Sumitomo Electric Industries Ltd     51,536,034    
    1,709,000     Sumitomo Heavy Industries Ltd     19,105,107    
    3,421     Sumitomo Mitsui Financial Group Inc     26,984,835    
    939,000     Sumitomo Realty & Development Co Ltd     30,708,974    
    548,000     Takeda Pharmaceutical Co Ltd     37,493,405    
    185,100     TDK Corp     15,827,703    
    4,665,000     Tokyo Gas Co Ltd     23,177,726    
    1,830,000     Tokyo Tatemono Co Ltd     24,193,139    

 

See accompanying notes to the financial statements.


9


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,375,000     Tokyu Land Corp     12,663,779    
    2,167,100     Toyota Motor Corp     125,494,481    
    2,018     West Japan Railway Co     9,743,262    
    328,200     Yamaha Motor Co Ltd     8,636,424    
    Total Japan     1,833,169,530    
        Malaysia — 0.1%  
    3,805,500     IJM Corp Berhad     8,002,907    
        Mexico — 0.1%  
    939,200     Corporacion GEO SA de CV Series B *      4,886,258    
        Netherlands — 5.6%  
    1,150,452     ABN Amro Holdings NV     53,467,489    
    3,198,727     Aegon NV     58,353,440    
    471,602     Akzo Nobel NV     37,171,054    
    641,450     Fortis NV     23,510,786    
    133,232     Fugro NV     9,260,815    
    1,293,954     Hagemeyer NV (a)      5,491,481    
    139,274     Hal Trust (Participating Units)     15,370,406    
    2,290,722     ING Groep NV     92,193,741    
    302,570     Koninklijke Ahold NV *      4,054,946    
    396,800     Koninklijke Bam Groep     10,769,735    
    2,536,400     Koninklijke KPN NV     39,604,318    
    148,310     Koninklijke Vopak NV     8,704,772    
    392,897     Koninklijke Wessanen NV     5,937,881    
    1,812,832     Philips Electronics NV     71,669,229    
    92,391     Philips Electronics NV ADR     3,654,064    
    1,121,300     Reed Elsevier NV     20,228,410    
    133,440     Royal Dutch Shell Group Class A (Amsterdam)     5,168,748    
    579,007     TNT NV     24,498,409    
    564,860     Unilever NV     17,306,233    
    45,734     Univar NV     3,297,170    
    78,987     Wereldhave NV     9,461,455    
    Total Netherlands     519,174,582    

 

See accompanying notes to the financial statements.


10


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        New Zealand — 0.1%  
    389,777     Air New Zealand     565,375    
    1,060,419     Asian Growth Properties Ltd *      630,731    
    1,340,643     Telecom Corp of New Zealand     4,043,848    
    Total New Zealand     5,239,954    
        Norway — 1.0%  
    1,040,898     Ekornes ASA     21,101,107    
    1,191,200     Norske Skogindustrier AS Class A (a)      14,512,901    
    2,661,600     Prosafe ASA     40,081,024    
    448,600     Stolt-Nielsen SA     14,343,058    
    Total Norway     90,038,090    
        Philippines — 0.2%  
    38,000,000     Alliance Global Group Inc *      4,604,826    
    7,797,100     First Gen Corp *      10,802,033    
    55,280,000     Vista Land & Lifescapes Inc *      5,938,977    
    Total Philippines     21,345,836    
        Singapore — 1.2%  
    2,997,380     DBS Group Holdings Ltd     39,393,323    
    2,224,000     Keppel Corp Ltd     18,667,681    
    9,244,000     People's Food Holdings Ltd     8,106,048    
    937,000     Singapore Airlines Ltd     11,697,578    
    4,930,000     Singapore Technologies Engineering Ltd     11,910,461    
    10,341,710     Singapore Telecommunications     24,733,672    
    Total Singapore     114,508,763    
        South Korea — 0.6%  
    148,500     Hana Financial Group Inc     7,022,775    
    19,865     Hansol Paper Co *      344,167    
    38,500     Hyundai Motor Co     2,852,884    
    230,900     KT Corp ADR     5,500,038    
    76,100     LG Philips LCD Co Ltd ADR * (a)      1,625,496    
    4,706     Lotte Shopping Co Ltd     1,754,730    

 

See accompanying notes to the financial statements.


11


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    24,100     Samsung Electronics Co Ltd     15,192,397    
    221,510     Samsung SDI Co Ltd     14,560,488    
    66,500     Shinhan Financial Group Co Ltd     4,077,124    
    Total South Korea     52,930,099    
        Spain — 3.0%  
    120,040     ACS Actividades de Construccion y Servicios SA     6,606,831    
    199,703     Altadis SA     13,257,807    
    1,756,392     Banco Bilbao Vizcaya Argentaria SA     40,588,830    
    634,315     Banco Popular Espanol SA     11,579,227    
    2,018,932     Banco Santander Central Hispano SA     36,885,791    
    491,527     Endesa SA     26,718,089    
    156,600     Gas Natural SDG SA     8,348,968    
    444,093     Iberdrola SA     24,632,932    
    132,100     Inditex SA     7,755,426    
    635,000     Mapfre SA     2,803,731    
    94,750     Red Electrica de Espana     4,267,495    
    645,329     Repsol YPF SA     23,254,026    
    2,410,161     Telefonica SA     59,935,251    
    138,668     Union Fenosa SA     7,588,567    
    Total Spain     274,222,971    
        Sweden — 0.8%  
    588,340     Autoliv Inc SDR     33,851,451    
    247,900     Lindab International AB     6,858,815    
    738,000     Svenska Handelsbanken AB Class A     20,569,133    
    941,800     Tanganyika Oil Co SDR * (a)      15,012,644    
    Total Sweden     76,292,043    
        Switzerland — 3.0%  
    43,170     Baloise Holding Ltd     3,966,405    
    1,620     Bank Sarasin & Cie AG Class B (Registered)     6,580,020    
    2,822     Banque Cantonale Vaudoise     1,334,263    
    2,666     Belimo Holding AG (Registered)     2,729,380    

 

See accompanying notes to the financial statements.


12


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued  
    20,560     Bobst Group AG (Registered)     1,420,410    
    332,950     Credit Suisse Group     21,850,901    
    9,335     Energiedienst Holding AG (Registered) *      5,021,086    
    6,697     Forbo Holdings AG (Registered) *      3,892,061    
    44,120     Geberit AG (Registered)     6,514,278    
    131,305     Holcim Ltd     14,237,735    
    880     Jelmoli Holding AG (Bearer)     2,617,233    
    4,836     Jelmoli Holding AG (Registered)     2,927,380    
    126,910     Nestle SA (Registered)     55,312,541    
    187,884     Novartis AG (Registered)     9,904,295    
    585     SGS SA (Registered)     701,113    
    92,800     Swatch Group AG     27,875,319    
    19,900     Swiss Life Holding *      4,737,046    
    504     Swiss National Insurance Co (Registered)     400,988    
    513,887     Swiss Reinsurance Co (Registered)     43,357,712    
    14,100     Swisscom AG (Registered)     4,961,590    
    479,980     UBS AG (Registered)     25,131,751    
    18,941     Valora Holding AG     3,611,771    
    90,104     Zurich Financial Services AG     25,877,900    
    Total Switzerland     274,963,178    
        Taiwan — 1.3%  
    5,119,608     Asustek Computer Inc     15,278,353    
    3,528,000     Benq Corp *      1,654,375    
    17,168,320     Chinatrust Financial Holding Co Ltd *      12,912,554    
    1,048,520     Chunghwa Telecom Co Ltd ADR     18,370,070    
    5,298,900     E.Sun Financial Holdings Co Ltd *      2,797,498    
    2,780,000     Far Eastone Telecommunications Co Ltd     3,349,234    
    6,322,000     Fubon Financial Holding Co Ltd     5,450,828    
    167,600     Fubon Financial Holding Co Ltd GDR (Registered)     1,427,952    
    1,785,000     Lite-On Technology Corp     2,816,384    
    25,980,000     Sinopac Holdings Co     12,322,393    
    646,070     Standard Foods Corp     361,553    
    1,680,056     Taiwan Semiconductor Manufacturing Co Ltd ADR     16,666,156    
      41,803,348     United Microelectronics Corp     23,599,510    
    Total Taiwan     117,006,860    

 

See accompanying notes to the financial statements.


13


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Thailand — 0.1%  
      62,918,000     Charoen Pokphand Foods Pcl (Foreign Registered) (c)      8,572,142    
        United Kingdom — 22.7%  
      607,373     Anglo American Plc     34,869,466    
      727,408     Associated British Foods Plc     12,705,911    
      764,800     AstraZeneca Plc     37,691,945    
      3,292,275     Aviva Plc     47,162,678    
      7,010,910     BAE Systems Plc     65,628,034    
      5,128,642     Barclays Plc     63,573,125    
      837,431     BBA Aviation Plc     4,087,280    
      2,901,846     BG Group Plc     46,438,173    
      829,847     BHP Billiton Plc     24,335,050    
      803,363     Biffa Plc     4,096,911    
      14,889,940     BP Plc     167,332,738    
      679,000     British Energy Group Plc     6,369,566    
      779,676     British Sky Broadcasting Plc     10,644,945    
      8,058,501     BT Group Plc     51,392,274    
      438,739     Bunzl Plc     6,119,272    
      778,800     Cadbury Schweppes Plc     9,220,383    
      1,014,249     Cattle's Plc     7,490,556    
      4,872,457     Centrica Plc     37,975,025    
      3,047,000     Cobham Plc     12,382,866    
      2,615,100     Compass Group Plc     17,185,823    
      2,055,910     Diageo Plc     43,967,196    
      1,764,352     DSG International Plc     5,535,987    
      295,634     Experian Group     3,126,338    
      149,235     Fiberweb Plc     399,258    
      831,981     Filtrona Plc     4,026,795    
      476,698     FKI Plc     1,018,715    
      3,359,499     GlaxoSmithKline Plc     87,671,251    
      1,205,000     Group 4 Securicor Plc     4,837,782    
    1,132,961     Hays Plc     3,648,765    
    3,420,496     HBOS Plc     60,802,275    
    6,234,511     HSBC Holdings Plc     112,730,745    

 

See accompanying notes to the financial statements.


14


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    1,015,670     ICAP Plc     10,037,715    
    1,098,820     Imperial Chemical Industries Plc     14,040,483    
    977,318     Imperial Tobacco Group Plc     44,225,111    
    121,632     InterContinental Hotels Group Plc     2,550,747    
    1,647,300     International Power Plc     13,463,832    
    900,900     Invesco Plc     10,996,181    
    1,519,000     ITV Plc     3,370,483    
    554,169     J Sainsbury Plc     6,203,825    
    343,370     Johnson Matthey Plc     11,144,133    
    403,803     Kesa Electricals Plc     2,527,991    
    920,418     Kingfisher Plc     3,880,092    
    973,158     Ladbrokes Plc     8,575,292    
    845,000     Lamprell Plc     6,575,721    
    9,412,744     Legal & General Group Plc     27,611,740    
    4,638,420     Lloyds TSB Group Plc     51,054,673    
    49,738     Lonmin Plc     3,133,130    
    1,240,500     Misys Plc     5,796,184    
    333,472     Mitchells & Butler (Ordinary Shares)     4,804,033    
    66,744     Mondi Ltd     639,220    
    166,860     Mondi Plc     1,646,832    
    2,312,567     National Grid Plc     34,657,015    
    245,132     Next Plc     9,581,282    
    1,374,200     Northern Foods Plc     2,848,311    
    630,700     Northern Rock Plc     9,388,075    
    4,261,134     Old Mutual Plc     13,761,024    
    1,240,500     Pearson Plc     18,649,886    
    1,171,606     Photo-Me International Plc (a)      1,532,628    
    2,500,417     Prudential Plc     35,571,070    
    946,590     Reed Elsevier Plc     11,442,593    
    2,806,620     Rentokil Initial Plc     9,830,550    
    878,886     Resolution Plc     10,978,051    
    621,169     Reuters Group Plc     8,004,919    
    605,836     Rexam Plc     6,405,879    
    284,028     Rio Tinto Plc     19,619,094    

 

See accompanying notes to the financial statements.


15


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    549,700     Rolls-Royce Group Plc *      5,679,540    
    1,498,895     Royal & Sun Alliance Insurance Group     4,286,613    
    11,036,514     Royal Bank of Scotland Group     128,247,092    
    1,506,400     Royal Dutch Shell Plc A Shares (London)     58,534,137    
    2,055,597     Royal Dutch Shell Plc B Shares (London)     80,158,587    
    1,273,000     Sage Group Plc     6,083,303    
    195,700     Schroders Plc     5,245,430    
    1,509,421     Scottish & Newcastle Plc     18,887,763    
    922,260     Scottish & Southern Energy Plc     26,426,938    
    563,626     Segro Plc     6,235,373    
    581,678     Serco Group Plc     4,970,831    
    535,575     Severn Trent (Ordinary Shares)     14,785,997    
    825,100     Shire Plc     21,617,253    
    607,432     Smith (David S.) Holdings Plc     2,787,619    
    947,400     South African Breweries Plc     26,060,221    
    290,270     Standard Chartered Plc     8,983,108    
    2,543,200     Standard Life Assurance Plc     15,439,586    
    2,443,177     Tesco Plc     21,004,209    
    848,246     Tomkins Plc     4,092,177    
    2,748,000     Torex Retail Plc * (a) (c)      55,407    
    205,564     Travis Perkins Plc     7,420,974    
    320,847     Trinity Mirror Plc     3,045,512    
    618,349     Unilever Plc     19,541,125    
    881,112     United Utilities Plc     12,313,924    
    35,445,092     Vodafone Group Inc     114,545,972    
    235,071     Whitbread Plc     7,804,920    
    275,000     William Hill Plc     3,422,403    
    1,201,036     William Morrison Supermarkets Plc     6,960,615    
    728,321     Wolseley Plc     15,305,351    
    2,266,250     Wood Group (John) Plc     16,549,187    
    789,400     WPP Group Plc     11,255,196    
    44,000     Xstrata Plc     2,588,775    
    219,900     Yell Group Plc     2,006,132    
    Total United Kingdom     2,101,356,193    
    TOTAL COMMON STOCKS (COST $6,105,838,653)     8,892,592,339    

 

See accompanying notes to the financial statements.


16


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        PREFERRED STOCKS — 0.7%  
        Brazil — 0.2%  
    1,518,000     Randon Participacoes SA 0.43%     12,843,425    
        France — 0.0%  
    24,058     Casino Guichard-Perrachon SA 3.01% (a)      2,369,213    
        Germany — 0.4%  
    448,470     Henkel KGaA 1.33%     23,211,059    
    138,306     Volkswagen AG 1.39%     17,202,778    
    Total Germany     40,413,837    
        Italy — 0.1%  
    199,733     Fiat SPA 1.79%     4,604,135    
    92,571     IFI Istituto Finanziario Industries *      3,215,989    
    Total Italy     7,820,124    
        Japan — 0.0%  
    46,080     Ito En Ltd 1.90%     895,414    
    TOTAL PREFERRED STOCKS (COST $31,326,355)     64,342,013    
        RIGHTS AND WARRANTS — 0.0%  
        Greece — 0.0%  
    464,109     EFG Eurobank Ergasias SA Rights, Expires 9/14/07 *      499,463    
    TOTAL RIGHTS AND WARRANTS (COST $356,994)     499,463    

 

See accompanying notes to the financial statements.


17


GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.5%  
    147,291,025     Bank of New York Institutional Cash Reserves Fund (d)      147,291,025    
    87,200,000     ING Bank Time Deposit 5.32%, 09/04/07     87,200,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $234,491,025)     234,491,025    
    TOTAL INVESTMENTS — 99.2%
(Cost $6,372,013,027)		     9,191,924,840    
      Other Assets and Liabilities (net) — 0.8%     74,196,770    
    TOTAL NET ASSETS — 100.0%   $ 9,266,121,610    

 

Notes to Schedule of Investments:

ADR - American Depositary Receipt

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

REIT - Real Estate Investment Trust

SDR - Swedish Depository Receipt

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Bankrupt issuer.

(c)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(d)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 90.54% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


18



GMO Foreign Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $138,907,518
(cost $6,372,013,027) (Note 2)		   $ 9,191,924,840    
Cash     76,588    
Foreign currency, at value (cost $188,029,058) (Note 2)     188,018,588    
Receivable for investments sold     18,493,678    
Receivable for Fund shares sold     29,394    
Dividends and interest receivable     23,377,304    
Foreign taxes receivable     2,661,330    
Receivable for expenses reimbursed by Manager (Note 3)     355,074    
Total assets     9,424,936,796    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     147,291,025    
Payable for investments purchased     4,647,101    
Payable for Fund shares repurchased     175,954    
Payable to affiliate for (Note 3):  
Management fee     4,647,805    
Shareholder service fee     1,013,863    
Administration fee – Class M     1,502    
Trustees and Chief Compliance Officer of GMO Trust fees     18,295    
Payable for 12b-1 fee – Class M     3,874    
Accrued expenses     1,015,767    
Total liabilities     158,815,186    
Net assets   $ 9,266,121,610    

 

See accompanying notes to the financial statements.


19


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 5,955,272,076    
Accumulated undistributed net investment income     86,575,831    
Accumulated net realized gain     404,283,382    
Net unrealized appreciation     2,819,990,321    
    $ 9,266,121,610    
Net assets attributable to:  
Class II shares   $ 902,547,278    
Class III shares   $ 4,394,465,920    
Class IV shares   $ 3,960,085,856    
Class M shares   $ 9,022,556    
Shares outstanding:  
Class II     47,410,783    
Class III     229,849,932    
Class IV     207,029,057    
Class M     472,687    
Net asset value per share:  
Class II   $ 19.04    
Class III   $ 19.12    
Class IV   $ 19.13    
Class M   $ 19.09    

 

See accompanying notes to the financial statements.


20


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $17,941,900)   $ 179,428,509    
Interest     7,317,727    
Securities lending income     6,775,001    
Total investment income     193,521,237    
Expenses:  
Management fee (Note 3)     28,448,083    
Shareholder service fee – Class II (Note 3)     1,123,259    
Shareholder service fee – Class III (Note 3)     3,636,793    
Shareholder service fee – Class IV (Note 3)     1,621,578    
12b-1 fee – Class M (Note 3)     11,231    
Administration fee – Class M (Note 3)     8,985    
Custodian and fund accounting agent fees     1,758,856    
Transfer agent fees     35,052    
Audit and tax fees     51,704    
Legal fees     108,836    
Trustees fees and related expenses (Note 3)     57,041    
Registration fees     18,032    
Miscellaneous     77,656    
Total expenses     36,957,106    
Fees and expenses reimbursed by Manager (Note 3)     (2,007,289 )  
Net expenses     34,949,817    
Net investment income (loss)     158,571,420    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     399,641,457    
Foreign currency, forward contracts and foreign currency related
transactions (net of CPMF tax of $2,276) (Note 2)		     6,013,447    
Net realized gain (loss)     405,654,904    
Change in net unrealized appreciation (depreciation) on:  
Investments     (48,604,161 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,012,511 )  
Net unrealized gain (loss)     (49,616,672 )  
Net realized and unrealized gain (loss)     356,038,232    
Net increase (decrease) in net assets resulting from operations   $ 514,609,652    

 

See accompanying notes to the financial statements.


21


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 158,571,420     $ 169,595,532    
Net realized gain (loss)     405,654,904       611,671,466    
Change in net unrealized appreciation (depreciation)     (49,616,672 )     819,452,831    
Net increase (decrease) in net assets from operations     514,609,652       1,600,719,829    
Distributions to shareholders from:  
Net investment income  
Class II     (2,873,632 )     (25,692,710 )  
Class III     (14,399,064 )     (104,807,051 )  
Class IV     (10,388,883 )     (72,605,045 )  
Class M     (22,710 )     (156,746 )  
Total distributions from net investment income     (27,684,289 )     (203,261,552 )  
Net realized gains  
Class II     (29,396,620 )     (71,672,115 )  
Class III     (139,357,894 )     (265,348,849 )  
Class IV     (97,494,325 )     (179,509,192 )  
Class M     (256,353 )     (450,682 )  
Total distributions from net realized gains     (266,505,192 )     (516,980,838 )  
      (294,189,481 )     (720,242,390 )  
Net share transactions (Note 7):  
Class II     (144,462,176 )     (335,623,499 )  
Class III     (270,632,464 )     277,446,603    
Class IV     453,162,473       1,156,698,945    
Class M     588,073       1,562,326    
Increase (decrease) in net assets resulting from net share
transactions		     38,655,906       1,100,084,375    
Total increase (decrease) in net assets     259,076,077       1,980,561,814    
Net assets:  
Beginning of period     9,007,045,533       7,026,483,719    
End of period (including accumulated undistributed net investment
income of $86,575,831 and distributions in excess of net
investment income of $44,311,300, respectively)		   $ 9,266,121,610     $ 9,007,045,533    

 

See accompanying notes to the financial statements.


22



GMO Foreign Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class II share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 18.56     $ 16.70     $ 15.13     $ 13.29     $ 8.88     $ 9.94    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)      0.32       0.38       0.28       0.26       0.17       0.15    
Net realized and unrealized
gain (loss)		     0.77       3.06       2.46       2.28       4.46       (1.03 )  
Total from investment
operations		     1.09       3.44       2.74       2.54       4.63       (0.88 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.43 )     (0.33 )     (0.34 )     (0.22 )     (0.18 )  
From net realized gains     (0.56 )     (1.15 )     (0.84 )     (0.36 )     —       —    
Total distributions     (0.61 )     (1.58 )     (1.17 )     (0.70 )     (0.22 )     (0.18 )  
Net asset value, end of period   $ 19.04     $ 18.56     $ 16.70     $ 15.13     $ 13.29     $ 8.88    
Total Return(b)      5.74 %**      21.21 %     19.01 %     19.40 %     52.49 %     (9.00 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 902,547     $ 1,018,021     $ 1,213,447     $ 808,149     $ 781,448     $ 305,423    
Net expenses to average daily
net assets		     0.82 %*      0.82 %     0.82 %     0.82 %     0.82 %     0.82 %  
Net investment income to average
daily net assets		     1.64 %(c)**      2.17 %     1.82 %     1.92 %     1.47 %     1.54 %  
Portfolio turnover rate     12 %**      23 %     25 %     23 %     25 %     22 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.05 %     0.05 %     0.06 %     0.08 %     0.09 %  

 

(a)   Calculated using average shares outstanding throughout the period.

(b)   The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)   The ratio for the six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

*   Annualized.

**   Not annualized.

See accompanying notes to the financial statements.


23


GMO Foreign Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 18.64     $ 16.76     $ 15.18     $ 13.34     $ 8.90     $ 9.95    
Income (loss) from investment
 operations:		  
Net investment income (loss)(a)      0.33       0.38       0.30       0.26       0.19       0.17    
Net realized and unrealized
gain (loss)		     0.77       3.09       2.45       2.30       4.47       (1.04 )  
Total from investment
operations		     1.10       3.47       2.75       2.56       4.66       (0.87 )  
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.44 )     (0.33 )     (0.36 )     (0.22 )     (0.18 )  
From net realized gains     (0.56 )     (1.15 )     (0.84 )     (0.36 )     —       —    
Total distributions     (0.62 )     (1.59 )     (1.17 )     (0.72 )     (0.22 )     (0.18 )  
Net asset value, end
of period		   $ 19.12     $ 18.64     $ 16.76     $ 15.18     $ 13.34     $ 8.90    
Total Return(b)      5.73 %**      21.36 %     19.07 %     19.41 %     52.76 %     (8.89 )%  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 4,394,466     $ 4,556,742     $ 3,800,326     $ 3,663,370     $ 2,260,046     $ 1,241,562    
Net expenses to average daily
net assets		     0.75 %*      0.75 %     0.75 %     0.75 %     0.75 %     0.75 %  
Net investment income to
average daily net assets		     1.68 %(c)**      2.11 %     1.97 %     1.87 %     1.67 %     1.77 %  
Portfolio turnover rate     12 %**      23 %     25 %     23 %     25 %     22 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.05 %     0.05 %     0.06 %     0.08 %     0.09 %  

 

(a)   Calculated using average shares outstanding throughout the period.

(b)   The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)   The ratio for the six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

*   Annualized.

**   Not annualized.

See accompanying notes to the financial statements.


24


GMO Foreign Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 18.64     $ 16.77     $ 15.18     $ 13.34     $ 8.90     $ 9.96    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)      0.33       0.36       0.31       0.28       0.19       0.18    
Net realized and unrealized
gain (loss)		     0.78       3.11       2.47       2.28       4.48       (1.05 )  
Total from investment
operations		     1.11       3.47       2.78       2.56       4.67       (0.87 )  
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.45 )     (0.35 )     (0.36 )     (0.23 )     (0.19 )  
From net realized gains     (0.56 )     (1.15 )     (0.84 )     (0.36 )     —       —    
Total distributions     (0.62 )     (1.60 )     (1.19 )     (0.72 )     (0.23 )     (0.19 )  
Net asset value, end of period   $ 19.13     $ 18.64     $ 16.77     $ 15.18     $ 13.34     $ 8.90    
Total Return(b)      5.80 %**      21.36 %     19.22 %     19.47 %     52.84 %     (8.92 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,960,086     $ 3,424,024     $ 2,007,037     $ 1,169,805     $ 923,221     $ 207,858    
Net expenses to average daily
net assets		     0.69 %*      0.69 %     0.69 %     0.69 %     0.70 %     0.69 %  
Net investment income to
average daily net assets		     1.70 %(c)**      2.04 %     1.98 %     2.00 %     1.65 %     1.79 %  
Portfolio turnover rate     12 %**      23 %     25 %     23 %     25 %     22 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.05 %     0.05 %     0.06 %     0.09 %     0.09 %  

 

(a)   Calculated using average shares outstanding throughout the period.

(b)   The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)   The ratio for the six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

*   Annualized.

**   Not annualized.

See accompanying notes to the financial statements.


25


GMO Foreign Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 18.63     $ 16.75     $ 15.19     $ 13.25     $ 8.86     $ 9.93    
Income (loss) from investment operations:  
Net investment income (loss)(a)      0.30       0.30       0.24       0.30       0.14       0.05    
Net realized and unrealized gain (loss)     0.77       3.12       2.46       2.21       4.45       (0.93 )  
Total from investment operations     1.07       3.42       2.70       2.51       4.59       (0.88 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.39 )     (0.30 )     (0.21 )     (0.20 )     (0.19 )  
From net realized gains     (0.56 )     (1.15 )     (0.84 )     (0.36 )     —       —    
Total distributions     (0.61 )     (1.54 )     (1.14 )     (0.57 )     (0.20 )     (0.19 )  
Net asset value, end of period   $ 19.09     $ 18.63     $ 16.75     $ 15.19     $ 13.25     $ 8.86    
Total Return(b)      5.58 %**      21.04 %     18.66 %     19.18 %     52.10 %     (9.09 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 9,023     $ 8,258     $ 5,673     $ 3,508     $ 12,878     $ 4,449    
Net expenses to average daily net assets     1.05 %*      1.05 %     1.05 %     1.05 %     1.05 %     1.06 %  
Net investment income to
average daily net assets		     1.51 %(c)**      1.69 %     1.56 %     2.24 %     1.23 %     0.55 %  
Portfolio turnover rate     12 %**      23 %     25 %     23 %     25 %     22 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.04 %*      0.05 %     0.05 %     0.06 %     0.08 %     0.10 %  

 

(a)   Calculated using average shares outstanding throughout the period.

(b)   The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)   The ratio for the six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

*   Annualized.

**   Not annualized.

See accompanying notes to the financial statements.


26



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of its benchmark, the MSCI EAFE Index (Europe, Australasia, and Far East). The Fund typically makes equity investments in non-U.S. companies, including the companies that issue stocks included in the MSCI international developed country universe (the universe of securities from which the MSCI EAFE Index is constructed) and companies in emerging countries. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions, but may hold up to 10% of its total assets in cash and other high quality investments in order to manage cash inflows and outflows as a result of shareholder purchases and redemptions. The Fund may make investments in emerging countries, but these investments generally will represent 10% or less of the Fund's total assets.

Throughout the period ended August 31, 2007, the Fund had four classes of shares outstanding: Class II, Class III, Class IV, and Class M. Class M shares bear an administration fee and a 12b-1 fee while classes II, III, and IV bear a shareholder service fee (See Note 3). The principal economic difference among the classes of shares is the type and level of fees borne by the classes.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market


27


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.


28


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost


29


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. There were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there


30


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $138,907,518, collateralized by cash in the amount of $147,291,025, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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 accrual for capital gains and repatriation taxes is included in net unrealized gain (loss) in the Statement of Operations. For the period ended August 31, 2007, the Fund did not incur capital gains taxes.


31


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. The CPMF tax has been included in the net realized gain (loss) on investments throughout the period. For the period ended August 31, 2007, the Fund incurred $2,276 in CPMF tax which is included in the net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 6,443,308,423     $ 2,816,941,516     $ (68,325,099 )   $ 2,748,616,417    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

For the period ended August 31, 2007, the Fund had realized gross gains attributed to redemption
in-kind transactions of $57,308,342.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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


32


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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, 12b-1, and administration fees, which are directly attributable to a class of shares, are charged to that class's operations.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.60% 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 average daily net assets of each class at the annual rate of 0.22% for Class II shares, 0.15% for Class III shares, and 0.09% for Class IV shares.


33


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Class M shares of the Fund pay GMO an administration fee monthly at the annual rate of 0.20% of average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund and/or the provision of certain other services incidental thereto. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (includin g taxes)) exceed 0.60% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $43,885 and $28,520, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration is paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $1,045,339,623 and $1,203,635,280, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote;


34


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, there were no shareholders holding in excess of 10% of the Fund's outstanding shares.

As of August 31, 2007, 0.01% of the Fund's shares were held by thirteen related parties comprised of certain GMO employee accounts, and 0.57% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class II:   Shares   Amount   Shares   Amount  
Shares sold     6,113,722     $ 117,534,126       13,449,914     $ 231,622,632    
Shares issued to shareholders
in reinvestment of distributions		     1,494,946       29,704,570       5,052,204       89,348,934    
Shares repurchased     (15,041,695 )     (291,700,872 )     (36,326,663 )     (656,595,065 )  
Net increase (decrease)     (7,433,027 )   $ (144,462,176 )     (17,824,545 )   $ (335,623,499 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     20,032,942     $ 391,269,113       66,421,037     $ 1,188,616,078    
Shares issued to shareholders
in reinvestment of distributions		     7,330,139       146,236,281       18,923,124       337,090,707    
Shares repurchased     (42,029,020 )     (808,137,858 )     (67,564,953 )     (1,248,260,182 )  
Net increase (decrease)     (14,665,939 )   $ (270,632,464 )     17,779,208     $ 277,446,603    

 


35


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     31,474,404     $ 603,497,338       64,980,665     $ 1,177,635,350    
Shares issued to shareholders
in reinvestment of distributions		     5,132,246       102,439,627       12,035,673       214,006,988    
Shares repurchased     (13,259,079 )     (252,774,492 )     (13,038,899 )     (234,943,393 )  
Net increase (decrease)     23,347,571     $ 453,162,473       63,977,439     $ 1,156,698,945    
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     48,204     $ 944,233       765,485     $ 13,963,575    
Shares issued to shareholders
in reinvestment of distributions		     14,002       279,064       34,107       607,428    
Shares repurchased     (32,886 )     (635,224 )     (694,804 )     (13,008,677 )  
Net increase (decrease)     29,320     $ 588,073       104,788     $ 1,562,326    

 


36



GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


37


GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


38


GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


39


GMO Foreign Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $35,000,000 account value divided by $1,000 = 35,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


40


GMO Foreign Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class II      
1) Actual     0.82 %   $ 1,000.00     $ 1,057.40     $ 4.24    
2) Hypothetical     0.82 %   $ 1,000.00     $ 1,021.01     $ 4.17    
Class III      
1) Actual     0.75 %   $ 1,000.00     $ 1,057.30     $ 3.88    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.37     $ 3.81    
Class IV      
1) Actual     0.69 %   $ 1,000.00     $ 1,058.00     $ 3.57    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.67     $ 3.51    
Class M      
1) Actual     1.05 %   $ 1,000.00     $ 1,055.80     $ 5.43    
2) Hypothetical     1.05 %   $ 1,000.00     $ 1,019.86     $ 5.33    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


41



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.7 %  
Preferred Stocks     1.6    
Short-Term Investments     0.3    
Rights and Warrants     0.0    
Other     1.4    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     21.1 %  
Japan     20.5    
France     11.9    
Germany     11.1    
Netherlands     5.8    
Italy     3.4    
Switzerland     3.3    
Australia     2.5    
Sweden     2.3    
Singapore     1.9    
Finland     1.6    
South Korea     1.6    
Spain     1.5    
Canada     1.5    
Belgium     1.3    
Taiwan     1.3    
Brazil     1.2    
Hong Kong     1.2    
Austria     1.0    
Norway     0.8    
China     0.7    
Ireland     0.6    
Russia     0.3    
Mexico     0.3    
Thailand     0.3    
South Africa     0.2    
Israel     0.2    
Malaysia     0.2    
Poland     0.1    
Philippines     0.1    
Turkey     0.1    
Hungary     0.1    
Indonesia     0.0    
      100.0 %  

 


1


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     22.9 %  
Consumer Discretionary     12.9    
Energy     11.3    
Materials     10.6    
Industrials     10.4    
Health Care     9.9    
Telecommunication Services     6.9    
Consumer Staples     5.5    
Information Technology     5.3    
Utilities     4.3    
      100.0 %  

 


2



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.7%        
        Australia — 2.4%        
  84,857     Australia and New Zealand Banking Group Ltd     2,016,558    
  127,516     BHP Billiton Ltd     4,003,720    
  104,004     Boral Ltd     670,634    
  45,208     Commonwealth Bank of Australia     2,040,599    
  100     General Property Trust Units     392    
  48,379     Macquarie Bank Ltd     2,889,828    
  73,689     QBE Insurance Group Ltd     2,100,039    
  20,217     Rio Tinto Ltd     1,541,677    
  109,011     Santos Ltd     1,187,340    
  136,544     Stockland     958,585    
  249,603     Suncorp-Metway Ltd     4,107,569    
  359,934     Telstra Corp Ltd     1,291,503    
  84,886     Woodside Petroleum Ltd     3,135,536    
  141,450     Woolworths Ltd     3,462,928    
    Total Australia     29,406,908    
        Austria — 1.0%        
  9,502     Boehler Uddeholm (Bearer)     944,290    
  4,228     Flughafen Wien AG     423,219    
  438     Lenzing AG     221,056    
  87,050     OMV AG     5,394,060    
  59,780     Voestalpine AG     4,890,198    
    Total Austria     11,872,823    
        Belgium — 1.3%        
  6,470     Colruyt SA     1,382,142    
  23,154     Delhaize Group     2,271,199    
  156,924     Dexia     4,327,511    
  147,719     Fortis     5,417,842    
  16,784     Suez Lyon des Eaux VVPR Strip *      229    
  40,452     UCB SA     2,279,052    
    Total Belgium     15,677,975    

 

See accompanying notes to the financial statements.


3


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Brazil — 0.3%        
  26,157     Banco do Brasil SA     375,957    
  22,600     Companhia Vale do Rio Doce     1,117,099    
  15,984     Electrobras (Centro)     206,847    
  16,600     Petroleo Brasileiro SA (Petrobras)     516,106    
  8,320     Petroleo Brasileiro SA (Petrobras) ADR     514,509    
  7,030     Unibanco-Uniao de Bancos Brasileiros SA GDR     784,407    
    Total Brazil     3,514,925    
        Canada — 1.5%        
  32,900     Canadian Imperial Bank of Commerce     2,981,562    
  64,264     Canadian Natural Resources     4,393,199    
  44,171     EnCana Corp     2,588,772    
  32,900     National Bank of Canada     1,711,049    
  13,000     Potash Corp of Saskatchewan Inc     1,152,026    
  62,100     Research In Motion Ltd *      5,304,963    
    Total Canada     18,131,571    
        China — 0.7%        
  256,000     China Merchants Bank     962,916    
  84,000     China Mobile Ltd     1,144,037    
  1,508,000     China Petroleum & Chemical Corp Class H     1,660,886    
  248,000     China Shipping Development Co Ltd Class H     749,682    
  6,300     China Telecom Corp Ltd ADR     366,534    
  546,300     China Telecom Corp Ltd Class H     316,452    
  1,006,000     CNOOC Ltd     1,234,399    
  530,000     Denway Motors Ltd     248,468    
  492,000     Huaneng Power International Inc Class H     568,368    
  226,000     Jiangxi Copper Co     526,820    
  386,000     Maanshan Iron & Steel Co Ltd Class H     345,455    
  292,000     Yanzhou Coal Mining Co Ltd     515,558    
    Total China     8,639,575    
        Finland — 1.6%        
  288,100     Nokia Oyj     9,491,041    
  70,750     Rautaruukki Oyj     3,868,545    

 

See accompanying notes to the financial statements.


4


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Finland — continued        
  208,062     Sampo Oyj Class A     5,981,417    
    Total Finland     19,341,003    
        France — 11.7%        
  60,167     Air France     2,490,144    
  272,976     Arcelor Mittal     17,903,535    
  145,451     BNP Paribas     15,268,598    
  4,173     Bongrain SA     498,794    
  18,695     Bouygues     1,466,405    
  28,401     Carrefour SA     1,979,757    
  33,710     Casino Guichard-Perrachon SA     3,433,175    
  5,024     Chargeurs International SA     164,323    
  36,812     Cie de Saint-Gobain     3,986,643    
  137,253     Credit Agricole SA     5,155,609    
  2,228     Esso SAF     668,439    
  21,048     Lafarge SA     3,258,697    
  24,321     Michelin SA Class B     3,052,634    
  4,045     NYSE Euronext     292,096    
  86,816     Peugeot SA     7,364,509    
  75,697     Renault SA     10,169,067    
  263,818     Sanofi-Aventis     21,607,369    
  15,177     Societe Generale     2,437,069    
  16,784     Suez SA Class B     957,037    
  693     Total Gabon     572,999    
  462,855     Total SA     34,711,241    
  39,572     Vinci SA     2,805,738    
    Total France     140,243,878    
        Germany — 10.3%        
  32,932     Adidas AG     1,940,081    
  36,900     Allianz SE (Registered)     7,927,110    
  55,446     BASF AG     7,344,967    
  93,052     Bayerische Motoren Werke AG     5,685,672    
  46,100     Commerzbank AG     1,895,296    

 

See accompanying notes to the financial statements.


5


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued        
  68,772     DaimlerChrysler AG (Registered)     6,126,948    
  233,905     Depfa Bank Plc     4,435,428    
  88,800     Deutsche Bank AG (Registered)     11,032,263    
  24,000     Deutsche Boerse AG     2,655,734    
  89,400     Deutsche Lufthansa AG (Registered)     2,608,735    
  108,148     Deutsche Post AG (Registered)     3,141,182    
  161,600     Infineon Technologies AG *      2,521,149    
  49,900     MAN AG     7,164,597    
  77,300     Muenchener Rueckversicherungs AG (Registered)     13,383,875    
  38,020     Salzgitter AG     7,529,665    
  76,800     Siemens AG (Registered)     9,656,291    
  43,161     Suedzucker AG     828,590    
  177,920     ThyssenKrupp AG     10,414,995    
  91,400     TUI AG *      2,377,151    
  71,671     Volkswagen AG     14,841,229    
    Total Germany     123,510,958    
        Hong Kong — 1.2%        
  412,600     Bank of East Asia Ltd     2,299,700    
  833,500     BOC Hong Kong Holdings Ltd     2,003,461    
  750,400     CLP Holdings Ltd     5,167,493    
  243,000     Hang Lung Group Ltd     1,160,095    
  672,000     Hong Kong Electric Holdings Ltd     3,369,286    
    Total Hong Kong     14,000,035    
        Hungary — 0.1%        
  16,650     OTP Bank     836,087    
        Indonesia — 0.0%        
  150,000     Astra International Tbk PT     285,223    
        Ireland — 0.6%        
  60,578     Anglo Irish Bank Corp     1,130,705    
  74,638     Bank of Ireland     1,371,248    
  100,699     CRH Plc     4,353,278    

 

See accompanying notes to the financial statements.


6


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Ireland — continued        
  49,756     Greencore Group     311,429    
    Total Ireland     7,166,660    
        Israel — 0.1%        
  89,390     Bank Hapoalim BM     426,019    
  11,000     Check Point Software Technologies Ltd *      258,060    
  23,410     Teva Pharmaceutical Industries ADR     1,006,630    
    Total Israel     1,690,709    
        Italy — 3.2%        
  651,619     Enel SPA     6,733,139    
  795,335     ENI SPA     27,472,159    
  166,303     Fiat SPA     4,435,096    
    Total Italy     38,640,394    
        Japan — 20.2%        
  49,100     Acom Co Ltd     1,464,801    
  120,800     Canon Inc     6,895,201    
  131,900     Chubu Electric Power Co Inc     3,515,849    
  182,000     Cosmo Oil Co Ltd     822,152    
  123,541     Daiichi Sankyo Co Ltd     3,370,589    
  206,400     Daikyo Inc     741,196    
  63,700     Eisai Co Ltd     2,653,330    
  322,000     Fuji Heavy Industries Ltd     1,349,703    
  66,600     Fuji Photo Film Co Ltd     2,868,788    
  776,500     Haseko Corp *      2,091,783    
  651,000     Honda Motor Co Ltd     21,397,040    
  39,000     Hoya Corp     1,352,219    
  426,000     Isuzu Motors Ltd     2,310,423    
  795,000     Itochu Corp     8,585,125    
  639     Japan Tobacco Inc     3,548,690    
  46,100     JFE Holdings Inc     3,001,690    
  58,000     Kamigumi Co Ltd     498,282    
  156,100     Kansai Electric Power Co Inc     3,646,946    

 

See accompanying notes to the financial statements.


7


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  100,000     Kao Corp     2,843,321    
  416,000     Kawasaki Kisen Kaisha Ltd     5,351,058    
  27,400     Kyocera Corp     2,508,350    
  36,000     Kyudenko Corp     188,669    
  74,300     Kyushu Electric Power Co Inc     1,982,754    
  899,000     Marubeni Corp     7,310,947    
  383,000     Mazda Motor Corp     1,927,347    
  421,200     Mitsubishi Corp     11,822,417    
  143,000     Mitsubishi Estate Co Ltd     3,823,011    
  326,000     Mitsui & Co     6,776,627    
  97,000     Mitsui Fudosan Co Ltd     2,537,633    
  329,000     Mitsui OSK Lines Ltd     4,832,907    
  594,718     Mitsui Trust Holding Inc     4,959,179    
  47,000     Nagase & Co     570,966    
  17,000     Nikon Corp     531,039    
  27,500     Nintendo Co Ltd     12,657,472    
  204     Nippon Building Fund Inc     2,614,509    
  43,000     Nippon Corp     338,995    
  504,000     Nippon Oil Corp     4,240,632    
  1,114,000     Nippon Steel Corp     7,784,457    
  1,201     Nippon Telegraph & Telephone Corp     5,529,005    
  411,000     Nippon Yusen Kabushiki Kaisha     4,052,755    
  982,100     Nissan Motor Co     9,381,879    
  4,226     NTT Docomo Inc     6,442,054    
  21,000     Ono Pharmaceutical Co Ltd     1,085,635    
  184,000     Pacific Metals Co Ltd     2,541,286    
  38,650     Promise Co Ltd     1,063,570    
  2,646     Resona Holdings Inc     5,566,913    
  318,400     Ricoh Company Ltd     7,008,284    
  13,800     Ryosan Co     364,495    
  89,600     Seven & I Holdings Co Ltd     2,389,058    
  535,200     Sojitz Corp     2,227,070    
  46,000     SUMCO Corp     2,457,961    
  248,000     Sumitomo Corp     4,278,085    

 

See accompanying notes to the financial statements.


8


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  63,000     Taisho Pharmaceutical Co Ltd     1,232,781    
  276,100     Takeda Pharmaceutical Co Ltd     18,890,382    
  68,400     Tokyo Electric Power Co Inc     1,793,952    
  28,100     Tokyo Electron Ltd     2,011,477    
  108,000     TonenGeneral Sekiyu KK     1,069,775    
  123,300     Toyota Motor Corp     7,140,173    
    Total Japan     242,242,687    
        Malaysia — 0.2%        
  99,300     Gamuda Berhad     212,675    
  161,000     Genting Berhad     341,569    
  296,400     IOI Corp. Berhad     424,492    
  114,600     Malayan Banking Berhad     383,291    
  88,300     MISC Berhad     241,536    
  88,700     Public Bank Berhad     239,208    
  98,300     Sime Darby Berhad     264,623    
  77,500     Telekom Malaysia Berhad     217,184    
    Total Malaysia     2,324,578    
        Mexico — 0.3%        
  50,100     Alfa SA de CV Class A     360,322    
  274,933     Cemex SA de CV CPO *      890,610    
  102,270     Fomento Economico Mexicano SA de CV     355,020    
  103,000     Grupo Financiero Banorte SA de CV     420,103    
  108,400     Grupo Mexico SA Class B     683,825    
  22,950     Telefonos de Mexico SA de CV Class L ADR     811,053    
    Total Mexico     3,520,933    
        Netherlands — 5.7%        
  491,287     ABN Amro Holdings NV     22,832,663    
  370,837     Aegon NV     6,765,071    
  43,981     Akzo Nobel NV     3,466,525    
  12,283     Boskalis Westminster     531,907    
  2,671     Gamma Holdings NV     219,606    

 

See accompanying notes to the financial statements.


9


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — continued        
  120,207     Heineken NV     7,620,182    
  493,931     ING Groep NV     19,879,037    
  139,540     Koninklijke Ahold NV *      1,870,070    
  45,860     Koninklijke DSM     2,345,391    
  9,008     Koninklijke Ten Cate NV     349,977    
  9,187     Koninklijke Vopak NV     539,213    
  124,400     Reed Elsevier NV     2,244,193    
    Total Netherlands     68,663,835    
        Norway — 0.8%        
  21,304     Frontline Ltd     995,448    
  62,351     Norsk Hydro ASA     2,296,660    
  228,300     Orkla ASA     3,705,833    
  84,565     Statoil ASA     2,433,072    
    Total Norway     9,431,013    
        Philippines — 0.0%        
  13,800     Ayala Corp     145,726    
  7,240     Philippine Long Distance Telephone     413,894    
    Total Philippines     559,620    
        Poland — 0.1%        
  6,200     KGHM Polska Miedz SA     256,775    
  30,560     Polski Koncern Naftowy Orlen SA *      626,675    
  54,530     Telekomunikacja Polska SA     421,723    
    Total Poland     1,305,173    
        Russia — 0.3%        
  18,370     Lukoil ADR     1,359,380    
  17,640     Mobile Telesystems ADR     1,167,062    
  3,100     Oao Tatneft GDR (Registered Shares)     313,100    
  30,900     Vimpel-Communications ADR     753,960    
    Total Russia     3,593,502    

 

See accompanying notes to the financial statements.


10


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Singapore — 1.8%        
  404,000     Capitaland Ltd     1,961,653    
  371,000     DBS Group Holdings Ltd     4,875,899    
  161,500     Fraser & Neave Ltd     526,789    
  472,000     Keppel Corp Ltd     3,961,846    
  527,000     Oversea-Chinese Banking Corp     2,962,588    
  1,953,570     Singapore Telecommunications     4,672,241    
  228,000     United Overseas Bank Ltd     3,115,808    
    Total Singapore     22,076,824    
        South Africa — 0.2%        
  167,296     FirstRand Ltd     547,826    
  12,892     Imperial Holdings Ltd     258,527    
  13,503     Nedbank Group Ltd     255,519    
  9,700     Remgro Ltd     250,705    
  115,100     Sanlam Ltd     347,624    
  35,095     Standard Bank Group Ltd     514,603    
  60,300     Steinhoff International Holdings     194,164    
    Total South Africa     2,368,968    
        South Korea — 1.5%        
  3,939     Daelim Industrial Co Ltd     658,873    
  8,036     Daewoo Engineering & Construction Co Ltd     229,862    
  11,940     Dongkuk Steel Mill     549,170    
  1,660     GS Engineering & Construction Corp     261,688    
  8,928     Hana Financial Group Inc     422,218    
  11,250     Hanjin Shipping     629,059    
  13,460     Hynix Semiconductor Inc *      484,982    
  6,022     Hyundai Development Co     538,796    
  6,550     Hyundai Mobis     704,225    
  10,070     Hyundai Motor Co     746,196    
  16,740     Hyundai Securities Co     510,174    
  7,870     Hyundai Steel Co     629,589    
  700     KCC Corp     358,065    
  15,700     KIA Motors Corp *      212,290    

 

See accompanying notes to the financial statements.


11


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued        
  9,410     Kookmin Bank     763,333    
  15,270     Korea Electric Power Corp     681,707    
  5,351     Korean Air Lines Co Ltd     362,320    
  1,900     KT Corp     90,135    
  9,350     KT Corp ADR     222,717    
  7,000     KT&G Corp     532,246    
  4,600     LG Chemicals Ltd     478,663    
  10,240     LG Corp     587,783    
  5,860     LG Petrochemical Co Ltd     283,499    
  4,000     POSCO     2,447,928    
  1,837     Samsung Electronics Co Ltd     1,158,026    
  2,700     Samsung SDI Co Ltd     177,479    
  19,300     Shinhan Financial Group Co Ltd     1,183,286    
  560     Shinsegae Co Ltd     370,085    
  2,726     SK Corp     419,339    
  6,674     SK Energy Co Ltd *      914,003    
  100     SK Telecom Co Ltd     21,947    
  21,030     SK Telecom Co Ltd ADR     575,591    
    Total South Korea     18,205,274    
        Spain — 1.5%        
  44,976     ACS Actividades de Construccion y Servicios SA     2,475,415    
  19,990     Endesa SA     1,086,603    
  89,922     Iberdrola SA     4,987,790    
  114,883     Repsol YPF SA     4,139,737    
  220,410     Telefonica SA     5,481,098    
    Total Spain     18,170,643    
        Sweden — 2.3%        
  129,900     Electrolux AB Series B     2,922,400    
  74,250     Hennes & Mauritz AB Class B     4,197,746    
  83,600     Nordea AB     1,277,250    
  185,000     Sandvik AB     3,780,885    
  178,000     Scania AB Class B     4,153,484    

 

See accompanying notes to the financial statements.


12


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Sweden — continued        
  68,600     Skandinaviska Enskilda Banken AB Class A     2,078,528    
  68,800     Swedbank AB     2,260,099    
  124,900     Tele2 AB Class B     2,288,069    
  269,800     Volvo AB Class B     4,678,960    
    Total Sweden     27,637,421    
        Switzerland — 3.3%        
  6,497     Bobst Group AG (Registered)     448,852    
  21,807     Credit Suisse Group     1,431,154    
  6,550     Nestle SA (Registered)     2,854,756    
  291,090     Novartis AG (Registered)     15,344,794    
  61,734     Swiss Reinsurance Co (Registered)     5,208,626    
  2,548     Swisscom AG (Registered)     896,605    
  45,745     Zurich Financial Services AG     13,137,980    
    Total Switzerland     39,322,767    
        Taiwan — 1.3%        
  95,457     Acer Inc     167,881    
  295,018     Advanced Semiconductor Engineering Inc     291,637    
  209,508     Asustek Computer Inc     625,231    
  132,000     Cathay Financial Holding Co Ltd     293,782    
  310,030     Chi Mei Optoelectronics Corp     313,905    
  650,960     China Development Financial Holding Corp     265,458    
  822,841     China Steel Corp     1,118,782    
  513,000     Chinatrust Financial Holding Co Ltd *      385,835    
  249,084     Chunghwa Telecom Co Ltd     442,679    
  273,383     Compal Electronics Inc     302,652    
  88,960     Delta Electronics Inc     331,683    
  291,247     Far Eastern Textile Co Ltd     342,491    
  119,000     Far Eastone Telecommunications Co Ltd     143,366    
  274,930     Formosa Chemicals & Fibre Co     669,495    
  297,515     Formosa Plastics Corp     739,088    
  28,558     High Tech Computer Corp     387,959    
  99,360     Hon Hai Precision Industry Co Ltd     737,379    

 

See accompanying notes to the financial statements.


13


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued        
  221,181     Lite-On Technology Corp     348,981    
  61,260     MediaTek Inc     1,035,465    
  458,000     Mega Financial Holdings Co Ltd     285,151    
  184,370     Mosel Vitelic Inc     217,971    
  360,080     Nan Ya Plastics Corp     873,786    
  79,559     Novatek Microelectronics     321,066    
  240,688     Pou Chen Corp     240,668    
  867,002     Powerchip Semiconductor Corp     427,196    
  62,100     Powertech Technology Inc     250,525    
  748,000     Promos Technologies Inc     231,019    
  157,290     Quanta Computer Inc     255,916    
  165,453     Shin Kong Financial Holdings     161,157    
  241,677     Siliconware Precision Industries Co     493,093    
  528,390     Taishin Financial Holdings Co Ltd *      264,826    
  205,000     Taiwan Cellular Corp     260,842    
  324,862     Taiwan Semiconductor Manufacturing Co Ltd     616,790    
  5,621     Taiwan Semiconductor Manufacturing Co Ltd ADR     55,760    
  65,000     U-Ming Marine Transport Co *      193,953    
  165,240     Unimicron Technology Corp     259,315    
  691,000     United Microelectronics Corp     390,095    
  222,579     Wistron Corp     404,517    
    Total Taiwan     15,147,395    
        Thailand — 0.3%        
  91,150     Bangkok Bank Pcl NVDR (a)      315,872    
  22,000     Bangkok Dusit Medical Service Pcl (Foreign Registered) (a)      24,664    
  1,245,260     IRPC Pcl (Foreign Registered) (a)      240,897    
  175,850     Kasikornbank Pcl NVDR (a)      404,751    
  624,060     Krung Thai Bank Pcl (Foreign Registered) (a)      205,527    
  119,180     PTT Exploration & Production Pcl (Foreign Registered) (a)      422,915    
  85,680     PTT Pcl (Foreign Registered) (a)      762,429    
  38,700     Siam Cement Pcl (Foreign Registered) NVDR (a)      281,680    
  172,200     Siam Commercial Bank Pcl (Foreign Registered) (a)      393,804    
    Total Thailand     3,052,539    

 

See accompanying notes to the financial statements.


14


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Turkey — 0.1%        
  31,760     Turk Hava Yollari Anonim Ortakligi *      222,204    
  102,520     Turkiye Garanti Bankasi     659,188    
    Total Turkey     881,392    
        United Kingdom — 20.8%        
  94,289     3i Group Plc     2,010,872    
  54,716     Alliance & Leicester Plc     1,165,256    
  246,300     AstraZeneca Plc     12,138,502    
  391,253     Aviva Plc     5,604,799    
  210,891     Barratt Developments Plc     3,960,354    
  68,876     Berkeley Group Holdings Plc *      2,238,785    
  182,196     BG Group Plc     2,915,678    
  65,529     BHP Billiton Plc     1,921,621    
  1,828,012     BT Group Plc     11,657,961    
  940,196     Centrica Plc     7,327,713    
  862,613     DSG International Plc     2,706,611    
  1,405,089     GlaxoSmithKline Plc     36,667,941    
  231,263     HBOS Plc     4,110,900    
  328,813     Home Retail Group     2,754,637    
  164,980     Imperial Tobacco Group Plc     7,465,593    
  115,026     Inchcape Plc     1,100,025    
  323,002     J Sainsbury Plc     3,615,951    
  402,607     Kingfisher Plc     1,697,220    
  261,575     National Grid Plc     3,920,063    
  92,250     Next Plc     3,605,703    
  255,107     Northern Foods Plc     528,762    
  870,317     Old Mutual Plc     2,810,626    
  84,522     Reckitt Benckiser Plc     4,608,856    
  201,330     Rio Tinto Plc     13,906,771    
  1,126,088     Royal & Sun Alliance Insurance Group     3,220,442    
  1,534,926     Royal Bank of Scotland Group     17,836,229    
  212,792     Royal Dutch Shell Group Class A (Amsterdam)     8,242,418    
  222,000     Royal Dutch Shell Plc A Shares (London)     8,626,247    
  172,073     Royal Dutch Shell Plc B Shares (London)     6,710,035    

 

See accompanying notes to the financial statements.


15


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  128,804     Scottish & Southern Energy Plc     3,690,820    
  112,374     Tate & Lyle Plc     1,282,930    
  1,075,714     Taylor Woodrow Plc     7,561,248    
  391,446     Tesco Plc     3,365,296    
  111,700     Unilever Plc     3,529,954    
  10,195,489     Vodafone Group Inc     32,948,206    
  27,585     Whitbread Plc     915,888    
  587,724     William Morrison Supermarkets Plc     3,406,160    
  62,279     Wolseley Plc     1,308,766    
  103,297     Xstrata Plc     6,077,560    
    Total United Kingdom     249,163,399    
    TOTAL COMMON STOCKS (COST $842,666,055)     1,160,626,687    
        PREFERRED STOCKS — 1.6%        
        Brazil — 0.9%        
  31,594     Banco Bradesco SA 1.01%     788,240    
  16,650     Banco Itau Holding Financeira SA 0.34%     729,816    
  15,500     Bradespar SA 0.41%     655,708    
  29,148     Brasil Telecom Participacoes SA 0.37%     423,404    
  31,879     Companhia Energetica de Minas Gerais 1.96%     614,183    
  19,492     Companhia Paranaense de Energia 1.94%     317,912    
  39,900     Companhia Vale do Rio Doce Class A 0.53%     1,651,315    
  30,402     Electrobras (Centro) SA Class B 6.38%     374,989    
  18,550     Gerdau Metalurgica SA 3.24%     581,460    
  26,700     Gerdau SA 2.43%     653,211    
  109,057     Itausa-Investimentos Itau SA 0.41%     655,898    
  59,024     Petroleo Brasileiro SA (Petrobras) 0.67%     1,570,363    
  67,200     Sadia SA 1.92%     338,398    
  39,570     Tele Norte Leste Participacoes ADR 0.18%     874,101    
  12,000     Usinas Siderrurgicas de Minas Gerais SA 0.72%     714,801    
    Total Brazil     10,943,799    

 

See accompanying notes to the financial statements.


16


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Germany — 0.6%        
  900     Porsche AG (Non Voting) 0.46%     1,609,407    
  20,411     Villeroy & Boch AG (Non Voting) 2.78%     432,102    
  40,841     Volkswagen AG 1.39%     5,079,886    
    Total Germany     7,121,395    
        Italy — 0.1%        
  435,821     Compagnia Assicuratrice Unipol 3.37%     1,389,073    
    TOTAL PREFERRED STOCKS (COST $9,616,696)     19,454,267    
        RIGHTS AND WARRANTS — 0.0%        
        Italy — 0.0%        
  435,821     Unipol Gruppo Finanziario SPA Rights, Expires 07/03/07 * (b)      —    
    TOTAL RIGHTS AND WARRANTS (COST $0)     —    
        SHORT-TERM INVESTMENTS — 0.3%        
  3,400,000     Bank of Montreal Time Deposit, 5.05%, due 09/04/07     3,400,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,400,000)     3,400,000    
    TOTAL INVESTMENTS — 98.6%
(Cost $855,682,751)		     1,183,480,954    
        Other Assets and Liabilities (net) — 1.4%     17,006,216    
    TOTAL NET ASSETS — 100.0%   $ 1,200,487,170    

 

See accompanying notes to the financial statements.


17


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

CPO - Ordinary Participation Certificate (Certificado de Participacion Ordinares), representing a bundle of shares of the multiple series of one issuer that trade together as a unit.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

*  Non-income producing security.

(a)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(b)  As of August 31, 2007, these rights have been exercised but shares have not yet been credited to the Fund.

As of August 31, 2007, 91.07% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


18



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $855,682,751) (Note 2)   $ 1,183,480,954    
Cash     52,544    
Foreign currency, at value (cost $17,243,188) (Note 2)     17,130,515    
Receivable for investments sold     3,007,400    
Receivable for Fund shares sold     6,208    
Dividends and interest receivable     2,930,420    
Foreign taxes receivable     703,492    
Receivable for expenses reimbursed by Manager (Note 3)     80,569    
Total assets     1,207,392,102    
Liabilities:  
Payable for investments purchased     3,003,761    
Payable for Fund shares repurchased     3,004,577    
Payable to affiliate for (Note 3):  
Management fee     540,728    
Shareholder service fee     150,203    
Trustees and Chief Compliance Officer of GMO Trust fees     2,346    
Accrued expenses     203,317    
Total liabilities     6,904,932    
Net assets   $ 1,200,487,170    
Net assets consist of:  
Paid-in capital   $ 797,562,049    
Accumulated undistributed net investment income     20,412,154    
Accumulated net realized gain     54,792,969    
Net unrealized appreciation     327,719,998    
    $ 1,200,487,170    
Net assets attributable to:  
Class III shares   $ 1,200,487,170    
Shares outstanding:  
Class III     54,751,813    
Net asset value per share:  
Class III   $ 21.93    

 

See accompanying notes to the financial statements.


19


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $2,901,091)   $ 25,079,672    
Interest     512,765    
Total investment income     25,592,437    
Expenses:  
Management fee (Note 3)     3,256,280    
Shareholder service fee – Class III (Note 3)     904,522    
Custodian and fund accounting agent fees     352,452    
Transfer agent fees     16,468    
Audit and tax fees     35,604    
Legal fees     13,616    
Trustees fees and related expenses (Note 3)     6,780    
Registration fees     2,024    
Miscellaneous     9,751    
Total expenses     4,597,497    
Fees and expenses reimbursed by Manager (Note 3)     (425,500 )  
Net expenses     4,171,997    
Net investment income (loss)     21,420,440    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     53,625,556    
Closed futures contracts     93,832    
Foreign currency, forward contracts and foreign currency related transactions (net of
CPMF tax of $646) (Note 2)		     1,119,208    
Net realized gain (loss)     54,838,596    
Change in net unrealized appreciation (depreciation) on:  
Investments     18,995,493    
Foreign currency, forward contracts and foreign currency related transactions     (479,294 )  
Net unrealized gain (loss)     18,516,199    
Net realized and unrealized gain (loss)     73,354,795    
Net increase (decrease) in net assets resulting from operations   $ 94,775,235    

 

See accompanying notes to the financial statements.


20


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 21,420,440     $ 18,003,549    
Net realized gain (loss)     54,838,596       55,122,662    
Change in net unrealized appreciation (depreciation)     18,516,199       107,047,664    
Net increase (decrease) in net assets from operations     94,775,235       180,173,875    
Distributions to shareholders from:  
Net investment income  
Class III     (1,362,623 )     (20,061,779 )  
Net realized gains  
Class III     (32,702,949 )     (39,922,774 )  
      (34,065,572 )     (59,984,553 )  
Net share transactions (Note 7):  
Class III     34,513,411       155,491,902    
Total increase (decrease) in net assets     95,223,074       275,681,224    
Net assets:  
Beginning of period     1,105,264,096       829,582,872    
End of period (including accumulated undistributed net investment
income of $20,412,154 and $354,337, respectively)		   $ 1,200,487,170     $ 1,105,264,096    

 

See accompanying notes to the financial statements.


21



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 20.76     $ 18.31     $ 15.78     $ 13.19     $ 8.73     $ 9.70    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.40       0.36       0.35       0.26       0.21       0.19    
Net realized and unrealized
gain (loss)		     1.41       3.28       2.77       2.61       4.55       (0.90 )  
Total from investment
operations		     1.81       3.64       3.12       2.87       4.76       (0.71 )  
Less distributions to shareholders:  
From net investment income     (0.03 )     (0.40 )     (0.31 )     (0.28 )     (0.30 )     (0.26 )  
From net realized gains     (0.61 )     (0.79 )     (0.28 )     —       —       —    
Total distributions     (0.64 )     (1.19 )     (0.59 )     (0.28 )     (0.30 )     (0.26 )  
Net asset value, end of period   $ 21.93     $ 20.76     $ 18.31     $ 15.78     $ 13.19     $ 8.73    
Total Return(a)      8.56 %**      20.33 %     20.04 %     21.94 %     54.99 %     (7.47 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,200,487     $ 1,105,264     $ 829,583     $ 559,912     $ 291,360     $ 94,709    
Net expenses to average daily
net assets		     0.69 %*      0.69 %     0.69 %     0.69 %     0.69 %     0.70 %  
Net investment income to average
daily net assets		     3.55 %*      1.83 %     2.10 %     1.91 %     1.87 %     1.98 %  
Portfolio turnover rate     18 %**      34 %     39 %     44 %     36 %     48 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.07 %*      0.08 %     0.10 %     0.16 %     0.26 %     0.45 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


22



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Tax-Managed International Equities 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high after-tax total return. The Fund seeks to achieve its investment objective by outperforming the MSCI EAFE Index (after tax), which is computed by GMO by adjusting the return of the MSCI EAFE Index (Europe, Australasia, and Far East) by its tax cost. The Fund typically makes equity investments in non-U.S. companies that issue stocks included in the MSCI EAFE universe (which is larger than, but generally represented by, the MSCI EAFE Index), plus companies in Canada and emerging countries. GMO uses quantitative models integrated with tax management techniques to provide broad exposure to the international equity markets to investors subject to U.S. federal income tax. The Fund's investments in emerging countries generally will represent 15% or less of the Fund's total assets.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but


23


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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


24


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.


25


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed Securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there


26


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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 is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. For the period ended August 31, 2007, the Fund incurred $646 in CPMF tax which is included in the net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.


27


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 856,627,935     $ 341,748,885     $ (14,895,866 )   $ 326,853,019    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.


28


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.54% 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 average daily net assets at the annual rate of 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act)), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (i ncluding taxes) exceed 0.54% of the Fund's average daily net assets.


29


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $5,124 and $3,588, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $234,018,358 and $204,702,745, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, there were no shareholders holding in excess of 10% of the Fund's outstanding shares.

As of August 31, 2007, 2.10% of the Fund's shares were held by five related parties comprised of certain GMO employee accounts, and 0.11% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,711,828     $ 37,200,688       8,725,835     $ 171,811,462    
Shares issued to shareholders
in reinvestment of distributions		     1,330,935       30,398,566       2,416,494       47,334,895    
Shares repurchased     (1,526,800 )     (33,085,843 )     (3,218,183 )     (63,654,455 )  
Net increase (decrease)     1,515,963     $ 34,513,411       7,924,146     $ 155,491,902    

 


30



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of


31


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


32


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


33


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.69 %   $ 1,000.00     $ 1,085.60     $ 3.62    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.67     $ 3.51    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


34



GMO Domestic Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Domestic Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.8 %  
Short-Term Investments     2.9    
Swaps     1.0    
Preferred Stocks     0.2    
Futures     0.0    
Forward Currency Contracts     (0.0 )  
Other     1.1    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1



GMO Domestic Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 8.8%        
        Corporate Debt — 3.1%        
  7,500,000     Bank Austria Creditanstalt AG, 144A, 7.25%, due 02/15/17     8,406,450    
  11,347,000     Health Care Property Investors, Inc., Series G, MTN, 5.63%, due 02/28/13     11,295,031    
    Total Corporate Debt     19,701,481    
        U.S. Government — 1.9%        
  2,476,620     U.S. Treasury Inflation Indexed Note, 4.25%, due 01/15/10 (a) (b)      2,572,976    
  9,019,556     U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (a)      9,146,394    
    Total U.S. Government     11,719,370    
        U.S. Government Agency — 3.8%        
  9,750,000     Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.46%, due 02/01/27		     9,689,162    
  3,750,000     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. LIBOR + .30%, 5.86%, due 12/01/14		     3,759,412    
  3,773,203     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 5.53%, due 03/30/19		     3,789,767    
  3,475,000     Agency for International Development Floater (Support of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20%, 5.76%, due 06/15/12		     3,470,691    
  3,300,005     Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.54%, due 01/01/12		     3,264,945    
    Total U.S. Government Agency     23,973,977    
    TOTAL DEBT OBLIGATIONS (COST $55,317,791)     55,394,828    
        PREFERRED STOCKS — 0.3%        
        Banking — 0.3%        
  10,000     Home Ownership Funding 2 Preferred 144A, 13.34%     1,507,954    
    TOTAL PREFERRED STOCKS (COST $2,576,211)     1,507,954    

 

See accompanying notes to the financial statements.


2


GMO Domestic Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 89.7%        
        Affiliated Issuers — 89.7%        
  21,783,265     GMO Short-Duration Collateral Fund     562,443,907    
  1,483     GMO Special Purpose Holding Fund (c) (d)      2,135    
    TOTAL MUTUAL FUNDS (COST $559,532,692)     562,446,042    
        SHORT-TERM INVESTMENTS — 0.2%        
        Money Market Funds — 0.2%        
  1,279,098     Merrimac Cash Series-Premium Class     1,279,098    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,279,098)     1,279,098    
    TOTAL INVESTMENTS — 99.0%
(Cost $618,705,792)		     620,627,922    
        Other Assets and Liabilities (net) — 1.0%     6,181,824    
    TOTAL NET ASSETS — 100.0%   $ 626,809,746    

 

See accompanying notes to the financial statements.


3


GMO Domestic Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
  Buys                    
  62     U.S. Long Bond (CBT)   December 2007   $ 6,916,874     $ 55,001    
  117     U.S. Treasury Note 10 Yr.   December 2007     12,758,485       (7,417 )  
  43     U.S. Treasury Note 5 Yr. (CBT)   December 2007     4,588,234       20,334    
    $ 67,918    
  Sales                    
  107     U.S. Treasury Note 2 Yr. (CBT)   December 2007   $ 22,058,719     $ (40,691 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
 (Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  11,500,000     USD   3/20/2013   Barclays   (Pay)     0.61 %   Health Care  
 
            Bank PLC           Properties   $ 227,983    
                Premiums to (Pay) Receive   $ —     $ 277,983    

 

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  75,000,000     USD   10/31/2007   Lehman   1 month   Return on Lehman  
 
            Brothers   LIBOR - 0.04%   Brothers U.S.  
 
                    Government Index   $ 801,931    
  140,000,000     USD   11/30/2007   Lehman
Brothers		   1 month
LIBOR - 0.06% 		  Return on Lehman
Brothers U.S.
Government Index		     1,499,271    

 

See accompanying notes to the financial statements.


4


GMO Domestic Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Total Return Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  75,000,000     USD   5/30/2008   Lehman   1 month   Return on Lehman    
   
                Brothers   LIBOR - 0.06%   Brothers U.S.    
   
                        Government Index   $ 803,181    
  75,000,000     USD   6/30/2008   Lehman
Brothers		   1 month
LIBOR - 0.06%		   Return on Lehman
Brothers U.S.
Government Index		     803,181    
  175,000,000     USD   7/31/2008   Lehman
Brothers		   1 month
LIBOR - 0.05%		   Return on Lehman
Brothers U.S.
Government Index		     1,872,630    
                    Premiums to (Pay) Receive   $ —     $ 5,780,194    

 

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.

LIBOR - London Interbank Offered Rate

MTN - Medium Term Note

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

(a)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(b)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(c)  Bankrupt issuer.

(d)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


5



GMO Domestic Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $59,173,100) (Note 2)   $ 58,181,880    
Investments in affiliated issuers, at value (cost $559,532,692) (Notes 2 and 8)     562,446,042    
Interest receivable     313,326    
Receivable for open swap contracts (Note 2)     6,058,177    
Receivable for expenses reimbursed by Manager (Note 3)     13,268    
Total assets     627,012,693    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     51,986    
Shareholder service fee     36,021    
Trustees and Chief Compliance Officer of GMO Trust fees     930    
Payable for variation margin on open futures contracts (Note 2)     45,917    
Accrued expenses     68,093    
Total liabilities     202,947    
Net assets   $ 626,809,746    
Net assets consist of:  
Paid-in capital   $ 621,949,199    
Accumulated undistributed net investment income     4,258,726    
Accumulated net realized loss     (7,405,713 )  
Net unrealized appreciation     8,007,534    
    $ 626,809,746    
Net assets attributable to:  
Class III shares   $ 92,318,884    
Class VI shares   $ 534,490,862    
Shares outstanding:  
Class III     9,307,954    
Class VI     53,812,345    
Net asset value per share:  
Class III   $ 9.92    
Class VI   $ 9.93    

 

See accompanying notes to the financial statements.


6


GMO Domestic Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 3,801,243    
Interest     1,803,979    
Dividends     50,000    
Total investment income     5,655,222    
Expenses:  
Management fee (Note 3)     266,246    
Shareholder service fee – Class III (Note 3)     123,301    
Shareholder service fee – Class VI (Note 3)     101,225    
Custodian, fund accounting agent and transfer agent fees     36,708    
Audit and tax fees     29,348    
Legal fees     6,808    
Trustees fees and related expenses (Note 3)     2,723    
Registration fees     1,104    
Miscellaneous     3,128    
Total expenses     570,591    
Fees and expenses reimbursed by Manager (Note 3)     (74,336 )  
Net expenses     496,255    
Net investment income (loss)     5,158,967    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (742 )  
Investments in affiliated issuers     578,805    
Realized gains distributions from affiliated issuers (Note 8)     9,082    
Closed futures contracts     (1,084,637 )  
Closed swap contracts     689,709    
Net realized gain (loss)     192,217    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (343,851 )  
Investments in affiliated issuers     1,115,742    
Open futures contracts     649,655    
Open swap contracts     1,343,329    
Net unrealized gain (loss)     2,764,875    
Net realized and unrealized gain (loss)     2,957,092    
Net increase (decrease) in net assets resulting from operations   $ 8,116,059    

 

See accompanying notes to the financial statements.


7


GMO Domestic Bond Fund

(A Series of GMO Trust)

Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 5,158,967     $ 20,918,305    
Net realized gain (loss)     192,217       (3,832,373 )  
Change in net unrealized appreciation (depreciation)     2,764,875       4,109,168    
Net increase (decrease) in net assets from operations     8,116,059       21,195,100    
Distributions to shareholders from:  
Net investment income  
Class III     (339,504 )     (4,864,279 )  
Class VI     (571,071 )     (16,195,086 )  
Total distributions from net investment income     (910,575 )     (21,059,365 )  
Net share transactions (Note 7):  
Class III     (4,338,033 )     (31,467,198 )  
Class VI     201,987,173       (31,859,527 )  
Increase (decrease) in net assets resulting from net share
transactions		     197,649,140       (63,326,725 )  
Total increase (decrease) in net assets     204,854,624       (63,190,990 )  
Net assets:  
Beginning of period     421,955,122       485,146,112    
End of period (including accumulated undistributed net investment
income of $4,258,726 and $10,334, respectively)		   $ 626,809,746     $ 421,955,122    

 

See accompanying notes to the financial statements.


8



GMO Domestic Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 9.81     $ 9.81     $ 9.84     $ 10.07     $ 10.08     $ 9.68    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.12       0.43       0.13       0.16       0.23       0.22    
Net realized and unrealized gain (loss)     (0.00 )(b)      0.06       0.16       0.04       0.24       0.86    
Total from investment operations     0.12       0.49       0.29       0.20       0.47       1.08    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.49 )     (0.16 )     (0.16 )     (0.20 )     (0.27 )  
From net realized gains     —       —       (0.16 )     (0.27 )     (0.28 )     (0.41 )  
Return of capital     —       —       —       (0.00 )(c)      —       —    
Total distributions     (0.01 )     (0.49 )     (0.32 )     (0.43 )     (0.48 )     (0.68 )  
Net asset value, end of period   $ 9.92     $ 9.81     $ 9.81     $ 9.84     $ 10.07     $ 10.08    
Total Return(d)      1.27 %**      5.09 %     3.02 %     2.02 %     4.79 %     11.43 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 92,319     $ 94,159     $ 125,188     $ 736,300     $ 373,277     $ 113,223    
Net expenses to average
daily net assets(e) 		     0.25 %*      0.25 %     0.25 %     0.25 %     0.25 %     0.25 %  
Net investment income to average
daily net assets(a) 		     2.42 %*      4.42 %     1.30 %     1.57 %     2.30 %     2.23 %  
Portfolio turnover rate     5 %**      17 %     24 %     11 %     15 %     71 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.03 %*      0.03 %     0.02 %     0.03 %     0.06 %     0.05 %  

 

(a)  Net investment income is affected by timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Net realized and unrealized gain (loss) is less than $0.01 per share.

(c)  Return of capital is less than $0.01.

(d)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(e)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

*  Annualized.

**  Not annualized.

†  Calculated using average shares outstanding throughout the period.

See accompanying notes to the financial statements.


9


GMO Domestic Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 9.82     $ 9.82     $ 9.93    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.09       0.48       0.24    
Net realized and unrealized gain (loss)     0.04       0.02       (0.14 )(c)   
Total from investment operations     0.13       0.50       0.10    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.50 )     (0.21 )  
Total distributions     (0.02 )     (0.50 )     (0.21 )  
Net asset value, end of period   $ 9.93     $ 9.82     $ 9.82    
Total Return(d)      1.30 %**      5.19 %     0.97 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 534,491     $ 327,796     $ 359,958    
Net expenses to average daily net assets(e)      0.16 %*      0.16 %     0.16 %*   
Net investment income to average daily net assets(b)      1.72 %*      4.85 %     2.38 %(f)   
Portfolio turnover rate     5 %**      17 %     24 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.03 %*      0.03 %     0.02 %*   

 

(a)  Period from July 26, 2005 (commencement of operations) through February 28, 2006.

(b)  Net investment income is affected by timing of the declaration of dividends by the underlying funds in which the Fund invests.

(c)  The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund.

(d)  The total return would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(e)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(f)  The ratio for the period ended February 28, 2006 has not been annualized since the Fund believes it would not be appropriate because the Fund's net income is not earned ratably throughout the fiscal year.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2006.

See accompanying notes to the financial statements.


10



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the Lehman Brothers U.S. Government Index. The Fund invests a substantial portion of its assets in shares of GMO Short-Duration Collateral Fund; U.S. investment-grade bonds, including asset-backed securities and U.S. government securities; and derivatives (including synthetic debt instruments) whose value is related to U.S. investment-grade bonds. The Fund also may invest a portion of its assets in foreign bonds and lower-rated securities.

As of August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different level of shareholder servicing fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of the GMO Short-Duration Collateral Fund and the GMO Special Purpose Holding Fund are not publicly available for direct purchase.

2.   Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are


11


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $9,082 in conjunction with a settlement agreement related to the default of those asset-backed securities.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. When the Fund writes a call or put option, an amount


12


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying ins trument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.


13


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or


14


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.


15


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $4,407,398 expiring in 2015. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital losses of $3,769,564.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 618,756,197     $ 3,142,053     $ (1,270,328 )   $ 1,871,725    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are


16


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


17


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.10% 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 0.15% for Class III shares and 0.055% for Class VI shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.10% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder of the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.002 %     0.000 %     0.000 %     0.002 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $2,079 and $1,472, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $230,951,243 and $28,971,383, respectively.


18


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 80.63% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.01% of the Fund's shares were held by five related parties comprised of certain GMO employee accounts, and 91.81% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     20,220,518     $ 197,890,460       2,560,718     $ 25,144,765    
Shares issued to shareholders
in reinvestment of distributions		     34,823       339,405       470,574       4,591,550    
Shares repurchased     (20,545,425 )     (202,567,898 )     (6,197,833 )     (61,203,513 )  
Net increase (decrease)     (290,084 )   $ (4,338,033 )     (3,166,541 )   $ (31,467,198 )  

 


19


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     21,241,734     $ 209,916,102       142,221     $ 1,389,455    
Shares issued to shareholders
in reinvestment of distributions		     58,490       571,071       1,658,104       16,195,086    
Shares repurchased     (861,266 )     (8,500,000 )     (5,081,727 )     (49,444,068 )  
Net increase (decrease)     20,438,958     $ 201,987,173       (3,281,402 )   $ (31,859,527 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Short-Duration
Collateral Fund		   $ 357,398,162     $ 230,951,243     $ 27,600,000     $ 3,801,243     $ —     $ 562,443,907    
GMO Special Purpose
Holding Fund		     2,090       —       —       —       9,082       2,135    
Totals   $ 357,400,252     $ 230,951,243     $ 27,600,000     $ 3,801,243     $ 9,082     $ 562,446,042    

 


20



GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the


21


GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that the underlying funds do not charge any advisory fees. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, withi n the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total


22


GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


23


GMO Domestic Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.25 %   $ 1,000.00     $ 1,012.70     $ 1.26    
2) Hypothetical     0.25 %   $ 1,000.00     $ 1,023.88     $ 1.27    
Class VI  
1) Actual     0.16 %   $ 1,000.00     $ 1,013.00     $ 0.81    
2) Hypothetical     0.16 %   $ 1,000.00     $ 1,024.33     $ 0.81    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


24



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     90.9 %  
Short-Term Investments     8.4    
Options Purchased     1.3    
Swaps     0.8    
Futures     (0.0 )  
Written Options     (1.0 )  
Other     (0.4 )  
      100.0 %  

 


1



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 90.9%  
        Asset-Backed Securities — 88.9%  
        Auto Financing — 6.1%  
    7,000,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
Variable Rate, 1 mo. LIBOR + .40%, 5.90%, due 02/18/14		     7,000,000    
    7,500,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 02/15/12		     7,424,100    
    10,000,000     Ford Credit Floorplan Master Owner Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .15%, 5.76%, due 05/15/10		     9,959,000    
    12,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-3, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 06/15/11		     11,883,660    
    14,000,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 5.61%, due 06/17/13		     13,870,080    
    11,000,000     Sovereign Dealer Floor Plan Master Trust, Series 06-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 08/15/11		     10,837,310    
    10,000,000     Superior Wholesale Inventory Financing Trust, Series 04-A10, Class A,
Variable Rate, 1 mo. LIBOR + .10%, 5.71%, due 09/15/11		     9,913,400    
    8,000,000     Superior Wholesale Inventory Financing Trust, Series 05-A12, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 06/15/10		     7,971,088    
    8,000,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .27%, 5.88%, due 12/15/16		     7,881,040    
    1,419,123     Wheels SPV LLC, Series 05-B, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 5.70%, due 06/10/10		     1,418,499    
    14,000,000     World Omni Auto Receivables Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 5.61%, due 11/15/12		     13,879,894    
    Total Auto Financing     102,038,071    
        Business Loans — 4.3%  
    2,897,762     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .37%, 5.88%, due 01/25/35		     2,896,603    
    5,040,006     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .39%, 5.90%, due 01/25/36		     5,009,766    
    3,325,949     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 5.66%, due 08/22/16		     3,322,955    
    2,472,751     GE Business Loan Trust, Series 05-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .07%, 5.68%, due 06/15/14		     2,471,116    

 

See accompanying notes to the financial statements.


2


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    2,575,322     GE Business Loan Trust, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 5.85%, due 11/15/33		     2,575,322    
    2,137,676     GE Commercial Equipment Financing LLC, Series 05-1, Class A3B,
Variable Rate, 1 mo. LIBOR + .01%, 5.55%, due 03/20/09		     2,136,142    
    4,101,333     GE Commercial Loan Trust, Series 06-2, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 5.42%, due 04/19/15		     4,086,158    
    4,000,000     GE Dealer Floorplan Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.58%, due 04/20/10		     3,987,320    
    13,000,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.33%, due 07/20/12		     12,878,599    
    3,115,009     Lehman Brothers Small Balance Commercial, Series 05-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 02/25/30		     3,038,443    
    2,290,036     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 09/25/30		     2,227,818    
    11,799,169     Lehman Brothers Small Balance Commercial, Series 07-2A, Class 1A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 06/25/37		     11,722,084    
    5,000,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 02/25/13		     4,977,500    
    11,000,000     Navistar Financial Dealer Note Master Trust, Series 98-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 07/25/11		     10,972,060    
    Total Business Loans     72,301,886    
        CMBS — 3.9%  
    4,793,508     Bear Stearns Commercial Mortgage Securities, Inc., Series 05-PW10,
Class A1, 5.09%, due 12/11/40		     4,771,410    
    7,000,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
Variable Rate, 1 mo. LIBOR + .12%, 5.71%, due 07/15/44		     6,955,200    
    13,000,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ, 144A,
Variable Rate, 1 mo. LIBOR + .13%, 5.74%, due 12/15/20		     12,983,100    
    7,000,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     7,014,219    
    4,000,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2,
Variable Rate, 5.52%, due 03/10/44		     4,016,562    
    3,788,413     Greenwich Capital Commercial Funding Corp., Series 06-FL4, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .09%, 5.42%, due 11/05/21		     3,783,677    
    7,000,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, Variable Rate, 5.51%,
due 04/10/38		     6,995,240    

 

See accompanying notes to the financial statements.


3


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    1,888,695     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 5.69%, due 09/15/21		     1,888,288    
    6,000,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, Variable Rate, 5.80%,
due 05/12/39		     6,031,641    
    3,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, Variable Rate, 5.91%,
due 10/15/42		     3,021,810    
    8,371,462     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .09%, 5.70%, due 09/15/21		     8,354,538    
    Total CMBS     65,815,685    
        CMBS Collateralized Debt Obligations — 1.3%  
    7,480,000     ACAS CRE CDO, Series 07-1A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .80%, 6.17%, due 11/23/52		     7,450,155    
    7,000,000     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .32%, 5.83%, due 08/26/30		     6,965,700    
    7,400,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 5.84%, due 05/25/46		     7,321,375    
    Total CMBS Collateralized Debt Obligations     21,737,230    
        Collateralized Loan Obligations — 1.3%  
    15,500,000     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
Variable Rate, 3 mo LIBOR + .17%, 5.53%, due 06/20/25		     15,451,562    
    7,200,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 5.61%, due 07/05/11		     7,160,976    
    Total Collateralized Loan Obligations     22,612,538    
        Credit Cards — 19.4%  
    7,150,000     Advanta Business Card Master Trust, Series 01-A, Class A,
Variable Rate, 1 mo. LIBOR + .30%, 5.84%, due 10/20/10		     7,145,495    
    6,500,000     Advanta Business Card Master Trust, Series 05-A1, Class A1,
Variable Rate, 1 mo. LIBOR + .07%, 5.61%, due 04/20/11		     6,482,775    
    2,000,000     Advanta Business Card Master Trust, Series 05-A5, Class A5,
Variable Rate, 1 mo. LIBOR + .06%, 5.60%, due 04/20/12		     1,987,240    
    3,340,000     American Express Credit Account Master Trust, Series 03-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 09/15/10		     3,336,426    

 

See accompanying notes to the financial statements.


4


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    6,000,000     American Express Credit Account Master Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + 0.08%, 5.69%, due 09/15/11		     5,981,400    
    5,000,000     American Express Credit Account Master Trust, Series 04-4, Class A,
Variable Rate, 1 mo. LIBOR + 0.09%, 5.70%, due 03/15/12		     4,985,100    
    5,000,000     American Express Credit Account Master Trust, Series 05-3, Class A,
Variable Rate, 1 mo. LIBOR, 5.61%, due 01/18/11		     4,961,500    
    10,000,000     American Express Credit Account Master Trust, Series 05-5, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 02/15/13		     9,931,000    
    4,500,000     American Express Credit Account Master Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 5.64%, due 12/15/13		     4,459,320    
    6,000,000     Arran, Series 2005-A, Class A, Variable Rate, 1 mo. LIBOR + .02%, 5.63%,
due 12/15/10		     5,985,000    
    19,000,000     Bank of America Credit Card Trust, Series 06-A10, Class A10,
Variable Rate, 1 mo. LIBOR - .02%, 5.59%, due 02/15/12		     18,900,877    
    1,000,000     Bank One Issuance Trust, Series 03-A10, Class A10,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 06/15/11		     999,000    
    5,760,000     Bank One Issuance Trust, Series 03-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 02/15/11		     5,755,978    
    5,000,000     Capital One Master Trust, Series 02-1A, Class A,
Variable Rate, 1 mo. LIBOR + .20%, 5.81%, due 11/15/11		     4,990,039    
    5,530,000     Capital One Multi-Asset Execution Trust, Series 03-A3, Class A3,
Variable Rate, 1 mo. LIBOR + .25%, 5.86%, due 05/16/11		     5,521,359    
    5,000,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .15%, 5.71%, due 06/16/14		     4,964,383    
    11,000,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 08/15/13		     10,939,500    
    6,000,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .07%, 5.40%, due 05/15/13		     5,955,000    
    7,875,000     Chase Credit Card Master Trust, Series 03-3, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 10/15/10		     7,869,409    
    3,000,000     Chase Credit Card Master Trust, Series 03-5, Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 01/17/11		     2,997,570    
    2,000,000     Chase Issuance Trust, Series 05-A3, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 10/17/11		     1,993,520    
    4,500,000     Chase Issuance Trust, Series 07-A1, Class A1,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 03/15/13		     4,454,254    

 

See accompanying notes to the financial statements.


5


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    11,000,000     Chase Issuance Trust, Series 07-A11, Class A11,
Variable Rate, 1 mo. LIBOR, 5.61%, due 07/16/12		     10,912,396    
    9,000,000     Citibank Credit Card Issuance Trust, Series 01-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .14%, 5.69%, due 08/15/13		     8,963,100    
    2,000,000     Citibank Credit Card Issuance Trust, Series 06-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .01%, 5.51%, due 05/24/12		     1,991,200    
    16,000,000     Citibank Credit Card Issuance Trust, Series 07-A1, Class A1,
Variable Rate, 3 mo. LIBOR - .01%, 5.35%, due 03/22/12		     15,923,200    
    10,000,000     Discover Card Master Trust I, Series 03-2, Class A,
Variable Rate, 1 mo. LIBOR + .13%, 5.74%, due 08/15/10		     9,996,900    
    10,000,000     Discover Card Master Trust I, Series 04-2, Class A2,
Variable Rate, 1 mo. LIBOR + .07%, 5.68%, due 05/15/12		     9,921,000    
    5,000,000     Discover Card Master Trust I, Series 05-3, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 05/15/11		     4,977,750    
    6,150,000     Discover Card Master Trust I, Series 06-2, Class A1,
Variable Rate, 1 mo. LIBOR, 5.61%, due 01/17/12		     6,122,632    
    5,600,000     Discover Card Master Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR, 5.62%, due 02/15/10		     5,568,920    
    7,000,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 03/15/13		     6,948,655    
    5,000,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 06/15/13		     4,967,188    
    7,000,000     Gracechurch Card Funding Plc, Series 3, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 03/15/10		     6,991,250    
    7,000,000     Gracechurch Card Funding Plc, Series 8, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 06/15/10		     6,984,390    
    6,900,000     Household Affinity Credit Card Master Note Trust I, Series 03-1, Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 02/15/10		     6,894,070    
    12,000,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 04/15/13		     11,888,438    
    17,000,000     HSBC Private Label Credit Card Master Note, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 12/16/13		     16,851,250    
    7,500,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
Variable Rate, 1 mo. LIBOR + .15%, 5.76%, due 01/15/14		     7,433,625    
    5,000,000     MBNA Credit Card Master Note Trust, Series 05-A5, Class A5,
Variable Rate, 1 mo. LIBOR, 5.61%, due 12/15/10		     4,989,063    

 

See accompanying notes to the financial statements.


6


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    7,000,000     Pillar Funding Plc, Series 04-2, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 09/15/11		     6,904,310    
    16,500,000     Turquoise Card Backed Securities Plc, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 05/16/11		     16,408,477    
    8,415,000     World Financial Network Credit Card Master Trust, Series 03-A, Class A2,
Variable Rate, 1 mo. LIBOR + .37%, 5.98%, due 05/15/12		     8,425,519    
    15,400,000     World Financial Network Credit Card Master Trust, Series 04-A, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 03/15/13		     15,307,600    
    2,000,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .13%, 5.74%, due 02/15/17		     1,945,780    
    Total Credit Cards     327,912,858    
        Emerging Markets Collateralized Debt Obligations — 0.2%  
    4,000,000     Santiago CDO Ltd., Series 05-1A, Class A, 144A,
Variable Rate, 6 mo. LIBOR + .40%, 5.77%, due 04/18/17		     3,890,000    
        Equipment Leases — 0.4%  
    7,000,000     CNH Equipment Trust, Series 05-A, Class A4A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 06/15/12		     6,974,870    
        Insurance Premiums — 0.8%  
    3,000,000     AICCO Premium Finance Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .08%, 5.69%, due 04/15/10		     2,996,700    
    10,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 12/15/11		     9,900,000    
    Total Insurance Premiums     12,896,700    
        Insured Auto Financing — 4.3%  
    5,000,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .12%, 5.66%, due 04/20/11		     4,945,600    
    7,000,000     Aesop Funding II LLC, Series 06-1, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .22%, 5.76%, due 03/20/12		     6,908,650    
    6,000,000     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .08%, 5.41%, due 05/06/12		     5,982,016    
    4,429,200     AmeriCredit Automobile Receivables Trust, Series 06-RM, Class A1, MBIA,
5.37%, due 10/06/09		     4,422,510    

 

See accompanying notes to the financial statements.


7


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    8,000,000     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B, MBIA,
Variable Rate, 1 mo. LIBOR + .03%, 5.36%, due 05/07/12		     7,946,208    
    7,000,000     ARG Funding Corp., Series 05-2A, Class A3, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .14%, 5.68%, due 05/20/10		     6,978,672    
    6,000,000     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 07/15/13		     5,957,940    
    12,000,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 11/15/13		     11,874,960    
    3,000,000     Hertz Vehicle Financing LLC, Series 05-1A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 02/25/10		     2,977,523    
    2,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 11/25/11		     1,964,120    
    7,000,000     Rental Car Finance Corp., Series 04-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 06/25/09		     6,956,712    
    5,000,000     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC, 5.01%,
due 08/15/12		     4,980,650    
    Total Insured Auto Financing     71,895,561    
        Insured Credit Cards — 1.1%  
    12,000,000     Cabela's Master Credit Card Trust, Series 03-1A, Class A, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .30%, 5.91%, due 01/15/10		     11,999,912    
    7,000,000     Cabela's Master Credit Card Trust, Series 04-2A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 03/15/11		     6,981,188    
    Total Insured Credit Cards     18,981,100    
        Insured Other — 1.3%  
    5,500,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     5,490,336    
    4,326,878     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 5.81%, due 09/15/41		     4,161,418    
    4,380,716     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 5.81%, due 12/15/41		     4,216,089    
    6,500,000     TIB Card Receivables Fund, 144A, FGIC,
Variable Rate, 4 mo. LIBOR + .25%, 5.61%, due 01/05/14		     6,495,450    
    10,200,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     1,621,902    
    Total Insured Other     21,985,195    

 

See accompanying notes to the financial statements.


8


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Residential Asset-Backed Securities (United States) — 1.1%  
    18,337,001     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1,
XL Capital Assurance, Variable Rate, 1 mo. LIBOR + .21%, 5.72%, due 07/25/34		     18,208,642    
        Insured Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,895,755     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA,
Variable Rate, 1 mo. LIBOR + .19%, 5.70%, due 11/25/35		     1,763,052    
        Insured Time Share — 0.3%  
    2,263,143     Cendant Timeshare Receivables Funding LLC, Series 05-1A,
Class A2, 144A, FGIC, Variable Rate, 1 mo. LIBOR + .18%, 5.72%,
due 05/20/17		     2,255,364    
    2,289,710     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 5.69%, due 05/20/18		     2,274,488    
    Total Insured Time Share     4,529,852    
        Insured Transportation — 0.5%  
    9,000,000     CLI Funding LLC, Series 06-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .18%, 5.72%, due 08/18/21		     8,955,180    
        Investment Grade Corporate Collateralized Debt Obligations — 3.7%  
    2,000,000     Morgan Stanley ACES SPC, Series 04-12, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .60%, 5.96%, due 08/05/09		     2,004,000    
    5,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 6.01%, due 12/20/09		     4,995,000    
    3,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
Variable Rate, 3 mo. LIBOR + .75%, 6.10%, due 12/20/09		     3,010,500    
    6,000,000     Morgan Stanley ACES SPC, Series 04-16, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 5.76%, due 08/05/09		     6,024,000    
    3,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .52%, 5.88%, due 03/20/10		     2,976,000    
    6,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 5.76%, due 12/20/10		     6,003,000    
    3,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 5.81%, due 03/20/10		     2,985,000    
    9,000,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .29%, 5.65%, due 06/20/13		     8,460,000    

 

See accompanying notes to the financial statements.


9


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Investment Grade Corporate Collateralized Debt Obligations — continued  
    10,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
Variable Rate, 1 mo. LIBOR + .70%, 6.06%, due 08/01/11		     10,073,000    
    9,000,000     Reve SPC, 144A, Variable Rate, 3 mo. LIBOR + .22%, 5.58%,
due 03/20/14		     8,752,500    
    7,000,000     Salisbury International Investments Ltd., Series EMTN,
Variable Rate, 3 mo. LIBOR + .42%, 5.78%, due 06/22/10		     6,972,700    
    Total Investment Grade Corporate Collateralized Debt Obligations     62,255,700    
        Residential Asset-Backed Securities (United States) — 22.9%  
    7,140,720     Accredited Mortage Loan Trust, Series 07-1, Class A1,
Variable Rate, 1 mo. LIBOR + .05%, 5.56%, due 02/25/37		     7,070,586    
    5,871,771     ACE Securities Corp., Series 05-AG1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 5.72%, due 08/25/35		     5,849,340    
    1,534,000     ACE Securities Corp., Series 05-ASP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .27%, 5.78%, due 09/25/35		     1,515,362    
    1,205,758     ACE Securities Corp., Series 05-SDI, Class A1,
Variable Rate, 1 mo. LIBOR + .40%, 5.91%, due 11/25/50		     1,194,243    
    10,000,000     ACE Securities Corp., Series 06-ASP5, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 10/25/36		     9,753,400    
    2,243,115     ACE Securities Corp., Series 06-CW1, Class A2A,
Variable Rate, 1 mo. LIBOR + .05%, 5.56%, due 07/25/36		     2,235,735    
    5,000,000     ACE Securities Corp., Series 06-CW1, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 07/25/36		     4,960,400    
    13,000,000     ACE Securities Corp., Series 06-HE2, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 05/25/36		     12,848,030    
    3,500,000     ACE Securities Corp., Series 06-HE3, Class A2B,
Variable Rate, 1 mo. LIBOR + .09%, 5.60%, due 06/25/36		     3,477,215    
    2,052,707     ACE Securities Corp., Series 06-SL1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 09/25/35		     1,828,572    
    3,212,595     ACE Securities Corp., Series 06-SL3, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 06/25/36		     2,911,157    
    3,000,000     ACE Securities Corp., Series 06-SL3, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 06/25/36		     2,010,990    
    2,509,310     ACE Securities Corp., Series 06-SL4, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 09/25/36		     2,341,814    
    6,631,578     ACE Securities Corp., Series 07-ASL1, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 12/25/36		     5,536,041    

 

See accompanying notes to the financial statements.


10


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    5,408,254     ACE Securities Corp., Series 07-WM1, Class A2A,
Variable Rate, 1 mo. LIBOR + .07%, 5.58%, due 11/25/36		     5,374,128    
    3,000,000     Aegis Asset Backed Securities Trust, Series 05-5, Class 1A2,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 12/25/35		     2,987,820    
    14,000,000     Argent Securities, Inc., Series 06-M1, Class AC2,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 07/25/36		     13,562,500    
    12,000,000     Argent Securities, Inc., Series 06-M2, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 09/25/36		     11,536,200    
    7,000,000     Argent Securities, Inc., Series 06-M2, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 09/25/36		     6,656,230    
    6,961,297     Argent Securities, Inc., Series 06-W2, Class A2B,
Variable Rate, 1 mo. LIBOR + .19%, 5.70%, due 03/25/36		     6,603,138    
    12,000,000     Argent Securities, Inc., Series 06-W4, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 05/25/36		     11,705,880    
    2,500,000     Argent Securities, Inc., Series 06-W5, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/36		     2,400,000    
    4,500,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 10/25/36		     4,398,750    
    3,000,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 10/25/36		     2,842,500    
    1,357,263     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
Variable Rate, 1 mo. LIBOR + .06%, 5.57%, due 11/25/36		     1,340,297    
    13,749,918     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + 0.22%, 5.73%, due 05/25/37		     13,578,044    
    6,500,000     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 6.01%, due 02/28/40		     6,495,684    
    6,011,056     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 11/25/36		     5,895,824    
    6,000,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 11/25/36		     5,173,140    
    4,369,018     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 02/25/37		     3,844,735    
    3,185,074     Centex Home Equity, Series 05-C, Class AV3,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 06/25/35		     3,121,372    
    3,000,000     Centex Home Equity, Series 06-A, Class AV3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 06/25/36		     2,958,300    

 

See accompanying notes to the financial statements.


11


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    3,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 12/25/36		     3,321,719    
    8,000,000     Citigroup Mortgage Loan Trust, Inc., Series 06-WFH4, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 11/25/36		     7,625,600    
    3,800,025     Citigroup Mortgage Loan Trust, Inc., Series 06-WFHE2, Class A1,
Variable Rate, 1 mo. LIBOR + .04%, 5.55%, due 08/25/36		     3,792,045    
    7,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-WMC1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 12/25/35		     7,483,500    
    9,712,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 02/25/37		     8,976,452    
    6,742,144     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 03/25/37		     6,667,286    
    3,375,714     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 04/25/36		     3,368,330    
    192,667     Fremont Home Loan Trust, Series 05-B, Class 2A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 04/25/35		     190,741    
    5,000,000     Fremont Home Loan Trust, Series 06-B, Class 2A3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 08/25/36		     4,549,237    
    7,000,000     GE-WMC Mortgage Securities, Series 05-2, Class A2B,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 12/25/35		     6,960,100    
    10,000,000     GE-WMC Mortgage Securities, Series 06-1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 08/25/36		     9,488,000    
    1,968,225     Household Home Equity Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .31%, 5.85%, due 01/20/35		     1,904,796    
    1,405,752     Household Home Equity Loan Trust, Series 05-3, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 5.83%, due 01/20/35		     1,358,692    
    9,012,765     Household Home Equity Loan Trust, Series 06-2, Class A1,
Variable Rate, 1 mo. LIBOR + .15%, 5.69%, due 03/20/36		     8,588,174    
    12,000,000     IXIS Real Estate Capital Trust, Series 06-HE1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 03/25/36		     11,960,400    
    9,000,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 12/25/36		     8,747,280    
    2,100,000     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 10/25/35		     2,035,777    
    5,000,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 03/25/36		     4,639,063    

 

See accompanying notes to the financial statements.


12


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    672,208     Master Asset-Backed Securities Trust, Series 06-HE1, Class A1,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 01/25/36		     671,342    
    3,000,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/36		     2,758,008    
    6,760,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 08/25/36		     6,495,145    
    4,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 10/25/36		     3,730,156    
    3,089,470     Master Second Lien Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 03/25/36		     2,100,839    
    6,742,901     Merrill Lynch Mortgage Trust, Series 06-SD1, Class A,
Variable Rate, 1 mo. LIBOR + .28%, 5.79%, due 01/25/47		     6,577,226    
    3,000,000     Morgan Stanley Home Equity Loans, Series 06-3, Class A3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 04/25/36		     2,897,340    
    2,500,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
Variable Rate, 1 mo. LIBOR + 0.15%, 5.66%, due 11/25/36		     2,397,750    
    10,000,000     Nationstar Home Equity Loan Trust, Series 06-B, Class AV3,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 09/25/36		     9,931,250    
    352,269     Nomura Home Equity Loan, Inc., Series 05-FM1, Class 2A2,
Variable Rate, 1 mo. LIBOR + .22%, 5.73%, due 05/25/35		     351,389    
    10,000,000     Nomura Home Equity Loan, Inc., Series 06-HE3, Class 2A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 07/25/36		     9,684,375    
    3,789,943     Option One Mortgage Loan Trust, Series 05-3, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 08/25/35		     3,695,195    
    1,882,849     People's Choice Home Loan Securities Trust, Series 05-3, Class 1A2,
Variable Rate, 1 mo. LIBOR + .27%, 5.78%, due 08/25/35		     1,814,643    
    5,860,060     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
Variable Rate, 1 mo. LIBOR + .26%, 5.77%, due 12/25/35		     5,730,025    
    625,351     RAAC Series Trust, Series 05-RP3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 05/25/39		     622,687    
    2,991,763     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 04/25/35		     2,989,893    
    8,000,000     Saxon Asset Securities Trust., Series 06-3, Class A2,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 11/25/36		     7,532,031    
    10,000,000     Securitized Asset-Backed Receivables LLC Trust, Series 06-HE1, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 07/25/36		     8,899,700    

 

See accompanying notes to the financial statements.


13


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    270,161     Security National Mortgage Loan Trust, Series 05-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 02/25/36		     269,148    
    6,534,306     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 10/25/36		     6,487,325    
    2,499,697     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
Variable Rate, 1 mo. LIBOR + .26%, 5.77%, due 10/25/35		     2,465,726    
    12,214,178     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 01/25/37		     12,176,009    
    4,000,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/37		     3,876,875    
    3,000,000     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 01/25/36		     2,670,577    
    3,683,850     Structured Asset Securities Corp., Series 05-S6, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 11/25/35		     3,674,661    
    602,595     Structured Asset Securities Corp., Series 05-WF1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 02/25/35		     594,979    
    Total Residential Asset-Backed Securities (United States)     386,758,913    
        Residential Mortgage-Backed Securities (Australian) — 2.6%  
    2,856,573     Australian Mortgage Securities II, Series G3, Class A1A,
Variable Rate, 3 mo. LIBOR + .21%, 5.57%, due 01/10/35		     2,848,031    
    3,432,211     Crusade Global Trust, Series 04-2, Class A1,
Variable Rate, 3 mo. LIBOR + .13%, 5.64%, due 11/19/37		     3,385,910    
    5,254,980     Crusade Global Trust, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 07/20/38		     5,233,066    
    7,539,676     Interstar Millennium Trust, Series 05-1G, Class A,
Variable Rate, 3 mo. LIBOR + .12%, 5.48%, due 12/08/36		     7,503,184    
    3,103,688     Medallion Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .08%, 5.46%, due 05/10/36		     3,085,904    
    2,550,565     National RMBS Trust, Series 04-1, Class A1,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 03/20/34		     2,537,455    
    8,214,527     National RMBS Trust, Series 06-3, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 10/20/37		     8,154,150    
    8,483,200     Puma Finance Ltd., Series G5, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.57%, due 02/21/38		     8,443,329    
    2,102,814     Westpac Securitization Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 03/23/36		     2,095,096    
    Total Residential Mortgage-Backed Securities (Australian)     43,286,125    

 

See accompanying notes to the financial statements.


14


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — 6.7%  
    11,000,000     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 09/20/66		     10,983,500    
    3,500,000     Arkle Master Issuer Plc, Series 06-1A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 5.61%, due 02/17/52		     3,475,850    
    10,000,000     Arran Residential Mortgages Funding Plc, Series 06-2A, Class A2B, 144A,
Variable Rate, 3 mo LIBOR + .05%, 5.41%, due 09/20/56		     9,967,600    
    7,000,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 5.46%, due 01/13/39		     6,911,100    
    5,145,959     Gracechurch Mortgage Financing Plc, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .03%, 5.54%, due 11/20/31		     5,129,595    
    2,230,358     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 10/11/41		     2,211,378    
    7,500,000     Granite Master Issuer Plc, Series 06-3, Class A3,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 12/20/54		     7,479,000    
    10,000,000     Holmes Financing Plc, Series 10A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 07/15/40		     9,905,400    
    14,000,000     Kildare Securities Ltd., Series 07-1A, Class A2, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 12/10/43		     13,898,500    
    2,995,790     Leek Finance Plc, Series 15A, Class AB, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 03/21/37		     2,985,185    
    8,446,600     Leek Finance Plc, Series 16A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .16%, 5.52%, due 09/21/37		     8,396,681    
    3,000,000     Mound Financing Plc, Series 5A, Class 2A, 144A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 05/08/16		     2,985,000    
    4,609,189     Paragon Mortgages Plc, Series 12A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 5.67%, due 11/15/38		     4,546,319    
    4,000,000     Paragon Mortgages Plc, Series 14A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR, 5.44%, due 09/15/39		     3,954,360    
    1,775,000     Permanent Financing Plc, Series 6, Class 2A,
Variable Rate, 3 mo. LIBOR + .09%, 5.45%, due 12/10/11		     1,774,645    
    5,000,000     Permanent Financing Plc, Series 7, Class 2A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 09/10/14		     4,999,600    
    5,000,000     Permanent Master Issuer Plc, Series 07-1, Class 4A,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 10/15/33		     4,938,150    
    8,640,494     RMAC Securities Plc, Series 06-NS4A, Class A1B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 06/12/25		     8,630,126    
    Total Residential Mortgage-Backed Securities (European)     113,171,989    

 

See accompanying notes to the financial statements.


15


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,134,485     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 07/25/30		     1,134,130    
        Student Loans — 5.7%  
    5,000,000     College Loan Corp. Trust, Series 04-1, Class A2,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 04/25/16		     4,992,969    
    8,000,000     College Loan Corp. Trust, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .01%, 5.37%, due 01/25/23		     7,961,600    
    787,696     Collegiate Funding Services Education Loan Trust I, Series 05-A, Class A1,
Variable Rate, 3 mo. LIBOR + .02%, 5.38%, due 09/29/14		     787,662    
    2,561,035     Goal Capital Funding Trust, Series 06-1, Class A1,
Variable Rate, 3 mo. LIBOR, 5.51%, due 08/25/20		     2,542,544    
    2,938,825     Keycorp Student Loan Trust, Series 05-A, Class 2A1,
Variable Rate, 3 mo. LIBOR + .05%, 5.41%, due 09/27/21		     2,922,191    
    2,927,914     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 06/20/15		     2,920,887    
    8,000,000     National Collegiate Student Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 02/25/26		     7,917,440    
    2,000,000     National Collegiate Student Loan Trust, Series 06-1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 08/25/23		     1,990,000    
    5,828,207     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 08/26/19		     5,779,367    
    7,000,000     Nelnet Education Loan Funding, Inc., Series 04-2A, Class A3,
Variable Rate, 3 mo. LIBOR + .10%, 5.61%, due 11/25/15		     6,953,310    
    9,000,000     Nelnet Student Loan Trust, Series 05-3, Class A3,
Variable Rate, 3 mo. LIBOR + .05%, 5.41%, due 06/22/17		     8,998,965    
    8,000,000     SLM Student Loan Trust, Series 05-3, Class A4,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 04/27/20		     7,975,040    
    1,997,462     SLM Student Loan Trust, Series 05-4, Class A1,
Variable Rate, 3 mo. LIBOR + .01%, 5.37%, due 10/26/15		     1,993,068    
    572,145     SLM Student Loan Trust, Series 05-7, Class A1,
Variable Rate, 3 mo. LIBOR, 5.36%, due 01/25/18		     571,590    
    8,500,000     SLM Student Loan Trust, Series 06-A, Class A2,
Variable Rate, 3 mo. LIBOR + .03%, 5.39%, due 10/15/15		     8,485,391    
    14,000,000     SLM Student Loan Trust, Series 07-2, Class A2,
Variable Rate, 3 mo. LIBOR, 5.36%, due 07/25/17		     13,951,840    

 

See accompanying notes to the financial statements.


16


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Student Loans — continued  
    10,000,000     SLM Student Loan Trust, Series 07-5, Class A1,
Variable Rate, 3 mo. LIBOR - 0.01%, 5.35%, due 07/25/13		     9,971,875    
    Total Student Loans     96,715,739    
        Trade Receivables — 0.8%  
    14,000,000     ABS Global Finance Plc, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .10%, 5.67%, due 12/17/10		     13,984,600    
    Total Asset-Backed Securities     1,499,805,616    
        Corporate Debt — 0.3%  
    5,000,000     TIAA Global Markets, 144A, Variable Rate, 3 mo. LIBOR + .10%, 5.46%,
due 01/12/11		     4,982,300    
        U.S. Government — 1.5%  
    25,791,800     U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (a) (b)      25,715,231    
        U.S. Government Agency — 0.2%  
    2,226,130     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 4 mo. LIBOR + .30%, 5.92%, due 10/01/18		     2,225,908    
    1,000,000     U.S. Department of Transportation, 144A, 6.00%, due 12/07/21     1,055,070    
    Total U.S. Government Agency     3,280,978    
    TOTAL DEBT OBLIGATIONS (COST $1,558,041,629)     1,533,784,125    

 

See accompanying notes to the financial statements.


17


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Principal Amount   Description   Value ($)  
        OPTIONS PURCHASED — 1.3%  
        Options on Futures — 0.2%  
USD     4,900     Eurodollar Futures Call, Expires 10/12/07, Strike 95.25     3,430,000    
        Options on Interest Rates — 0.1%  
EUR     325,000,000     EUR 6 Month LIBOR Cap Call, Expires 02/16/17, Strike 10.00%     261,437    
EUR     650,000,000     EUR 6 Month LIBOR Cap Call, Expires 02/27/17, Strike 10.00%     529,607    
EUR     300,000,000     EUR Swaption Cap Call, Expires 10/12/07, Strike 0.05%     22,350    
EUR     300,000,000     EUR Swaption Cap Call, Expires 10/15/07, Strike 0.06%     19,188    
EUR     300,000,000     EUR Swaption Floor Put, Expires 10/12/07, Strike 0.05%     242,250    
EUR     300,000,000     EUR Swaption Floor Put, Expires 10/15/07, Strike 0.06%     270,807    
GBP     130,000,000     GBP 3 Month LIBOR Floor Put, Expires 01/31/08, Strike 5.76%     425    
GBP     65,000,000     GBP 3 Month LIBOR Floor Put, Expires 02/05/08, Strike 5.81%     530    
      1,346,594    
        Options on Interest Rate Swaps — 1.0%  
GBP     40,000,000     GBP Swaption Call, Expires 04/11/08, Strike 5.86%     115,062    
GBP     40,000,000     GBP Swaption Call, Expires 04/14/08, Strike 5.86%     116,117    
GBP     40,000,000     GBP Swaption Call, Expires 04/17/08, Strike 5.97%     150,774    
GBP     60,000,000     GBP Swaption Call, Expires 04/28/08, Strike 5.91%     211,392    
GBP     60,000,000     GBP Swaption Call, Expires 05/08/08, Strike 5.96%     247,154    
GBP     40,000,000     GBP Swaption Put, Expires 04/11/08, Strike 5.86%     300,204    
GBP     40,000,000     GBP Swaption Put, Expires 04/14/08, Strike 5.86%     300,684    
GBP     40,000,000     GBP Swaption Put, Expires 04/17/08, Strike 5.97%     252,482    
GBP     60,000,000     GBP Swaption Put, Expires 04/28/08, Strike 5.91%     410,059    
GBP     60,000,000     GBP Swaption Put, Expires 05/08/08, Strike 5.96%     374,191    
SEK     2,289,000,000     SEK Swaption Call, Expires 10/31/07, Strike 4.74%     1,701,986    
USD     300,000,000     USD Swaption Call, Expires 10/10/07, Strike 5.44%     5,819,943    
USD     360,000,000     USD Swaption Call, Expires 9/28/07, Strike 5.20%     4,578,793    
USD     198,800,000     USD Swaption Put, Expires 10/31/07, Strike 5.09%     357,830    
USD     980,000,000     USD Swaption Put, Expires 10/31/07, Strike 5.09%     1,771,252    
      16,707,923    
    TOTAL OPTIONS PURCHASED (COST $13,994,837)     21,484,517    

 

See accompanying notes to the financial statements.


18


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 8.4%  
        Money Market Funds — 1.9%  
    31,394,787     Merrimac Cash Series-Premium Class     31,394,787    
        Other Short-Term Investments — 6.5%  
    15,000,000     Amsterdam Funding Corp. Commercial Paper, 6.20%, due 10/04/07     14,914,750    
    25,000,000     Barton Capital Corp. Commercial Paper, 6.00%, due 09/05/07     24,983,334    
    20,000,000     Nieuw Amsterdam Receivables Commercial Paper, 5.75%, due 09/04/07     19,990,417    
    25,000,000     Old Line Funding LLC Commercial Paper, 5.50%, due 09/05/07     24,984,722    
    15,000,000     Sheffield Receivables Commercial Paper, 6.15%, due 09/27/07     14,933,375    
    10,000,000     Windmill Funding Corp. Commercial Paper, 5.26%, due 09/07/07     9,991,233    
    Total Other Short-Term Investments     109,797,831    
    TOTAL SHORT-TERM INVESTMENTS (COST $141,192,618)     141,192,618    
    TOTAL INVESTMENTS — 100.6%
(Cost $1,713,229,084)		     1,696,461,260    
            Other Assets and Liabilities (net) — (0.6%)     (10,442,101 )  
    TOTAL NET ASSETS — 100.0%   $ 1,686,019,159    

 

See accompanying notes to the financial statements.


19


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales  
  82     U.S. Treasury Note 10 Yr.   December 2007   $ 8,941,844     $ (58,584 )  
  59     U.S. Treasury Note 5 Yr. (CBT)   December 2007     6,295,484       (38,925 )  
    $ (97,509 )  

 

Reverse Repurchase Agreements

Average balance outstanding   $ (77,501,730 )  
Average interest rate     1.44 %  
Maximum balance outstanding   $ (135,993,112 )  
Average shares outstanding     57,158,064    
Average balance per share outstanding   $ (1.36 )  
Average balance per share outstanding     97    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements. There were no reverse repurchase agreements outstanding at the end of the period.

See accompanying notes to the financial statements.


20


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Written Options

    Notional
Amount		   Expiration
Date		       Description   Premiums   Market Value  
Call $118,000,000 9/04/2007   USD   Interest Rate Swaption,    
Strike 5.49%		   $ (890,900 )   $ (2,451,436 )  
Put 118,000,000 9/04/2007   USD   Interest Rate Swaption,    
Strike 5.49%		     (890,900 )     (329 )  
Call 118,000,000 9/10/2007   USD   Interest Rate Swaption,    
Strike 5.53%		     (814,200 )     (2,778,659 )  
Put 118,000,000 9/10/2007   USD   Interest Rate Swaption,    
Strike 5.53%		     (814,200 )     (7,738 )  
Call 118,000,000 9/17/2007   USD   Interest Rate Swaption,    
Strike 5.47%		     (873,200 )     (2,300,949 )  
Put 118,000,000 9/17/2007   USD   Interest Rate Swaption,    
Strike 5.47%		     (873,200 )     (73,138 )  
Call 118,000,000 9/24/2007   USD   Interest Rate Swaption,    
Strike 5.37%		     (944,000 )     (1,656,395 )  
Put 118,000,000 9/24/2007   USD   Interest Rate Swaption,    
Strike 5.37%		     (944,000 )     (287,734 )  
Call 117,000,000 9/28/2007   USD   Interest Rate Swaption,    
Strike 5.24%		     (883,350 )     (933,674 )  
Put 117,000,000 9/28/2007   USD   Interest Rate Swaption,    
Strike 5.24%		     (883,350 )     (744,931 )  
Put 360,000,000 9/28/2007   USD   Interest Rate Swaption,    
Strike 5.80%		     (864,000 )     (23,166 )  
Call 360,000,000 9/28/2007   USD   Interest Rate Swaption,    
Strike 5.00%		     (1,143,000 )     (2,491,790 )  
Put 300,000,000 10/10/2007   USD   Interest Rate Swaption,    
Strike 6.04%		     (1,275,000 )     (6,870 )  
Call 4,900 10/12/2007   USD   Eurodollar Futures,    
Strike 95.50		     (1,391,600 )     (1,929,375 )  
Put 4,900 10/12/2007   USD   Eurodollar Futures,    
Strike 94.88		     (840,350 )     (398,125 )  
Call 2,289,000,000 10/31/2007   SEK   Interest Rate Swaption,    
Strike 4.49%		     (230,059 )     (788,904 )  
Put 40,000,000 4/11/2008   GBP   Interest Rate Swaption,    
Strike 6.44%		     (183,501 )     (105,730 )  
Put 40,000,000 4/14/2008   GBP   Interest Rate Swaption,    
Strike 6.50%		     (177,100 )     (92,942 )  
Put 40,000,000 4/17/2008   GBP   Interest Rate Swaption,    
Strike 6.50%		     (164,703 )     (92,689 )  
                    $ (15,080,613 )   $ (17,164,574 )  

 

See accompanying notes to the financial statements.


21


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  13,000,000     USD   9/20/2010   Morgan Stanley                    
   
                Capital Services Inc.   Receive     0.40 %   Eagle Creek CDO   $ 83,748    
  7,000,000     USD   3/20/2013   Morgan Stanley
Capital Services Inc.		   Receive     0.25 %   MS Synthetic
2006-1		     (205,345 )  
  5,000,000     USD   3/20/2015   Lehman Brothers   Receive     0.88 %   AAA CDO     (172,329 )  
    Premiums to (Pay) Receive   $ —     $ (293,926 )  

 

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  810,000,000     GBP   4/9/2008   Deutsche Bank AG   Receive     6.32 %   3 month GBP LIBOR   $ (211,405 )  
  405,000,000     GBP   4/9/2008   Deutsche Bank AG   Receive     6.26 %   3 month GBP LIBOR     (217,613 )  
  825,000,000     GBP   10/9/2008   Deutsche Bank AG   (Pay)     6.37 %   3 month GBP LIBOR     (1,296,699 )  
  412,500,000     GBP   10/9/2008   Deutsche Bank AG   (Pay)     6.30 %   3 month GBP LIBOR     (511,560 )  
  2,880,000,000     NOK   10/29/2008   Morgan Stanley   Receive     5.47 %   3 month NOK NIBOR     (1,127,692 )  
  1,000,000,000     NOK   3/16/2009   Morgan Stanley   Receive     5.33 %   3 month NOK NIBOR     (588,265 )  
  137,100,000     GBP   7/6/2009   Deutsche Bank AG   (Pay)     6.33 %   6 month GBP LIBOR     (1,138,339 )  
  68,600,000     GBP   7/10/2009   Deutsche Bank AG   (Pay)     6.26 %   6 month GBP LIBOR     (391,492 )  
  194,000,000     GBP   7/20/2009   Deutsche Bank AG   (Pay)     6.29 %   6 month GBP LIBOR     (1,403,590 )  
  471,000,000     USD   9/5/2009   JP Morgan Chase Bank   (Pay)     5.32 %   3 month LIBOR     (3,796,703 )  
  1,800,000,000     SEK   9/5/2009   Barclays Bank PLC   Receive     4.51 %   3 month SEK STIBOR     74,535    
  1,405,000,000     SEK   9/5/2009   JP Morgan Chase Bank   Receive     4.51 %   3 month SEK STIBOR     58,178    
  1,272,000,000     SEK   10/4/2009   Deutsche Bank AG   Receive     4.74 %   3 month SEK STIBOR     743,533    
  2,313,000,000     SEK   10/4/2009   JP Morgan Chase Bank   Receive     4.74 %   3 month SEK STIBOR     1,359,854    
  526,000,000     USD   10/5/2009   JP Morgan Chase Bank   (Pay)     5.32 %   3 month LIBOR     (4,861,781 )  
  1,711,000,000     SEK   11/2/2009   JP Morgan Chase Bank   Receive     4.74 %   3 month SEK STIBOR     958,461    
  127,000,000     AUD   12/19/2009   Deutsche Bank AG   (Pay)     6.75 %   3 month AUD BBSW     79,881    
  296,000,000     USD   12/19/2009   JP Morgan Chase Bank   (Pay)     5.20 %   3 month LIBOR     (2,662,744 )  
  2,003,000,000     SEK   12/19/2009   JP Morgan Chase Bank   Receive     4.70 %   3 month SEK STIBOR     810,750    
  275,000,000     CHF   12/19/2009   JP Morgan Chase Bank   Receive     3.20 %   6 month CHF LIBOR     838,576    
  208,000,000     CHF   12/19/2009   Merrill Lynch   Receive     3.20 %   6 month CHF LIBOR     634,268    

 

See accompanying notes to the financial statements.


22


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  275,000,000     EUR   12/19/2009   Barclays Bank PLC   (Pay)     4.60 %   6 month EUR LIBOR   $ (862,161 )  
  105,000,000     GBP   12/19/2009   JP Morgan Chase Bank   (Pay)     6.20 %   6 month GBP LIBOR     (517,096 )  
  81,900,000,000     JPY   12/19/2009   JP Morgan Chase Bank   (Pay)     1.35 %   6 month JPY LIBOR     (3,205,603 )  
  1,059,000,000     NOK   3/15/2010   Morgan Stanley   (Pay)     5.17 %   3 month NOK NIBOR     826,306    
  5,000,000     USD   2/7/2012   Deutsche Bank AG   (Pay)     4.33 %   3 month LIBOR     115,653    
  120,000,000     GBP   7/6/2012   Deutsche Bank AG   Receive     6.26 %   6 month GBP LIBOR     3,687,963    
  60,000,000     GBP   7/10/2012   Deutsche Bank AG   Receive     6.20 %   6 month GBP LIBOR     1,513,346    
  182,000,000     GBP   7/20/2012   Deutsche Bank AG   Receive     6.17 %   6 month GBP LIBOR     4,283,511    
  15,000,000     USD   2/8/2015   JP Morgan Chase Bank   (Pay)     4.47 %   3 month LIBOR     593,430    
  34,400,000     GBP   7/6/2017   Deutsche Bank AG   (Pay)     5.99 %   6 month GBP LIBOR     (1,920,501 )  
  17,200,000     GBP   7/10/2017   Deutsche Bank AG   (Pay)     5.93 %   6 month GBP LIBOR     (813,524 )  
  52,250,000     GBP   7/20/2017   Deutsche Bank AG   (Pay)     5.88 %   6 month GBP LIBOR     (2,053,174 )  
  92,000,000     USD   9/19/2017   JP Morgan Chase Bank   (Pay)     5.81 %   3 month LIBOR     (4,190,616 )  
  365,000,000     SEK   9/19/2017   Barclays Bank PLC   Receive     5.00 %   3 month SEK STIBOR     926,486    
  285,000,000     SEK   9/19/2017   Morgan Stanley   Receive     5.00 %   3 month SEK STIBOR     715,352    
  109,100,000     USD   10/18/2017   Deutsche Bank AG   (Pay)     5.75 %   3 month LIBOR     (4,449,218 )  
  30,100,000     CHF   10/18/2017   Deutsche Bank AG   Receive     3.72 %   6 month CHF LIBOR     602,839    
  60,200,000     CHF   10/18/2017   JP Morgan Chase Bank   Receive     3.72 %   6 month CHF LIBOR     1,195,251    
  109,500,000     USD   11/15/2017   JP Morgan Chase Bank   (Pay)     5.53 %   3 month LIBOR     (2,605,143 )  
  752,500,000     SEK   11/15/2017   JP Morgan Chase Bank   Receive     4.92 %   3 month SEK STIBOR     1,046,119    
  73,000,000     USD   12/19/2017   JP Morgan Chase Bank   Receive     5.40 %   3 month LIBOR     1,010,643    
  483,000,000     SEK   12/19/2017   JP Morgan Chase Bank   (Pay)     4.90 %   3 month SEK STIBOR     (553,133 )  
  33,000,000     AUD   12/19/2017   Deutsche Bank AG   Receive     6.60 %   6 month AUD BBSW     (30,806 )  
  63,000,000     CHF   12/19/2017   JP Morgan Chase Bank   (Pay)     3.30 %   6 month CHF LIBOR     621,283    
  48,000,000     CHF   12/19/2017   Merrill Lynch   (Pay)     3.30 %   6 month CHF LIBOR     473,359    
  65,000,000     EUR   12/19/2017   Barclays Bank PLC   Receive     4.60 %   6 month EUR LIBOR     (293,388 )  
  26,000,000     GBP   12/19/2017   JP Morgan Chase Bank   Receive     5.80 %   6 month GBP LIBOR     865,122    
  17,500,000,000     JPY   12/19/2017   JP Morgan Chase Bank   Receive     2.05 %   6 month JPY LIBOR     2,703,525    
    Premiums to (Pay) Receive   $ 1,517,237     $ (12,964,022 )  

 

See accompanying notes to the financial statements.


23


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

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.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

BBSW - Bank Bill Swap Reference Rate

CDO - Collateralized Debt Obligation

CMBS - Collateralized Mortgage Backed Security

EMTN - Euromarket Medium Term Note

FGIC - Insured as to the payment of principal and interest by Financial Guaranty Insurance Corporation.

FSA - Insured as to the payment of principal and interest by Financial Security Assurance.

LIBOR - London Interbank Offered Rate

MBIA - Insured as to the payment of principal and interest by MBIA Insurance Corp.

NIBOR - Norwegian Interbank Offered Rate

RMBS - Residential Mortgage Backed Security

STIBOR - Stockholm Interbank Offered Rate

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

(a)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(b)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NOK - Norwegian Krone

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


24



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $1,713,229,084) (Note 2)   $ 1,696,461,260    
Cash     38,225    
Receivable for Fund shares sold     14,775,000    
Interest receivable     6,151,356    
Receivable for open swap contracts (Note 2)     26,821,972    
Receivable for expenses reimbursed by Manager (Note 3)     28,303    
Total assets     1,744,276,116    
Liabilities:  
Written options outstanding, at value (premiums $15,080,613) (Note 2)     17,164,574    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     3,012    
Interest payable for open swap contracts     6,836    
Payable for open swap contracts (Note 2)     40,079,920    
Payable for variation margin on open futures contracts (Note 2)     853,482    
Accrued expenses     149,133    
Total liabilities     58,256,957    
Net assets   $ 1,686,019,159    
Net assets consist of:  
Net Capital(1)    $ 1,716,709,164    
Net unrealized depreciation     (30,690,005 )  
    $ 1,686,019,159    
Shares outstanding:     63,961,626    
Net asset value per share:   $ 26.36    

 

(1)  Net capital includes net investment income (loss) and net realized gain (loss) on investments.

See accompanying notes to the financial statements.


25


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 43,672,209    
Total investment income     43,672,209    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     111,504    
Audit and tax fees     45,724    
Legal fees     18,768    
Trustees fees and related expenses (Note 3)     8,530    
Interest expense (Note 2)     1,117,209    
Miscellaneous     9,659    
Total expenses     1,311,394    
Fees and expenses reimbursed by Manager (Note 3)     (179,676 )  
Net expenses     1,131,718    
Net investment income (loss)     42,540,491    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     7,687,464    
Closed futures contracts     12,637,176    
Closed swap contracts     (3,830,633 )  
Written options     (9,430,828 )  
Net realized gain (loss)     7,063,179    
Change in net unrealized appreciation (depreciation) on:  
Investments     (19,032,533 )  
Open futures contracts     137,216    
Open swap contracts     (12,957,704 )  
Written options     (1,043,547 )  
Foreign currency, forward contracts and foreign currency related transactions     (344 )  
Net unrealized gain (loss)     (32,896,912 )  
Net realized and unrealized gain (loss)     (25,833,733 )  
Net increase (decrease) in net assets resulting from operations   $ 16,706,758    

 

See accompanying notes to the financial statements.


26


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 42,540,491     $ 71,699,954    
Net realized gain (loss)     7,063,179       (41,675,218 )  
Change in net unrealized appreciation (depreciation)     (32,896,912 )     11,010,275    
Net increase (decrease) in net assets from operations     16,706,758       41,035,011    
Net share transactions (Note 7):     (80,755,000 )     696,755,000    
Total increase (decrease) in net assets     (64,048,242 )     737,790,011    
Net assets:  
Beginning of period     1,750,067,401       1,012,277,390    
End of period   $ 1,686,019,159     $ 1,750,067,401    

 

See accompanying notes to the financial statements.


27



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006   2005(a)   
Net asset value, beginning of period   $ 25.99     $ 25.23     $ 25.17     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.74       1.36       0.96       0.15    
Net realized and unrealized gain (loss)     (0.37 )     (0.60 )     (0.90 )     0.02    
Total from investment operations     0.37       0.76       0.06       0.17    
Net asset value, end of period   $ 26.36     $ 25.99     $ 25.23     $ 25.17    
Total Return(b)      1.42 %**      3.01 %     0.24 %     0.68 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,686,019     $ 1,750,067     $ 1,012,277     $ 582,279    
Net operating expenses to average daily net assets     0.00 %(c)      0.00 %(c)      0.00 %(c)      0.01 %*   
Interest expense to average daily net assets     0.15 %*      0.00 %(c)      —       —    
Total net expenses to average daily net assets     0.15 %*      0.00 %(c)      0.00 %(c)      0.01 %*   
Net investment income to average daily net assets     5.61 %*      5.36 %     3.84 %     2.21 %*   
Portfolio turnover rate     28 %**      93 %     31 %     8 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.03 %     0.03 %     0.06 %*   

 

(a)  Period from November 22, 2004 (commencement of operations) through February 28, 2005.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)  Ratio is less than 0.01%.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


28



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO World Opportunity Overlay 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the JPMorgan U.S. 3 Month Cash Index. The Fund's investment program has two principal components. One component of the Fund's investment program involves the use of derivatives, primarily interest rate swap contracts and/or futures contracts, to seek to exploit misvaluations in world interest rates and to add value relative to the JPMorgan U.S. 3 Month Cash Index. The other component of the Fund's investment program involves making direct investments primarily in high quality U.S. and foreign fixed income securities, in particular asset-backed securities, to gain exposure to the JPMorgan U.S. 3 Month Cash Index (and to securities with similar characteristics to those in the benchmark) and to generate a core return.

Shares of the Fund are not publicly offered and are principally available only to other funds of the Trust and certain accredited investors.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are


29


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.


30


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written options outstanding at the end of the period are listed in the Fund's Schedule of Investments.


31


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

For the period ended August 31, 2007, the Fund's investment activity in written option contracts was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Premiums   Principal
Amount
of Contracts		   Premiums  
Outstanding, beginning of period   $ (810,000,000 )   $ (2,766,300 )   $ (485,000,000 )   $ (2,750,050 )  
Options written     (3,885,004,900 )     (22,334,290 )     (31,025,004,900 )     (21,506,030 )  
Options exercised     1,419,000,000       8,305,394       1,257,000,000       8,381,300    
Options expired     1,907,000,000       8,884,892       27,015,000,000       8,704,471    
Options sold     —       —       —       —    
    $ (1,369,004,900 )   $ (7,910,304 )   $ (3,238,004,900 )   $ (7,170,309 )  

 

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from


32


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

lenders it acquires direct rights against the borrower on the loan. There were no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to


33


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a


34


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

portion of the Fund's earnings on the collateral. For the period ended August 31, 2007, the Fund did not participate in securities lending.

Taxes

The Fund elected to be taxed as a partnership for federal income tax purposes. As a partnership, the Fund will not be subject to federal and state income tax. Instead, each shareholder is responsible for the tax liability or benefit related to his/her allocable share of taxable income or loss. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,713,229,084     $ 10,710,732     $ (27,478,556 )   $ (16,767,824 )  

 

Distributions

The Fund does not intend to make any distributions to its shareholders but may do so in the sole discretion of the Trustees.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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.


35


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO does not charge the Fund any management or service fees for its services. In addition, the Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expe nses (including taxes)).

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $6,414 and $4,508, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


36


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ —     $ 6,000,000    
Investments (non-U.S. Government securities)     417,766,738       454,637,250    

 

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 75.81% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Each of the shareholders are other funds of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 100.00% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
    Shares   Amount   Shares   Amount  
Shares sold     27,114,107     $ 717,550,000       47,430,776     $ 1,214,765,000    
Shares repurchased     (30,493,511 )     (798,305,000 )     (20,215,136 )     (518,010,000 )  
Net increase (decrease)     (3,379,404 )   $ (80,755,000 )     27,215,640     $ 696,755,000    

 


37



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement. The Trustees also considered so-called "fallout benefits" to the Manager, such as the possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a


38


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees did not consider possible economies of scale to the Manager because the Manager does not receive an advisory fee from the Fund.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


39


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
  1 ) Actual     0.15 %   $ 1,000.00     $ 1,014.20     $ 0.76    
  2 ) Hypothetical     0.15 %   $ 1,000.00     $ 1,024.38     $ 0.76    

 

*  Expenses are calculated using the annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


40



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.7 %  
Short-Term Investments     2.2    
Other     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Technology     18.0 %  
Health Care     17.9    
Financial     15.9    
Retail Stores     14.6    
Oil & Gas     10.7    
Utility     5.3    
Services     4.7    
Consumer Goods     3.6    
Food & Beverage     2.5    
Automotive     2.3    
Manufacturing     1.4    
Primary Process Industry     1.2    
Transportation     0.8    
Machinery     0.6    
Construction     0.4    
Metals & Mining     0.1    
      100.0 %  

 


1



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      COMMON STOCKS — 97.7%  
      Automotive — 2.3%  
    300     Autoliv, Inc.     17,211    
    50,069     Ford Motor Co. *      391,039    
    12,000     General Motors Corp.     368,880    
    5,200     Goodyear Tire & Rubber Co. (The) *      143,832    
    14,100     Harley-Davidson, Inc.     758,439    
    900     Johnson Controls, Inc.     101,790    
    10,150     Paccar, Inc.     868,332    
    Total Automotive     2,649,523    
      Construction — 0.4%  
    1,600     Centex Corp.     46,256    
    600     D.R. Horton, Inc.     9,066    
    400     KB Home     12,136    
    1,300     Lennar Corp.-Class A     36,751    
    200     Martin Marietta Materials, Inc.     27,000    
    4,400     Masco Corp.     114,488    
    2,900     Toll Brothers, Inc. *      61,944    
    2,300     Weyerhaeuser Co.     156,791    
    Total Construction     464,432    
      Consumer Goods — 3.5%  
    5,000     Altria Group, Inc.     347,050    
    6,100     Avon Products, Inc.     209,535    
    14,200     Coach, Inc. *      632,326    
    900     Colgate-Palmolive Co.     59,688    
    1,800     Estee Lauder Cos. (The), Inc.-Class A     74,862    
    3,900     Hasbro, Inc.     110,019    
    10,100     Kimberly-Clark Corp.     693,769    
    1,400     Leggett & Platt, Inc.     28,560    
    4,400     Liz Claiborne, Inc.     150,348    
    13,000     Mattel Co.     281,190    
    800     Mohawk Industries, Inc. *      69,848    

 

See accompanying notes to the financial statements.


2


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Consumer Goods — continued  
    11,400     Nike, Inc.     642,276    
    600     Polo Ralph Lauren Corp.     45,324    
    5,500     UST, Inc.     271,040    
    5,400     VF Corp.     431,190    
    1,100     Whirlpool Corp.     106,051    
    Total Consumer Goods     4,153,076    
      Financial — 15.5%  
    1,100     ACE Ltd.     63,536    
    10,300     Aflac, Inc.     549,093    
    24,400     Allstate Corp. (The)     1,335,900    
    3,850     AMBAC Financial Group, Inc.     241,857    
    17,700     American International Group, Inc.     1,168,200    
    28,208     Bank of America Corp.     1,429,581    
    5,300     BB&T Corp.     210,569    
    800     Brown & Brown, Inc.     21,536    
    2,900     Chubb Corp.     148,277    
    106,600     Citigroup, Inc.     4,997,408    
    1,000     CNA Financial Corp.     41,960    
    4,100     Comerica, Inc.     228,698    
    4,200     Countrywide Financial Corp.     83,370    
    4,400     Discover Financial Services *      101,816    
    900     Eaton Vance Corp.     34,551    
    21,600     Fannie Mae     1,417,176    
    3,400     Fifth Third Bancorp     121,346    
    1,900     First American Corp.     79,477    
    1,400     First Horizon National Corp.     42,952    
    1,400     First Marblehead Corp. (The)     46,886    
    1,300     Franklin Resources, Inc.     171,301    
    4,100     Freddie Mac     252,601    
    3,900     Goldman Sachs Group, Inc.     686,439    
    900     Hartford Financial Services Group, Inc.     80,019    
    1,967     Lincoln National Corp.     119,751    
    100     Markel Corp. *      47,566    

 

See accompanying notes to the financial statements.


3


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Financial — continued  
    3,300     MBIA, Inc.     198,000    
    2,800     MetLife, Inc.     179,340    
    2,300     MGIC Investment Corp.     69,368    
    7,900     Morgan Stanley     492,723    
    19,100     National City Corp.     513,981    
    10,587     Old Republic International Corp.     192,578    
    4,600     PMI Group (The), Inc.     145,728    
    700     Popular, Inc.     8,638    
    8,800     Progressive Corp. (The)     178,992    
    2,800     Prudential Financial, Inc.     251,384    
    3,000     Radian Group, Inc.     52,920    
    2,700     Safeco Corp.     156,654    
    4,800     SEI Investment Co.     121,776    
    4,800     Torchmark Corp.     295,488    
    14,900     Travelers Cos. (The), Inc.     753,046    
    700     UnionBanCal Corp.     41,146    
    9,000     Unum Group     220,230    
    9,400     US Bancorp     304,090    
    1,850     W.R. Berkley Corp.     55,297    
    7,245     Washington Mutual, Inc.     266,036    
    Total Financial     18,219,281    
      Food & Beverage — 2.5%  
    13,300     Anheuser-Busch Cos., Inc.     657,020    
    16,400     Coca-Cola Co. (The)     881,992    
    10,600     ConAgra Foods, Inc.     272,526    
    1,100     General Mills Co.     61,468    
    2,800     HJ Heinz Co.     126,252    
    15,037     Kraft Foods, Inc.     482,086    
    2,300     McCormick & Co., Inc. (Non Voting)     82,432    
    1,700     Pepsi Bottling Group, Inc.     58,803    
    5,900     Sara Lee Corp.     98,058    
    9,100     Tyson Foods, Inc.-Class A     196,105    
    Total Food & Beverage     2,916,742    

 

See accompanying notes to the financial statements.


4


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Health Care — 17.5%  
    7,300     Abbott Laboratories     378,943    
    6,300     Aetna, Inc.     320,733    
    12,400     AmerisourceBergen Corp.     593,340    
    1,400     Bard (C.R.), Inc.     116,746    
    7,800     Baxter International, Inc.     427,128    
    2,100     Becton Dickinson & Co.     161,574    
    10,400     Bristol-Myers Squibb Co.     303,160    
    9,400     Cardinal Health, Inc.     642,772    
    6,900     Cigna Corp.     356,592    
    1,275     Covidien Ltd. *      50,783    
    700     DENTSPLY International, Inc.     27,566    
    11,900     Express Scripts, Inc. *      651,525    
    21,500     Forest Laboratories, Inc. *      809,045    
    1,600     Health Net, Inc. *      87,664    
    36,100     Johnson & Johnson     2,230,619    
    10,400     King Pharmaceuticals, Inc. *      156,312    
    13,500     McKesson Corp.     772,335    
    1,300     Medco Health Solutions, Inc. *      111,085    
    89,000     Merck & Co., Inc.     4,465,130    
    1,900     Patterson Cos., Inc. *      69,882    
    134,830     Pfizer, Inc.     3,349,177    
    6,000     Quest Diagnostics, Inc.     328,500    
    22,800     Schering-Plough Corp.     684,456    
    300     St. Jude Medical, Inc. *      13,071    
    13,600     Stryker Corp.     908,480    
    22,200     UnitedHealth Group, Inc.     1,110,222    
    2,500     Wyeth     115,750    
    16,500     Zimmer Holdings, Inc. *      1,292,445    
    Total Health Care     20,535,035    
      Machinery — 0.6%  
    2,200     Cummins, Inc.     260,524    
    3,000     Deere & Co.     408,180    
    Total Machinery     668,704    

 

See accompanying notes to the financial statements.


5


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Manufacturing — 1.3%  
    4,600     American Standard Cos., Inc.     169,418    
    500     Ball Corp.     26,190    
    5,000     Honeywell International, Inc.     280,750    
    5,500     Illinois Tool Works, Inc.     319,935    
    1,100     ITT Industries, Inc.     74,789    
    1,600     Owens-IIlinois, Inc. *      64,352    
    2,300     Pactiv Corp. *      67,275    
    1,600     Pall Corp.     61,008    
    1,100     Precision Castparts Corp.     143,341    
    2,200     Sealed Air Corp.     58,190    
    200     Temple-Inland, Inc.     11,016    
    1,275     Tyco International Ltd.     56,304    
    3,300     United Technologies Corp.     246,279    
    Total Manufacturing     1,578,847    
      Metals & Mining — 0.1%  
    2,600     Alcoa, Inc.     94,978    
      Oil & Gas — 10.5%  
    3,000     Anadarko Petroleum Corp.     146,940    
    1,200     Apache Corp.     92,856    
    30,700     Chevron Corp.     2,694,232    
    7,974     ConocoPhillips     652,991    
    2,000     Devon Energy Corp.     150,620    
    92,100     Exxon Mobil Corp.     7,895,733    
    5,400     Marathon Oil Corp.     291,006    
    4,600     Occidental Petroleum Corp.     260,774    
    2,100     Tesoro Corp.     103,593    
    Total Oil & Gas     12,288,745    
      Primary Process Industry — 1.2%  
    900     Air Products & Chemicals, Inc.     81,009    
    7,100     Dow Chemical Co. (The)     302,673    
    5,900     E.I. du Pont de Nemours & Co.     287,625    

 

See accompanying notes to the financial statements.


6


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Primary Process Industry — continued  
    1,200     Eastman Chemical Co.     80,112    
    2,000     International Flavors & Fragrances, Inc.     100,460    
    1,200     Lubrizol Corp.     76,296    
    700     Lyondell Chemical Co.     32,452    
    3,200     PPG Industries, Inc.     234,720    
    3,000     Sherwin-Williams Co. (The)     207,030    
    Total Primary Process Industry     1,402,377    
      Retail Stores — 14.2%  
    2,800     Abercrombie & Fitch Co.-Class A     220,360    
    500     Amazon.com, Inc. *      39,955    
    9,250     American Eagle Outfitters, Inc.     238,928    
    10,400     AutoNation, Inc. *      197,392    
    3,600     AutoZone, Inc. *      436,644    
    10,100     Bed Bath & Beyond, Inc. *      349,864    
    500     Best Buy, Inc.     21,975    
    3,700     CarMax, Inc. *      83,842    
    3,200     CDW Corp. *      275,424    
    2,100     Costco Wholesale Corp.     129,675    
    2,300     eBay, Inc. *      78,430    
    2,700     Family Dollar Stores, Inc.     79,056    
    500     Fastenal Co.     22,805    
    2,100     Gap (The), Inc.     39,396    
    77,500     Home Depot, Inc.     2,969,025    
    1,500     JC Penney Co., Inc.     103,140    
    17,200     Kohls Corp. *      1,019,960    
    24,500     Kroger Co. (The)     651,210    
    4,400     Limited Brands, Inc.     101,904    
    57,300     Lowe's Cos., Inc.     1,779,738    
    5,000     Nordstrom, Inc.     240,500    
    3,700     PetSmart, Inc.     128,390    
    3,600     RadioShack Corp.     85,572    
    800     Ross Stores, Inc.     22,264    
    17,400     Safeway, Inc.     552,102    

 

See accompanying notes to the financial statements.


7


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Retail Stores — continued  
    600     Sears Holdings Corp. *      86,136    
    17,300     Staples, Inc.     410,875    
    6,157     Supervalu, Inc.     259,518    
    16,100     Target Corp.     1,061,473    
    2,600     Tiffany & Co.     133,458    
    11,400     TJX Cos., Inc.     347,586    
    9,800     Walgreen Co.     441,686    
    93,800     Wal-Mart Stores, Inc.     4,092,494    
    Total Retail Stores     16,700,777    
      Services — 4.6%  
    2,400     Apollo Group, Inc.-Class A *      140,808    
    4,800     Carnival Corp.     218,832    
    6,000     CBS Corp.-Class B     189,060    
    1,059     Citadel Broadcasting Corp.     4,310    
    19,350     Comcast Corp.-Class A *      504,842    
    8,600     Direct TV Group (The) *      200,638    
    1,700     Expedia, Inc. *      50,745    
    12,700     Gannett Co., Inc.     596,900    
    1,700     IAC/InterActiveCorp. *      47,243    
    300     ITT Educational Services, Inc. *      32,940    
    700     Liberty Media Holding Corp. Capital-Class A *      76,293    
    2,300     Manpower, Inc.     161,598    
    6,700     Marriott International, Inc.-Class A     297,614    
    23,700     McDonald's Corp.     1,167,225    
    2,300     McGraw-Hill, Inc.     116,058    
    1,500     MGM Mirage *      125,955    
    2,300     Moody's Corp.     105,455    
    6,500     News Corp.-Class A     131,495    
    3,200     Omnicom Group, Inc.     162,976    
    700     RR Donnelley & Sons Co.     25,074    
    6,500     Starbucks Corp. *      179,075    
    12,400     Sysco Corp.     413,912    
    3,200     Tribune Co.     88,160    

 

See accompanying notes to the financial statements.


8


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Services — continued  
    1,700     Waste Management, Inc.     64,039    
    10,400     Yum! Brands, Inc.     340,288    
    Total Services     5,441,535    
      Technology — 17.6%  
    600     Adobe Systems, Inc. *      25,650    
    2,800     Affiliated Computer Services, Inc.-Class A *      140,084    
    1,700     Analog Devices, Inc.     62,696    
    5,300     Apple, Inc. *      733,944    
    1,100     Arrow Electronics, Inc. *      46,156    
    800     Avaya, Inc. *      13,464    
    2,700     Avnet, Inc. *      106,137    
    6,500     BMC Software, Inc. *      199,030    
    70,600     Cisco Systems, Inc. *      2,253,552    
    400     Citrix Systems, Inc. *      14,540    
    1,200     Cognizant Technologies Solutions Corp.-Class A *      88,212    
    1,000     Computer Sciences Corp. *      55,950    
    7,400     Danaher Corp.     574,684    
    76,600     Dell, Inc. *      2,163,950    
    19,400     EMC Corp. *      381,404    
    1,400     Emerson Electric Co.     68,922    
    2,000     Energizer Holdings, Inc. *      211,860    
    9,900     First Data Corp.     328,878    
    7,300     Fiserv, Inc. *      339,596    
    3,200     General Dynamics Corp.     251,392    
    200     Goodrich Corp.     12,632    
    9,800     Hewlett-Packard Co.     483,630    
    40,800     Intel Corp.     1,050,600    
    31,000     International Business Machines Corp.     3,617,390    
    4,000     Intuit, Inc. *      109,240    
    1,900     KLA-Tencor Corp.     109,193    
    6,400     Lexmark International, Inc. *      238,464    
    4,700     Lockheed Martin Corp.     465,958    
    2,400     McAfee, Inc. *      85,800    

 

See accompanying notes to the financial statements.


9


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      Technology — continued  
    130,100     Microsoft Corp.     3,737,772    
    1,000     NCR Corp. *      49,770    
    1,600     Northrop Grumman Corp.     126,144    
    4,300     Novellus System, Inc. *      117,691    
    41,700     Oracle Corp. *      845,676    
    4,500     Pitney Bowes, Inc.     201,015    
    300     Qualcomm, Inc.     11,967    
    3,300     Raytheon Co.     202,422    
    400     Rockwell Collins, Inc.     27,548    
    27,200     Time Warner, Inc.     516,256    
    1,700     Total System Services, Inc.     47,158    
    1,275     Tyco Electronics Ltd. *      44,459    
    2,000     VeriSign, Inc. *      64,400    
    1,900     W.W. Grainger, Inc.     174,059    
    2,400     Waters Corp. *      147,768    
    3,600     Xilinx, Inc.     92,052    
    Total Technology     20,639,165    
      Transportation — 0.7%  
    3,200     CH Robinson Worldwide, Inc.     156,928    
    3,500     CSX Corp.     143,500    
    5,200     FedEx Corp.     570,336    
    100     Union Pacific Corp.     11,157    
    Total Transportation     881,921    
      Utility — 5.2%  
    8,400     AES Corp. (The) *      152,124    
    5,600     American Electric Power Co., Inc.     249,088    
    75,563     AT&T, Inc.     3,012,697    
    1,200     Centerpoint Energy, Inc.     19,464    
    3,400     CenturyTel, Inc.     163,132    
    900     Constellation Energy Group, Inc.     74,646    
    1,800     Edison International     94,878    
    4,400     Entergy Corp.     455,928    

 

See accompanying notes to the financial statements.


10


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
      Utility — continued  
    1,600     NiSource, Inc.     30,144    
    100     Public Service Enterprise Group, Inc.     8,499    
    500     Sempra Energy     27,515    
    41,442     Verizon Communications, Inc.     1,735,591    
    3,400     Xcel Energy, Inc.     70,074    
    Total Utility     6,093,780    
    TOTAL COMMON STOCKS (COST $103,844,718)     114,728,918    
      SHORT-TERM INVESTMENTS — 2.2%  
    2,506,839     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $2,508,023 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Bond with a rate of
8.75%, maturity date of 05/15/17 and a market value, including
accrued interest, of $2,649,233.		     2,506,839    
    TOTAL SHORT-TERM INVESTMENTS (COST $2,506,839)     2,506,839    
    TOTAL INVESTMENTS — 99.9%
(Cost $106,351,557)		     117,235,757    
          Other Assets and Liabilities (net) — 0.1%     167,027    
    TOTAL NET ASSETS — 100.0%   $ 117,402,784    

 

Notes to Schedule of Investments:

*  Non-income producing security.

See accompanying notes to the financial statements.


11



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $106,351,557) (Note 2)   $ 117,235,757    
Dividends and interest receivable     260,366    
Receivable for expenses reimbursed by Manager (Note 3)     6,789    
Total assets     117,502,912    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     32,309    
Shareholder service fee     14,686    
Trustees and Chief Compliance Officer of GMO Trust fees     253    
Accrued expenses     52,880    
Total liabilities     100,128    
Net assets   $ 117,402,784    
Net assets consist of:  
Paid-in capital   $ 103,767,882    
Accumulated undistributed net investment income     346,223    
Accumulated net realized gain     2,404,479    
Net unrealized appreciation     10,884,200    
    $ 117,402,784    
Net assets attributable to:  
Class III shares   $ 117,402,784    
Shares outstanding:  
Class III     8,532,334    
Net asset value per share:  
Class III   $ 13.76    

 

See accompanying notes to the financial statements.


12


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 1,201,984    
Interest     49,188    
Total investment income     1,251,172    
Expenses:  
Management fee (Note 3)     199,686    
Shareholder service fee – Class III (Note 3)     90,766    
Custodian, fund accounting agent and transfer agent fees     18,124    
Audit and tax fees     25,852    
Legal fees     1,380    
Trustees fees and related expenses (Note 3)     725    
Registration fees     184    
Miscellaneous     737    
Total expenses     337,454    
Fees and expenses reimbursed by Manager (Note 3)     (45,908 )  
Net expenses     291,546    
Net investment income (loss)     959,626    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     4,469,509    
Change in net unrealized appreciation (depreciation) on investments     (1,984,138 )  
Net realized and unrealized gain (loss)     2,485,371    
Net increase (decrease) in net assets resulting from operations   $ 3,444,997    

 

See accompanying notes to the financial statements.


13


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 959,626     $ 1,733,783    
Net realized gain (loss)     4,469,509       3,529,504    
Change in net unrealized appreciation (depreciation)     (1,984,138 )     2,169,764    
Net increase (decrease) in net assets from operations     3,444,997       7,433,051    
Distributions to shareholders from:  
Net investment income  
Class III     (919,856 )     (1,642,938 )  
Net share transactions (Note 7):  
Class III     (1,846,942 )     (10,404,882 )  
Total increase (decrease) in net assets     678,199       (4,614,769 )  
Net assets:  
Beginning of period     116,724,585       121,339,354    
End of period (including accumulated undistributed net investment
income of $346,223 and $306,453, respectively)		   $ 117,402,784     $ 116,724,585    

 

See accompanying notes to the financial statements.


14



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 13.48     $ 12.83     $ 12.14     $ 11.58     $ 8.62     $ 11.24    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.11       0.19       0.20       0.16       0.14       0.14    
Net realized and unrealized
gain (loss)		     0.28       0.64       0.69       0.54       2.96       (2.64 )  
Total from investment
operations		     0.39       0.83       0.89       0.70       3.10       (2.50 )  
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.18 )     (0.20 )     (0.14 )     (0.14 )     (0.12 )  
Total distributions     (0.11 )     (0.18 )     (0.20 )     (0.14 )     (0.14 )     (0.12 )  
Net asset value, end of period   $ 13.76     $ 13.48     $ 12.83     $ 12.14     $ 11.58     $ 8.62    
Total Return(a)      2.86 %**      6.53 %     7.46 %     6.12 %(b)      36.21 %     (22.33 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 117,403     $ 116,725     $ 121,339     $ 81,374     $ 62,027     $ 40,347    
Net expenses to average daily
net assets		     0.48 %*      0.48 %     0.48 %     0.48 %     0.48 %     0.49 %  
Net investment income to
average daily net assets		     1.59 %*      1.46 %     1.65 %     1.39 %     1.34 %     1.41 %  
Portfolio turnover rate     30 %**      67 %     62 %     87 %     70 %     63 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.08 %*      0.11 %     0.08 %     0.08 %     0.13 %     0.16 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(b)  The effect of losses in the amount of $15,989 resulting from compliance violations and the Manager's reimbursement of such losses had no effect on total return.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


15



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Tax-Managed U.S. Equities 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high after-tax total return. The Fund seeks to achieve its objective by outperforming the S&P 500 Index (after tax), which is computed by GMO by adjusting the return of the S&P 500 Index by its tax cost. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index and companies with similar market capitalizations, and uses quantitative models integrated with tax management techniques to provide broad exposure to the U.S. equity market to investors subject to U.S. federal income tax.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. Futures contracts are


16


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there


17


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities Lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.


18


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $228,015 and $1,837,015 expiring in 2011 and 2012, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 106,351,557     $ 14,198,900     $ (3,314,700 )   $ 10,884,200    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

For the period ended August 31, 2007, the Fund had realized gains attributed to redemption in-kind transactions of $663,537.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact


19


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.33% 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 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.33% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $541 and $368, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $34,580,077 and $36,774,351, respectively.


20


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 68.47% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 0.04% of the Fund's shares were held by one related party comprised of a certain GMO employee account, and 2.67% of the Fund's shares was held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,598     $ 34,637       182,327     $ 2,335,000    
Shares issued to shareholders
in reinvestment of distributions		     51,693       724,972       93,323       1,204,619    
Shares repurchased     (183,539 )     (2,606,551 )     (1,072,199 )     (13,944,501 )  
Net increase (decrease)     (129,248 )   $ (1,846,942 )     (796,549 )   $ (10,404,882 )  

 

8.  Subsequent event

On October 15, 2007, the Fund's benchmark was changed from the S&P 500 Index (after tax) to the Russell 3000.


21



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


22


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


23


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


24


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.48 %   $ 1,000.00     $ 1,028.60     $ 2.45    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.72     $ 2.44    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


25



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Semiannual Report
August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     99.1 %  
Short-Term Investments     5.7    
Other     (4.8 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Technology     18.3 %  
Health Care     18.0    
Retail Stores     15.0    
Financial     14.4    
Oil & Gas     11.1    
Utility     5.1    
Services     5.0    
Consumer Goods     3.2    
Food & Beverage     2.6    
Automotive     2.6    
Manufacturing     1.7    
Primary Process Industry     1.2    
Construction     0.7    
Transportation     0.6    
Machinery     0.4    
Metals & Mining     0.1    
      100.0 %  

 


1



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 99.1%  
        Automotive — 2.5%  
    1,400     Autoliv, Inc.     80,318    
    1,500     Eaton Corp.     141,330    
    50,093     Ford Motor Co. * (a)      391,226    
    10,500     General Motors Corp.     322,770    
    5,300     Goodyear Tire & Rubber Co. (The) *      146,598    
    13,600     Harley-Davidson, Inc.     731,544    
    700     Johnson Controls, Inc.     79,170    
    9,500     Paccar, Inc.     812,725    
    Total Automotive     2,705,681    
        Construction — 0.6%  
    1,400     Centex Corp.     40,474    
    2,400     D.R. Horton, Inc.     36,264    
    800     KB Home (a)      24,272    
    1,700     Lennar Corp.-Class A     48,059    
    200     Martin Marietta Materials, Inc.     27,000    
    7,000     Masco Corp.     182,140    
    600     Pulte Homes, Inc.     9,984    
    5,100     Toll Brothers, Inc. *      108,936    
    600     Vulcan Materials Co.     54,006    
    2,400     Weyerhaeuser Co.     163,608    
    Total Construction     694,743    
        Consumer Goods — 3.2%  
    4,400     Avon Products, Inc.     151,140    
    2,600     Cintas Corp.     95,290    
    13,800     Coach, Inc. *      614,514    
    300     Colgate-Palmolive Co.     19,896    
    1,800     Estee Lauder Cos. (The), Inc.-Class A     74,862    
    5,000     Hasbro, Inc.     141,050    
    10,000     Kimberly-Clark Corp.     686,900    
    2,200     Leggett & Platt, Inc.     44,880    

 

See accompanying notes to the financial statements.


2


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued  
    5,000     Liz Claiborne, Inc.     170,850    
    12,700     Mattel Co.     274,701    
    700     Mohawk Industries, Inc. *      61,117    
    11,200     Nike, Inc.     631,008    
    800     Polo Ralph Lauren Corp.     60,432    
    4,900     VF Corp.     391,265    
    Total Consumer Goods     3,417,905    
        Financial — 14.3%  
    1,600     ACE Ltd.     92,416    
    6,900     Aflac, Inc.     367,839    
    23,400     Allstate Corp. (The)     1,281,150    
    3,300     AMBAC Financial Group, Inc. (a)      207,306    
    16,900     American International Group, Inc.     1,115,400    
    19,688     Bank of America Corp.     997,788    
    5,500     BB&T Corp.     218,515    
    2,900     Brown & Brown, Inc.     78,068    
    1,700     Chubb Corp.     86,921    
    500     Cincinnati Financial Corp.     21,070    
    68,500     Citigroup, Inc.     3,211,280    
    1,100     CNA Financial Corp.     46,156    
    4,200     Comerica, Inc.     234,276    
    4,900     Countrywide Financial Corp. (a)      97,265    
    3,400     Discover Financial Services *      78,676    
    900     Eaton Vance Corp.     34,551    
    20,700     Fannie Mae     1,358,127    
    4,100     Fifth Third Bancorp     146,329    
    1,700     First American Corp.     71,111    
    1,700     First Horizon National Corp.     52,156    
    1,300     First Marblehead Corp. (The) (a)      43,537    
    1,300     Franklin Resources, Inc.     171,301    
    4,200     Freddie Mac     258,762    
    3,000     Goldman Sachs Group, Inc.     528,030    
    1,100     Hartford Financial Services Group, Inc.     97,801    

 

See accompanying notes to the financial statements.


3


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    400     Lincoln National Corp.     24,352    
    300     Markel Corp. * (a)      142,698    
    3,100     MBIA, Inc. (a)      186,000    
    3,200     MetLife, Inc.     204,960    
    2,400     MGIC Investment Corp. (a)      72,384    
    6,700     Morgan Stanley     417,879    
    14,500     National City Corp.     390,195    
    7,625     Old Republic International Corp.     138,699    
    2,900     PMI Group (The), Inc.     91,872    
    1,100     Popular, Inc. (a)      13,574    
    9,400     Progressive Corp. (The)     191,196    
    3,000     Prudential Financial, Inc.     269,340    
    2,200     Radian Group, Inc.     38,808    
    3,000     Safeco Corp.     174,060    
    5,800     SEI Investment Co.     147,146    
    4,000     Torchmark Corp.     246,240    
    14,800     Travelers Cos. (The), Inc.     747,992    
    1,200     UnionBanCal Corp.     70,536    
    8,300     Unum Group     203,101    
    9,500     US Bancorp     307,325    
    3,000     W.R. Berkley Corp.     89,670    
    5,966     Washington Mutual, Inc. (a)      219,072    
    Total Financial     15,282,930    
        Food & Beverage — 2.6%  
    11,900     Anheuser-Busch Cos., Inc.     587,860    
    15,600     Coca-Cola Co. (The)     838,968    
    10,500     ConAgra Foods, Inc.     269,955    
    1,900     General Mills Co.     106,172    
    600     HJ Heinz Co.     27,054    
    700     Hormel Foods Corp.     24,941    
    16,200     Kraft Foods, Inc.     519,372    
    1,300     McCormick & Co., Inc. (Non Voting)     46,592    

 

See accompanying notes to the financial statements.


4


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Food & Beverage — continued  
    800     Pepsi Bottling Group, Inc.     27,672    
    9,300     Sara Lee Corp.     154,566    
    9,100     Tyson Foods, Inc.-Class A     196,105    
    Total Food & Beverage     2,799,257    
        Health Care — 17.9%  
    5,300     Abbott Laboratories     275,123    
    7,400     Aetna, Inc.     376,734    
    10,500     AmerisourceBergen Corp.     502,425    
    1,700     Bard (C.R.), Inc.     141,763    
    8,100     Baxter International, Inc.     443,556    
    1,200     Becton Dickinson & Co.     92,328    
    5,500     Bristol-Myers Squibb Co.     160,325    
    8,600     Cardinal Health, Inc.     588,068    
    6,900     Cigna Corp.     356,592    
    1,900     Coventry Health Care, Inc. *      109,003    
    2,175     Covidien Ltd. *      86,630    
    9,100     Express Scripts, Inc. *      498,225    
    18,700     Forest Laboratories, Inc. *      703,681    
    1,700     Health Net, Inc. *      93,143    
    34,120     Johnson & Johnson     2,108,275    
    4,800     King Pharmaceuticals, Inc. *      72,144    
    11,200     McKesson Corp.     640,752    
    2,600     Medco Health Solutions, Inc. *      222,170    
    78,900     Merck & Co., Inc.     3,958,413    
    2,800     Patterson Cos., Inc. *      102,984    
    124,390     Pfizer, Inc.     3,089,848    
    6,300     Quest Diagnostics, Inc.     344,925    
    25,000     Schering-Plough Corp.     750,500    
    2,400     St. Jude Medical, Inc. *      104,568    
    12,900     Stryker Corp.     861,720    
    20,824     UnitedHealth Group, Inc.     1,041,408    
    1,500     WellPoint, Inc. *      120,885    

 

See accompanying notes to the financial statements.


5


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    1,500     Wyeth     69,450    
    15,700     Zimmer Holdings, Inc. *      1,229,781    
    Total Health Care     19,145,419    
        Machinery — 0.4%  
    700     Cummins, Inc.     82,894    
    1,300     Deere & Co.     176,878    
    3,700     Ingersoll-Rand     192,141    
    Total Machinery     451,913    
        Manufacturing — 1.7%  
    4,900     American Standard Cos., Inc.     180,467    
    800     Ball Corp.     41,904    
    2,200     General Electric Co.     85,514    
    5,400     Honeywell International, Inc.     303,210    
    2,200     Illinois Tool Works, Inc.     127,974    
    2,200     ITT Industries, Inc.     149,578    
    1,900     Owens-IIlinois, Inc. *      76,418    
    2,700     Pactiv Corp. *      78,975    
    1,700     Pall Corp.     64,821    
    1,700     Precision Castparts Corp.     221,527    
    3,000     Sealed Air Corp.     79,350    
    800     SPX Corp.     72,040    
    400     Temple-Inland, Inc.     22,032    
    2,175     Tyco International Ltd.     96,048    
    2,800     United Technologies Corp.     208,964    
    Total Manufacturing     1,808,822    
        Metals & Mining — 0.1%  
    3,100     Alcoa, Inc.     113,243    

 

See accompanying notes to the financial statements.


6


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Oil & Gas — 11.0%  
    3,400     Anadarko Petroleum Corp.     166,532    
    2,500     Apache Corp.     193,450    
    28,700     Chevron Corp.     2,518,712    
    10,751     ConocoPhillips     880,399    
    3,000     Devon Energy Corp.     225,930    
    82,100     Exxon Mobil Corp.     7,038,433    
    2,900     Marathon Oil Corp.     156,281    
    2,800     Occidental Petroleum Corp.     158,732    
    3,600     Tesoro Corp.     177,588    
    4,000     Valero Energy Corp.     274,040    
    Total Oil & Gas     11,790,097    
        Primary Process Industry — 1.2%  
    7,300     Dow Chemical Co. (The)     311,199    
    5,500     E.I. du Pont de Nemours & Co.     268,125    
    1,400     Eastman Chemical Co.     93,464    
    2,400     International Flavors & Fragrances, Inc.     120,552    
    1,900     Lubrizol Corp.     120,802    
    1,100     Lyondell Chemical Co.     50,996    
    1,300     PPG Industries, Inc.     95,355    
    3,200     Sherwin-Williams Co. (The)     220,832    
    Total Primary Process Industry     1,281,325    
        Retail Stores — 14.8%  
    3,200     Abercrombie & Fitch Co.-Class A     251,840    
    400     Advance Auto Parts, Inc.     14,224    
    700     Amazon.com, Inc. *      55,937    
    9,750     American Eagle Outfitters, Inc.     251,842    
    12,600     AutoNation, Inc. *      239,148    
    3,600     AutoZone, Inc. * (a)      436,644    
    10,500     Bed Bath & Beyond, Inc. *      363,720    
    2,400     Best Buy Co., Inc. (a)      105,480    
    3,400     CarMax, Inc. *      77,044    
    3,800     CDW Corp. *      327,066    

 

See accompanying notes to the financial statements.


7


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued  
    3,300     eBay, Inc. *      112,530    
    5,500     Family Dollar Stores, Inc.     161,040    
    3,200     Gap (The), Inc.     60,032    
    70,900     Home Depot, Inc.     2,716,179    
    1,900     JC Penney Co., Inc.     130,644    
    16,300     Kohls Corp. *      966,590    
    18,100     Kroger Co.     481,098    
    5,100     Limited Brands, Inc.     118,116    
    52,100     Lowe's Cos., Inc. (a)      1,618,226    
    5,000     Nordstrom, Inc.     240,500    
    1,100     PetSmart, Inc.     38,170    
    6,300     RadioShack Corp. (a)      149,751    
    1,600     Ross Stores, Inc.     44,528    
    15,000     Safeway, Inc.     475,950    
    600     Sears Holdings Corp. *      86,136    
    17,200     Staples, Inc.     408,500    
    5,865     Supervalu, Inc.     247,210    
    15,700     Target Corp. (a)      1,035,101    
    2,900     Tiffany & Co.     148,857    
    8,600     TJX Cos., Inc.     262,214    
    10,600     Walgreen Co.     477,742    
    87,300     Wal-Mart Stores, Inc.     3,808,899    
    Total Retail Stores     15,910,958    
        Services — 5.0%  
    2,600     Apollo Group, Inc.-Class A *      152,542    
    5,100     Carnival Corp.     232,509    
    7,600     CBS Corp.-Class B     239,476    
    15,800     Comcast Corp.-Class A *      412,222    
    7,200     Direct TV Group (The) *      167,976    
    2,100     Expedia, Inc. *      62,685    
    12,700     Gannett Co., Inc.     596,900    
    1,700     IAC/InterActiveCorp. *      47,243    

 

See accompanying notes to the financial statements.


8


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    500     ITT Educational Services, Inc. *      54,900    
    900     Liberty Media Holding Corp. Capital-Class A *      98,091    
    900     Manpower, Inc.     63,234    
    6,800     Marriott International, Inc.-Class A     302,056    
    22,800     McDonald's Corp.     1,122,900    
    2,800     McGraw-Hill, Inc.     141,288    
    1,500     MGM Mirage *      125,955    
    2,400     Moody's Corp.     110,040    
    2,200     News Corp.-Class A     44,506    
    3,600     Omnicom Group, Inc.     183,348    
    1,800     RR Donnelley & Sons Co.     64,476    
    8,000     Starbucks Corp. *      220,400    
    12,800     Sysco Corp.     427,264    
    4,400     Tribune Co.     121,220    
    10,900     Yum! Brands, Inc.     356,648    
    Total Services     5,347,879    
        Technology — 18.1%  
    1,300     Adobe Systems, Inc. *      55,575    
    1,500     Affiliated Computer Services, Inc.-Class A *      75,045    
    3,800     Analog Devices, Inc.     140,144    
    6,400     Apple, Inc. *      886,272    
    1,000     Arrow Electronics, Inc. *      41,960    
    2,800     Avaya, Inc. *      47,124    
    2,900     Avnet, Inc. *      113,999    
    2,500     BMC Software, Inc. *      76,550    
    700     CA, Inc.     17,633    
    63,600     Cisco Systems, Inc. *      2,030,112    
    1,800     Citrix Systems, Inc. *      65,430    
    1,300     Cognizant Technologies Solutions Corp.-Class A *      95,563    
    5,600     Danaher Corp.     434,896    
    73,000     Dell, Inc. *      2,062,250    
    300     DST Systems, Inc. *      22,938    
    26,800     EMC Corp. *      526,888    

 

See accompanying notes to the financial statements.


9


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued  
    2,100     Energizer Holdings, Inc. *      222,453    
    5,600     First Data Corp.     186,032    
    7,500     Fiserv, Inc. *      348,900    
    2,300     General Dynamics Corp.     180,688    
    500     Goodrich Corp.     31,580    
    7,500     Hewlett-Packard Co.     370,125    
    40,500     Intel Corp.     1,042,875    
    29,000     International Business Machines Corp.     3,384,010    
    2,900     Intuit, Inc. *      79,199    
    1,400     Juniper Networks, Inc. *      46,088    
    3,000     KLA-Tencor Corp. (a)      172,410    
    6,500     Lexmark International, Inc. *      242,190    
    3,900     Lockheed Martin Corp.     386,646    
    3,700     McAfee, Inc. *      132,275    
    121,100     Microsoft Corp.     3,479,203    
    1,100     NCR Corp. *      54,747    
    300     Northrop Grumman Corp.     23,652    
    4,400     Novellus System, Inc. *      120,428    
    35,000     Oracle Corp. *      709,800    
    4,000     Pitney Bowes, Inc.     178,680    
    400     Qualcomm, Inc.     15,956    
    1,100     Rockwell Collins, Inc.     75,757    
    1,500     Symantec Corp. *      28,215    
    27,500     Time Warner, Inc.     521,950    
    2,600     Total System Services, Inc. (a)      72,124    
    2,175     Tyco Electronics Ltd. *      75,842    
    4,400     VeriSign, Inc. *      141,680    
    700     W.W. Grainger, Inc.     64,127    
    2,900     Waters Corp. *      178,553    
    5,600     Xilinx, Inc.     143,192    
    Total Technology     19,401,756    

 

See accompanying notes to the financial statements.


10


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Transportation — 0.6%  
    1,100     CH Robinson Worldwide, Inc.     53,944    
    900     CSX Corp.     36,900    
    4,700     FedEx Corp.     515,496    
    200     Union Pacific Corp.     22,314    
    Total Transportation     628,654    
        Utility — 5.1%  
    8,300     AES Corp. (The) *      150,313    
    5,400     American Electric Power Co., Inc.     240,192    
    64,139     AT&T, Inc.     2,557,222    
    1,900     Centerpoint Energy, Inc.     30,818    
    3,000     CenturyTel, Inc.     143,940    
    900     Constellation Energy Group, Inc.     74,646    
    1,900     Edison International     100,149    
    4,100     Entergy Corp. (a)      424,842    
    300     FPL Group, Inc.     17,652    
    2,500     NiSource, Inc.     47,100    
    300     Pinnacle West Capital Corp.     11,952    
    400     Public Service Enterprise Group, Inc.     33,996    
    600     Sempra Energy     33,018    
    34,884     Verizon Communications, Inc.     1,460,942    
    4,200     Xcel Energy, Inc.     86,562    
    Total Utility     5,413,344    
    TOTAL COMMON STOCKS (COST $103,781,931)     106,193,926    
        SHORT-TERM INVESTMENTS — 5.7%  
        Money Market Funds — 0.5%  
    141,034     Barclays Global Investors Institutional Money Market Fund (b)      141,034    
    423,102     Reserve Primary Money Market Fund (b)      423,102    
    Total Money Market Funds     564,136    

 

See accompanying notes to the financial statements.


11


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — 5.2%  
    141,033     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      141,033    
    780,865     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $781,234 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Bond with a rate
of 8.75%, maturity date of 05/15/17 and a market value, including
accrued interest, of $826,253.		     780,865    
    1,410,341     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $1,411,194 and
an effective yield of 5.45%, collateralized by various corporate debt
obligations with an interest rate range of 0.00% - 9.12%, maturity date
range of 04/01/09 - 05/29/37, and an aggregate market
value of $1,518,275. (b) 		     1,410,341    
    246,810     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $246,959 and an effective
yield of 5.44%, collateralized by a corporate debt obligation with a rate
of 5.38%, maturity date of 07/22/15, and a market value of $251,772. (b) 		     246,810    
    1,410,341     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,411,180 and an effective yield
of 5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%,
maturity date of 11/30/11, and a market value of $1,438,563. (b) 		     1,410,341    
    1,410,341     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,411,194 and an effective yield
of 5.45%, collateralized by various corporate debt obligations with an
interest rate range of 0.00% - 8.50%, maturity date range of
11/16/07 - 06/15/37, and an aggregate market value of $1,444,701. (b) 		     1,410,341    
    139,154     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (b) 		     139,154    
    Total Other Short-Term Investments     5,538,885    
    TOTAL SHORT-TERM INVESTMENTS (COST $6,103,021)     6,103,021    
    TOTAL INVESTMENTS — 104.8%
(Cost $109,884,952)		     112,296,947    
            Other Assets and Liabilities (net) — (4.8%)     (5,098,906 )  
    TOTAL NET ASSETS — 100.0%   $ 107,198,041    

 

See accompanying notes to the financial statements.


12


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


13



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $5,288,751
(cost $109,884,952) (Note 2)		   $ 112,296,947    
Cash     586    
Dividends and interest receivable     352,263    
Receivable for expenses reimbursed by Manager (Note 3)     6,696    
Total assets     112,656,492    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     5,322,156    
Payable to affiliate for (Note 3):  
Management fee     44,478    
Shareholder service fee     20,216    
Trustees and Chief Compliance Officer of GMO Trust fees     299    
Accrued expenses     71,302    
Total liabilities     5,458,451    
Net assets   $ 107,198,041    
Net assets consist of:  
Paid-in capital   $ 82,944,094    
Accumulated undistributed net investment income     492,001    
Accumulated net realized gain     21,349,951    
Net unrealized appreciation     2,411,995    
    $ 107,198,041    
Net assets attributable to:  
Class III shares   $ 107,198,041    
Shares outstanding:  
Class III     8,445,309    
Net asset value per share:  
Class III   $ 12.69    

 

See accompanying notes to the financial statements.


14


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 2,631,298    
Interest     166,496    
Securities lending income     10,664    
Total investment income     2,808,458    
Expenses:  
Management fee (Note 3)     450,540    
Shareholder service fee – Class III (Note 3)     137,675    
Shareholder service fee – Class IV (Note 3)     46,558    
Custodian, fund accounting agent and transfer agent fees     40,422    
Audit and tax fees     26,312    
Legal fees     3,026    
Trustees fees and related expenses (Note 3)     1,534    
Registration fees     674    
Miscellaneous     1,620    
Total expenses     708,361    
Fees and expenses reimbursed by Manager (Note 3)     (71,290 )  
Net expenses     637,071    
Net investment income (loss)     2,171,387    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     27,294,842    
Closed futures contracts     (22,738 )  
Net realized gain (loss)     27,272,104    
Change in net unrealized appreciation (depreciation) on:  
Investments     (16,008,544 )  
Open futures contracts     110,595    
Net unrealized gain (loss)     (15,897,949 )  
Net realized and unrealized gain (loss)     11,374,155    
Net increase (decrease) in net assets resulting from operations   $ 13,545,542    

 

See accompanying notes to the financial statements.


15


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,171,387     $ 5,036,433    
Net realized gain (loss)     27,272,104       22,105,528    
Change in net unrealized appreciation (depreciation)     (15,897,949 )     (8,455,438 )  
Net increase (decrease) in net assets from operations     13,545,542       18,686,523    
Distributions to shareholders from:  
Net investment income  
Class III     (1,467,821 )     (3,755,673 )  
Class IV     (1,162,322 )     (2,760,919 )  
Total distributions from net investment income     (2,630,143 )     (6,516,592 )  
Net realized gains  
Class III     (6,155,191 )     (912,017 )  
Class IV     (5,021,978 )     (637,651 )  
Total distributions from net realized gains     (11,177,169 )     (1,549,668 )  
      (13,807,312 )     (8,066,260 )  
Net share transactions (Note 7):  
Class III     (77,659,554 )     (41,436,981 )  
Class IV     (141,183,947 )     (16,601,430 )  
Increase (decrease) in net assets resulting from net share
transactions		     (218,843,501 )     (58,038,411 )  
Total increase (decrease) in net assets     (219,105,271 )     (47,418,148 )  
Net assets:  
Beginning of period     326,303,312       373,721,460    
End of period (including accumulated undistributed net investment
income of $492,001 and $950,757, respectively)		   $ 107,198,041     $ 326,303,312    

 

See accompanying notes to the financial statements.


16



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 12.88     $ 12.45     $ 12.24     $ 11.76     $ 8.69     $ 11.23    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.18       0.20       0.17       0.13       0.12    
Net realized and unrealized gain (loss)     0.29       0.54       0.44       0.54       3.07       (2.55 )  
Total from investment operations     0.39       0.72       0.64       0.71       3.20       (2.43 )  
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.23 )     (0.15 )     (0.18 )     (0.13 )     (0.11 )  
From net realized gains     (0.47 )     (0.06 )     (0.28 )     (0.05 )     —       —    
Total distributions     (0.58 )     (0.29 )     (0.43 )     (0.23 )     (0.13 )     (0.11 )  
Net asset value, end of period   $ 12.69     $ 12.88     $ 12.45     $ 12.24     $ 11.76     $ 8.69    
Total Return(a)      2.82 %**      5.87 %     5.40 %     6.16 %     37.06 %     (21.69 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 107,198     $ 188,133     $ 224,097     $ 221,661     $ 188,370     $ 163,025    
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		     1.57 %*      1.46 %     1.68 %     1.43 %     1.26 %     1.26 %  
Portfolio turnover rate     34 %**      73 %     63 %     68 %     63 %     62 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.05 %*      0.06 %     0.04 %     0.04 %     0.04 %     0.04 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


17


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Period from
March 1, 2007
through
June 21, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 12.89     $ 12.46     $ 12.25     $ 11.76     $ 8.69     $ 11.23    
Income (loss) from investment operations:  
Net investment income (loss)†      0.07       0.19       0.21       0.16       0.13       0.13    
Net realized and unrealized gain (loss)     0.79       0.54       0.44       0.56       3.07       (2.55 )  
Total from investment operations     0.86       0.73       0.65       0.72       3.20       (2.42 )  
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.24 )     (0.16 )     (0.18 )     (0.13 )     (0.12 )  
From net realized gains     (0.47 )     (0.06 )     (0.28 )     (0.05 )     —       —    
Total distributions     (0.58 )     (0.30 )     (0.44 )     (0.23 )     (0.13 )     (0.12 )  
Net asset value, end of period   $ 13.17 (b)    $ 12.89     $ 12.46     $ 12.25     $ 11.76     $ 8.69    
Total Return(a)      6.65 %**      5.91 %     5.44 %     6.25 %     37.12 %     (21.65 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 147,368     $ 138,170     $ 149,624     $ 141,900     $ 394,454     $ 308,001    
Net expenses to average daily
net assets		     0.44 %*      0.44 %     0.44 %     0.44 %     0.44 %     0.44 %  
Net investment income to average daily
net assets		     1.65 %*      1.49 %     1.72 %     1.37 %     1.31 %     1.35 %  
Portfolio turnover rate     34 %††**      73 %     63 %     68 %     63 %     62 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.05 %*      0.06 %     0.04 %     0.04 %     0.04 %     0.04 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(b)  Represents the ending net asset value per share upon the liquidation of the class.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the period from March 1, 2007 through August 31, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


18



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P 500 Index. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index, and companies with similar market capitalizations, other than tobacco-producing companies.

As of August 31, 2007, the Fund had one class of shares outstanding: Class III. Class IV shares were liquidated on June 21, 2007.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or


19


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in t he value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts


20


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $5,288,751 collateralized by cash in the amount of $5,322,156, which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are paid


21


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 112,191,756     $ 4,891,424     $ (4,786,233 )   $ 105,191    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

For the period ended August 31, 2007, the Fund had realized gross gains attributed to redemption in-kind transactions of $18,812,438.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.


22


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.33% 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 of each class at the annual rate of 0.15% for Class III shares and 0.105% for Class IV shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.33% of the Fund's average daily net assets.


23


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $1,198 and $764, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $83,559,996 and $302,560,935, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 81.45% of the outstanding shares of the Fund were held by five shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 2.82% of the Fund's shares were held by accounts for which the Manager has investment discretion.


24


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     51,254     $ 675,000       531,589     $ 6,422,165    
Shares issued to shareholders
in reinvestment of distributions		     553,327       7,277,738       341,736       4,275,315    
Shares repurchased     (6,764,639 )     (85,612,292 )     (4,269,224 )     (52,134,461 )  
Net increase (decrease)     (6,160,058 )   $ (77,659,554 )     (3,395,899 )   $ (41,436,981 )  
    Period Ended
June 21, 2007*
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       —     $ —    
Shares issued to shareholders
in reinvestment of distributions		     469,828       6,184,300       271,906       3,398,570    
Shares repurchased     (11,190,045 )     (147,368,247 )     (1,563,722 )     (20,000,000 )  
Net increase (decrease)     (10,720,217 )   $ (141,183,947 )     (1,291,816 )   $ (16,601,430 )  

 

*  Effective June 21, 2007, all shareholders redeemed or exchanged out of Class IV.


25



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


26


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholde r servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's


27


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


28


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, as outlined in the notes to the table below.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred		  
Class III      
1) Actual     0.48 %   $ 1,000.00     $ 1,028.20     $ 2.45 (a)   
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.72     $ 2.44 (a)   
Class IV      
1) Actual     0.44 %   $ 1,000.00     $ 1,066.50     $ 1.40 (b)   
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.92     $ 2.24 (a)   

 

(a)   Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.

(b)   For the period March 1, 2007 through June 21, 2007. Expenses are calculated using the Class's annualized net expense ratio for the period ended June 21, 2007, multiplied by the average account value over the period, multiplied by 113 days in the period, divided by 366 days in the year.


29



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.1 %  
Short-Term Investments     6.8    
Futures     0.0    
Other     (1.9 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Technology     18.1 %  
Health Care     17.9    
Retail Stores     15.0    
Financial     14.2    
Oil & Gas     11.3    
Utility     5.0    
Services     4.9    
Consumer Goods     3.9    
Food & Beverage     2.6    
Automotive     2.5    
Manufacturing     1.7    
Primary Process Industry     1.2    
Construction     0.6    
Transportation     0.6    
Machinery     0.4    
Metals & Mining     0.1    
      100.0 %  

 


1



GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.1%  
        Automotive — 2.4%  
    53,900     Autoliv, Inc.     3,092,243    
      57,400     Eaton Corp.     5,408,228    
      1,991,911     Ford Motor Co. * (a)      15,556,825    
      414,000     General Motors Corp.     12,726,360    
      8,600     Genuine Parts Co.     427,248    
      193,100     Goodyear Tire & Rubber Co. (The) *      5,341,146    
      536,700     Harley-Davidson, Inc.     28,869,093    
      25,800     Johnson Controls, Inc.     2,917,980    
      376,800     Paccar, Inc.     32,235,240    
    Total Automotive     106,574,363    
        Construction — 0.6%  
      54,700     Centex Corp.     1,581,377    
      82,500     D.R. Horton, Inc. (a)      1,246,575    
      20,600     KB Home     625,004    
      64,300     Lennar Corp.-Class A     1,817,761    
      8,800     Martin Marietta Materials, Inc.     1,188,000    
      271,000     Masco Corp. (a)      7,051,420    
      187,300     Toll Brothers, Inc. * (a)      4,000,728    
      22,400     Vulcan Materials Co.     2,016,224    
      89,300     Weyerhaeuser Co.     6,087,581    
    Total Construction     25,614,670    
        Consumer Goods — 3.7%  
      208,100     Altria Group, Inc.     14,444,221    
      168,200     Avon Products, Inc.     5,777,670    
      91,400     Cintas Corp.     3,349,810    
      598,000     Coach, Inc. *      26,628,940    
      6,700     Colgate-Palmolive Co.     444,344    
      75,900     Estee Lauder Cos. (The), Inc.-Class A     3,156,681    
      192,200     Hasbro, Inc.     5,421,962    
      397,800     Kimberly-Clark Corp.     27,324,882    

 

See accompanying notes to the financial statements.


2


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued  
    89,400     Leggett & Platt, Inc.     1,823,760    
      192,100     Liz Claiborne, Inc.     6,564,057    
      13,800     Loews Corp.-Carolina Group     1,050,456    
      495,200     Mattel Co.     10,711,176    
      27,200     Mohawk Industries, Inc. * (a)      2,374,832    
      442,700     Nike, Inc.     24,941,718    
      31,800     Polo Ralph Lauren Corp.     2,402,172    
      239,300     UST, Inc.     11,792,704    
      192,900     VF Corp.     15,403,065    
    Total Consumer Goods     163,612,450    
        Financial — 13.5%  
      95,000     ACE Ltd.     5,487,200    
      272,900     Aflac, Inc.     14,548,299    
      921,500     Allstate Corp. (The)     50,452,125    
      136,900     AMBAC Financial Group, Inc. (a)      8,600,058    
      667,000     American International Group, Inc.     44,022,000    
      756,877     Bank of America Corp.     38,358,526    
      181,300     BB&T Corp.     7,203,049    
      102,600     Brown & Brown, Inc. (a)      2,761,992    
      60,400     Chubb Corp.     3,088,252    
      22,700     Cincinnati Financial Corp.     956,578    
      2,709,100     Citigroup, Inc.     127,002,608    
      43,400     CNA Financial Corp.     1,821,064    
      133,900     Comerica, Inc.     7,468,942    
      193,800     Countrywide Financial Corp. (a)      3,846,930    
      127,850     Discover Financial Services *      2,958,449    
      48,900     Eaton Vance Corp.     1,877,271    
      793,354     Fannie Mae     52,051,956    
      130,100     Fifth Third Bancorp (a)      4,643,269    
      95,000     First American Corp.     3,973,850    
      53,700     First Horizon National Corp. (a)      1,647,516    
      44,400     First Marblehead Corp. (The) (a)      1,486,956    
      72,500     Franklin Resources, Inc.     9,553,325    

 

See accompanying notes to the financial statements.


3


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    166,600     Freddie Mac     10,264,226    
      118,800     Goldman Sachs Group, Inc.     20,909,988    
      43,100     Hartford Financial Services Group, Inc.     3,832,021    
      9,400     Lincoln National Corp.     572,272    
      10,900     Markel Corp. * (a)      5,184,694    
      140,650     MBIA, Inc. (a)      8,439,000    
      128,900     MetLife, Inc.     8,256,045    
      103,100     MGIC Investment Corp. (a)      3,109,496    
      255,700     Morgan Stanley     15,948,009    
      517,600     National City Corp. (a)      13,928,616    
      291,100     Old Republic International Corp.     5,295,109    
      116,000     PMI Group (The), Inc.     3,674,880    
      27,000     Popular, Inc. (a)      333,180    
      418,500     Progressive Corp. (The)     8,512,290    
      114,200     Prudential Financial, Inc.     10,252,876    
      76,800     Radian Group, Inc.     1,354,752    
      123,200     Safeco Corp.     7,148,064    
      216,500     SEI Investment Co.     5,492,605    
      156,700     Torchmark Corp.     9,646,452    
      582,300     Travelers Cos. (The), Inc.     29,429,442    
      47,200     UnionBanCal Corp.     2,774,416    
      356,200     Unum Group     8,716,214    
      335,000     US Bancorp     10,837,250    
      121,050     W.R. Berkley Corp.     3,618,184    
      196,304     Washington Mutual, Inc. (a)      7,208,283    
    Total Financial     598,548,579    
        Food & Beverage — 2.5%  
      438,200     Anheuser-Busch Cos., Inc.     21,647,080    
      615,400     Coca-Cola Co. (The)     33,096,212    
      410,200     ConAgra Foods, Inc.     10,546,242    
      71,800     General Mills Co.     4,012,184    
      34,000     HJ Heinz Co.     1,533,060    
      46,100     Hormel Foods Corp.     1,642,543    

 

See accompanying notes to the financial statements.


4


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Food & Beverage — continued  
    620,706     Kraft Foods, Inc.     19,899,834    
      57,400     McCormick & Co., Inc. (Non Voting)     2,057,216    
      48,100     Pepsi Bottling Group, Inc.     1,663,779    
      345,600     Sara Lee Corp.     5,743,872    
      336,200     Tyson Foods, Inc.-Class A     7,245,110    
    Total Food & Beverage     109,087,132    
        Health Care — 17.1%  
      206,200     Abbott Laboratories     10,703,842    
      294,700     Aetna, Inc.     15,003,177    
      414,600     AmerisourceBergen Corp.     19,838,610    
      68,300     Bard (C.R.), Inc.     5,695,537    
      317,100     Baxter International, Inc.     17,364,396    
      51,300     Becton Dickinson & Co.     3,947,022    
      206,752     Bristol-Myers Squibb Co.     6,026,821    
      339,300     Cardinal Health, Inc.     23,201,334    
      270,000     Cigna Corp.     13,953,600    
      70,700     Coventry Health Care, Inc. *      4,056,059    
      83,500     Covidien Ltd. *      3,325,805    
      361,000     Express Scripts, Inc. *      19,764,750    
      737,900     Forest Laboratories, Inc. *      27,767,177    
      65,800     Health Net, Inc. *      3,605,182    
      1,349,500     Johnson & Johnson     83,385,605    
      176,800     King Pharmaceuticals, Inc. * (a)      2,657,304    
      441,500     McKesson Corp.     25,258,215    
      97,700     Medco Health Solutions, Inc. *      8,348,465    
      3,151,200     Merck & Co., Inc.     158,095,704    
      97,300     Patterson Cos., Inc. *      3,578,694    
      4,917,480     Pfizer, Inc.     122,150,203    
      249,100     Quest Diagnostics, Inc. (a)      13,638,225    
      1,016,000     Schering-Plough Corp.     30,500,320    
      91,100     St. Jude Medical, Inc. *      3,969,227    
      510,700     Stryker Corp.     34,114,760    
      823,102     UnitedHealth Group, Inc.     41,163,331    

 

See accompanying notes to the financial statements.


5


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    62,700     WellPoint, Inc. *      5,052,993    
      56,500     Wyeth     2,615,950    
      620,600     Zimmer Holdings, Inc. *      48,611,598    
    Total Health Care     757,393,906    
        Machinery — 0.4%  
      28,600     Cummins, Inc.     3,386,812    
      53,200     Deere & Co.     7,238,392    
      142,100     Ingersoll-Rand     7,379,253    
    Total Machinery     18,004,457    
        Manufacturing — 1.6%  
      195,900     American Standard Cos., Inc.     7,214,997    
      31,900     Ball Corp.     1,670,922    
      86,500     General Electric Co.     3,362,255    
      213,700     Honeywell International, Inc.     11,999,255    
      94,000     Illinois Tool Works, Inc.     5,467,980    
      82,700     ITT Industries, Inc.     5,622,773    
      62,500     Owens-IIlinois, Inc. *      2,513,750    
      100,500     Pactiv Corp. *      2,939,625    
      66,200     Pall Corp.     2,524,206    
      70,400     Precision Castparts Corp.     9,173,824    
      112,100     Sealed Air Corp.     2,965,045    
      28,300     SPX Corp.     2,548,415    
      14,800     Temple-Inland, Inc.     815,184    
      83,500     Tyco International Ltd.     3,687,360    
      104,300     United Technologies Corp.     7,783,909    
    Total Manufacturing     70,289,500    
        Metals & Mining — 0.1%  
      114,700     Alcoa, Inc.     4,189,991    

 

See accompanying notes to the financial statements.


6


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Oil & Gas — 10.7%  
      135,000     Anadarko Petroleum Corp.     6,612,300    
    92,800     Apache Corp.     7,180,864    
      1,216,800     Chevron Corp.     106,786,368    
      427,668     ConocoPhillips     35,021,733    
      116,600     Devon Energy Corp.     8,781,146    
      3,277,600     Exxon Mobil Corp.     280,988,648    
      105,000     Marathon Oil Corp.     5,658,450    
      108,100     Occidental Petroleum Corp.     6,128,189    
      139,100     Tesoro Corp.     6,861,803    
      162,300     Valero Energy Corp.     11,119,173    
    Total Oil & Gas     475,138,674    
        Primary Process Industry — 1.1%  
      283,100     Dow Chemical Co. (The)     12,068,553    
      229,900     E.I. du Pont de Nemours & Co.     11,207,625    
      48,100     Eastman Chemical Co.     3,211,156    
      93,500     International Flavors & Fragrances, Inc.     4,696,505    
      70,500     Lubrizol Corp.     4,482,390    
      45,300     Lyondell Chemical Co.     2,100,108    
      61,000     PPG Industries, Inc.     4,474,350    
      121,700     Sherwin-Williams Co. (The)     8,398,517    
    Total Primary Process Industry     50,639,204    
        Retail Stores — 14.2%  
      126,900     Abercrombie & Fitch Co.-Class A     9,987,030    
      10,600     Advance Auto Parts, Inc.     376,936    
      24,100     Amazon.com, Inc. *      1,925,831    
      387,600     American Eagle Outfitters, Inc.     10,011,708    
      499,000     AutoNation, Inc. *      9,471,020    
      144,700     AutoZone, Inc. * (a)      17,550,663    
      416,800     Bed Bath & Beyond, Inc. * (a)      14,437,952    
      86,500     Best Buy Co., Inc. (a)      3,801,675    
      127,700     CarMax, Inc. * (a)      2,893,682    
      151,000     CDW Corp. *      12,996,570    

 

See accompanying notes to the financial statements.


7


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued  
      7,000     Costco Wholesale Corp.     432,250    
    118,000     eBay, Inc. *      4,023,800    
      210,000     Family Dollar Stores, Inc.     6,148,800    
      150,100     Gap (The), Inc.     2,815,876    
      2,811,804     Home Depot, Inc.     107,720,211    
      73,600     JC Penney Co., Inc.     5,060,736    
      642,000     Kohls Corp. *      38,070,600    
      714,500     Kroger Co. (a)      18,991,410    
      198,200     Limited Brands, Inc.     4,590,312    
      2,112,200     Lowe's Cos., Inc.     65,604,932    
      195,600     Nordstrom, Inc.     9,408,360    
      45,300     PetSmart, Inc.     1,571,910    
      244,200     RadioShack Corp. (a)      5,804,634    
      62,600     Ross Stores, Inc.     1,742,158    
      597,000     Safeway, Inc.     18,942,810    
      23,000     Sears Holdings Corp. *      3,301,880    
      696,800     Staples, Inc.     16,549,000    
      231,825     Supervalu, Inc.     9,771,424    
      640,300     Target Corp.     42,214,979    
      111,000     Tiffany & Co.     5,697,630    
      336,036     TJX Cos., Inc.     10,245,738    
      412,700     Walgreen Co. (a)      18,600,389    
      3,448,200     Wal-Mart Stores, Inc.     150,444,966    
    Total Retail Stores     631,207,872    
        Services — 4.7%  
      96,100     Apollo Group, Inc.-Class A *      5,638,187    
      202,100     Carnival Corp.     9,213,739    
      299,800     CBS Corp.-Class B     9,446,698    
      615,750     Comcast Corp.-Class A *      16,064,918    
      270,300     Direct TV Group (The) *      6,306,099    
      73,500     Expedia, Inc. * (a)      2,193,975    
      500,300     Gannett Co., Inc.     23,514,100    
      63,200     IAC/InterActiveCorp. *      1,756,328    
      17,600     ITT Educational Services, Inc. *      1,932,480    

 

See accompanying notes to the financial statements.


8


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    39,500     Liberty Media Holding Corp. Capital-Class A *      4,305,105    
      34,600     Manpower, Inc.     2,430,996    
      263,100     Marriott International, Inc.-Class A     11,686,902    
      898,300     McDonald's Corp.     44,241,275    
      103,200     McGraw-Hill, Inc.     5,207,472    
      59,500     MGM Mirage *      4,996,215    
      86,600     Moody's Corp. (a)      3,970,610    
      71,800     News Corp.-Class A     1,452,514    
      150,000     Omnicom Group, Inc.     7,639,500    
      70,100     RR Donnelley & Sons Co.     2,510,982    
      316,600     Starbucks Corp. * (a)      8,722,330    
      497,100     Sysco Corp.     16,593,198    
      169,200     Tribune Co.     4,661,460    
      415,000     Yum! Brands, Inc.     13,578,800    
    Total Services     208,063,883    
        Technology — 17.2%  
      48,400     Adobe Systems, Inc. *      2,069,100    
      52,300     Affiliated Computer Services, Inc.-Class A *      2,616,569    
      145,400     Analog Devices, Inc.     5,362,352    
      254,600     Apple, Inc. *      35,257,008    
      37,200     Arrow Electronics, Inc. *      1,560,912    
      83,400     Avaya, Inc. *      1,403,622    
      107,500     Avnet, Inc. *      4,225,825    
      93,600     BMC Software, Inc. *      2,866,032    
      16,800     CA, Inc.     423,192    
      2,507,900     Cisco Systems, Inc. *      80,052,168    
      63,200     Citrix Systems, Inc. *      2,297,320    
      47,500     Cognizant Technologies Solutions Corp.-Class A *      3,491,725    
      7,300     Computer Sciences Corp. *      408,435    
      223,900     Danaher Corp.     17,388,074    
      2,876,000     Dell, Inc. *      81,247,000    
      14,200     DST Systems, Inc. *      1,085,732    
      1,097,700     EMC Corp. *      21,580,782    

 

See accompanying notes to the financial statements.


9


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued  
    81,500     Energizer Holdings, Inc. *      8,633,295    
      217,700     First Data Corp.     7,231,994    
      298,000     Fiserv, Inc. *      13,862,960    
      83,800     General Dynamics Corp.     6,583,328    
      16,200     Goodrich Corp.     1,023,192    
      297,700     Hewlett-Packard Co.     14,691,495    
      1,637,800     Intel Corp.     42,173,350    
      1,147,600     International Business Machines Corp.     133,913,444    
      104,000     Intuit, Inc. * (a)      2,840,240    
      55,200     Juniper Networks, Inc. *      1,817,184    
      115,500     KLA-Tencor Corp.     6,637,785    
      4,400     L-3 Communications Holdings, Inc.     433,444    
      256,300     Lexmark International, Inc. *      9,549,738    
      152,800     Lockheed Martin Corp.     15,148,592    
      143,000     McAfee, Inc. *      5,112,250    
      4,791,300     Microsoft Corp.     137,654,049    
      43,500     NCR Corp. *      2,164,995    
      21,200     Northrop Grumman Corp.     1,671,408    
      135,000     Novellus System, Inc. * (a)      3,694,950    
      1,375,500     Oracle Corp. *      27,895,140    
      147,400     Pitney Bowes, Inc.     6,584,358    
      9,900     Qualcomm, Inc.     394,911    
      40,000     Rockwell Collins, Inc.     2,754,800    
      58,100     Symantec Corp. *      1,092,861    
      1,090,700     Time Warner, Inc.     20,701,486    
      85,400     Total System Services, Inc. (a)      2,368,996    
      83,500     Tyco Electronics Ltd. *      2,911,645    
      169,100     VeriSign, Inc. * (a)      5,445,020    
      30,300     W.W. Grainger, Inc.     2,775,783    
      113,300     Waters Corp. *      6,975,881    
      215,700     Xilinx, Inc.     5,515,449    
    Total Technology     763,589,871    

 

See accompanying notes to the financial statements.


10


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Transportation — 0.5%  
    49,200     CH Robinson Worldwide, Inc.     2,412,768    
      28,700     CSX Corp.     1,176,700    
      184,700     FedEx Corp.     20,257,896    
      7,400     Union Pacific Corp.     825,618    
    Total Transportation     24,672,982    
        Utility — 4.8%  
      296,200     AES Corp. (The) *      5,364,182    
      213,200     American Electric Power Co., Inc.     9,483,136    
      2,535,167     AT&T, Inc.     101,077,108    
      92,100     Centerpoint Energy, Inc.     1,493,862    
      108,700     CenturyTel, Inc.     5,215,426    
      35,900     Constellation Energy Group, Inc.     2,977,546    
      73,000     Edison International     3,847,830    
      162,500     Entergy Corp.     16,838,250    
      9,700     FPL Group, Inc.     570,748    
      83,900     NiSource, Inc.     1,580,676    
      9,500     Public Service Enterprise Group, Inc.     807,405    
      22,000     Sempra Energy     1,210,660    
      1,377,022     Verizon Communications, Inc.     57,669,681    
      151,700     Xcel Energy, Inc.     3,126,537    
    Total Utility     211,263,047    
    TOTAL COMMON STOCKS (COST $4,049,962,808)     4,217,890,581    
        SHORT-TERM INVESTMENTS — 6.8%  
        Money Market Funds — 0.3%  
      3,728,086     Barclays Global Investors Institutional Money Market Fund (b)      3,728,086    
      11,184,259     Reserve Primary Money Market Fund (b)      11,184,259    
    Total Money Market Funds     14,912,345    

 

See accompanying notes to the financial statements.


11


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — 6.5%  
    3,728,086     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      3,728,086    
      160,815,673     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $160,891,613 and an effective
yield of 4.25%, collateralized by various U.S. Treasury obligations with
an interest rate range of 8.00% - 8.13%, maturity date range of
08/15/19 - 11/15/21, and an aggregate market value, including
accrued interest, of $165,578,455.		     160,815,673    
      37,280,862     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $37,303,417
and an effective yield of 5.45%, collateralized by various corporate
debt obligations with an interest rate range of 0.00% - 9.12%,
maturity date range of 04/01/09 - 05/29/37, and an aggregate
market value of $40,133,993. (b) 		     37,280,862    
      6,524,151     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $6,528,091 and an effective yield
of 5.44%, collateralized by a corporate debt obligation with a rate
of 5.38%, maturity date of 07/22/15, and a market value of $6,655,337. (b) 		     6,524,151    
      37,280,862     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $37,303,044 and an effective
yield of 5.36%, collateralized by a U.S. Treasury Bond with a rate of
4.50%, maturity date of 11/30/11, and a market value of $38,026,901. (b) 		     37,280,862    
      37,280,862     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated
08/31/07, due 09/04/07, with a maturity value of $37,303,417 and
an effective yield of 5.45%, collateralized by various corporate debt
obligations with an interest rate range of 0.00% - 8.50%, maturity
date range of 11/16/07 - 06/15/37, and an aggregate market
value of $38,189,136. (b) 		     37,280,862    
      3,678,389     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (b) 		     3,678,389    
    Total Other Short-Term Investments     286,588,885    
    TOTAL SHORT-TERM INVESTMENTS (COST $301,501,230)     301,501,230    
    TOTAL INVESTMENTS — 101.9%
(Cost $4,351,464,038)		     4,519,391,811    
            Other Assets and Liabilities (net) — (1.9%)     (82,795,605 )  
    TOTAL NET ASSETS — 100.0%   $ 4,436,596,206    

 

See accompanying notes to the financial statements.


12


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  418     S&P 500   September 2007   $ 154,315,150     $ 181,614    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


13



GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $137,979,062
(cost $4,351,464,038 ) (Note 2)		   $ 4,519,391,811    
Cash     9,776    
Receivable for Fund shares sold     45,161,521    
Dividends and interest receivable     9,843,586    
Receivable for collateral on open futures contracts (Note 2)     6,583,500    
Receivable for expenses reimbursed by Manager (Note 3)     69,130    
Total assets     4,581,059,324    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     140,685,557    
Payable for Fund shares repurchased     1,176,201    
Payable to affiliate for (Note 3):  
Management fee     1,132,608    
Shareholder service fee     352,294    
Administration fee – Class M     19,663    
Trustees and Chief Compliance Officer of GMO Trust fees     9,346    
Payable for 12b-1 fee – Class M     50,891    
Payable for variation margin on open futures contracts (Note 2)     710,718    
Accrued expenses     325,840    
Total liabilities     144,463,118    
Net assets   $ 4,436,596,206    

 

See accompanying notes to the financial statements.


14


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 4,038,299,134    
Accumulated undistributed net investment income     13,711,586    
Accumulated net realized gain     216,476,099    
Net unrealized appreciation     168,109,387    
    $ 4,436,596,206    
Net assets attributable to:  
Class III shares   $ 1,718,224,525    
Class IV shares   $ 532,118,184    
Class VI shares   $ 2,068,999,332    
Class M shares   $ 117,254,165    
Shares outstanding:  
Class III     119,863,663    
Class IV     37,193,258    
Class VI     144,615,749    
Class M     8,194,258    
Net asset value per share:  
Class III   $ 14.33    
Class IV   $ 14.31    
Class VI   $ 14.31    
Class M   $ 14.31    

 

See accompanying notes to the financial statements.


15


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 49,245,293    
Interest     3,053,026    
Securities lending income     140,792    
Total investment income     52,439,111    
Expenses:  
Management fee (Note 3)     7,833,170    
Shareholder service fee – Class III (Note 3)     1,347,276    
Shareholder service fee – Class IV (Note 3)     311,663    
Shareholder service fee – Class VI (Note 3)     689,171    
12b-1 fee – Class M (Note 3)     159,863    
Administration fee – Class M (Note 3)     127,890    
Custodian, fund accounting agent and transfer agent fees     358,156    
Audit and tax fees     30,176    
Legal fees     59,892    
Trustees fees and related expenses (Note 3)     29,826    
Registration fees     14,352    
Miscellaneous     33,394    
Total expenses     10,994,829    
Fees and expenses reimbursed by Manager (Note 3)     (480,240 )  
Net expenses     10,514,589    
Net investment income (loss)     41,924,522    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     348,503,866    
Closed futures contracts     2,550,793    
Net realized gain (loss)     351,054,659    
Change in net unrealized appreciation (depreciation) on:  
Investments     (186,670,229 )  
Open futures contracts     181,614    
Net unrealized gain (loss)     (186,488,615 )  
Net realized and unrealized gain (loss)     164,566,044    
Net increase (decrease) in net assets resulting from operations   $ 206,490,566    

 

See accompanying notes to the financial statements.


16


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 41,924,522     $ 98,496,318    
Net realized gain (loss)     351,054,659       341,469,404    
Change in net unrealized appreciation (depreciation)     (186,488,615 )     (59,935,270 )  
Net increase (decrease) in net assets from operations     206,490,566       380,030,452    
Distributions to shareholders from:  
Net investment income  
Class III     (15,832,519 )     (31,321,178 )  
Class IV     (6,029,030 )     (10,898,489 )  
Class VI     (24,773,439 )     (53,275,433 )  
Class M     (951,638 )     (1,646,618 )  
Total distributions from net investment income     (47,586,626 )     (97,141,718 )  
Net realized gains  
Class III     (87,574,106 )     (47,632,225 )  
Class IV     (30,199,016 )     (18,340,801 )  
Class VI     (164,363,544 )     (88,828,637 )  
Class M     (6,447,552 )     (3,334,260 )  
Total distributions from net realized gains     (288,584,218 )     (158,135,923 )  
      (336,170,844 )     (255,277,641 )  
Net share transactions (Note 7):  
Class III     (18,780,368 )     (1,095,758,448 )  
Class IV     (49,538,928 )     (159,761,538 )  
Class VI     (1,550,052,866 )     1,061,683,678    
Class M     (10,838,195 )     (27,519,549 )  
Increase (decrease) in net assets resulting from net share
transactions		     (1,629,210,357 )     (221,355,857 )  
Total increase (decrease) in net assets     (1,758,890,635 )     (96,603,046 )  
Net assets:  
Beginning of period     6,195,486,841       6,292,089,887    
End of period (including accumulated undistributed net investment
income of $13,711,586 and $19,373,690, respectively)		   $ 4,436,596,206     $ 6,195,486,841    

 

See accompanying notes to the financial statements.


17



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 14.77     $ 14.50     $ 14.28     $ 13.54     $ 9.98     $ 12.90    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.22       0.24       0.19       0.16       0.15    
Net realized and unrealized gain
 (loss)		     0.31       0.64       0.54       0.73       3.56       (2.92 )  
Total from investment
operations		     0.43       0.86       0.78       0.92       3.72       (2.77 )  
Less distributions to shareholders:  
From net investment income     (0.13 )     (0.22 )     (0.24 )     (0.18 )     (0.16 )     (0.15 )  
From net realized gains     (0.74 )     (0.37 )     (0.32 )     —       —       —    
Total distributions     (0.87 )     (0.59 )     (0.56 )     (0.18 )     (0.16 )     (0.15 )  
Net asset value, end of period   $ 14.33     $ 14.77     $ 14.50     $ 14.28     $ 13.54     $ 9.98    
Total Return(a)      2.78 %**      5.97 %     5.60 %     6.89 %     37.50 %     (21.59 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,718,225     $ 1,789,872     $ 2,841,959     $ 1,739,392     $ 1,517,458     $ 1,141,725    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.47 %     0.48 %     0.48 %     0.48 %  
Net investment income to
average daily net assets		     1.64 %*      1.51 %     1.69 %     1.46 %     1.32 %     1.34 %  
Portfolio turnover rate     26 %**      78 %     65 %     65 %     57 %     74 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.03 %     0.03 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


18


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 14.75     $ 14.48     $ 14.26     $ 13.52     $ 9.97     $ 12.89    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.22       0.25       0.20       0.16       0.16    
Net realized and unrealized gain
(loss)		     0.32       0.65       0.54       0.73       3.55       (2.92 )  
Total from investment
operations		     0.44       0.87       0.79       0.93       3.71       (2.76 )  
Less distributions to shareholders:  
From net investment income     (0.14 )     (0.23 )     (0.25 )     (0.19 )     (0.16 )     (0.16 )  
From net realized gains     (0.74 )     (0.37 )     (0.32 )     —       —       —    
Total distributions     (0.88 )     (0.60 )     (0.57 )     (0.19 )     (0.16 )     (0.16 )  
Net asset value, end of period   $ 14.31     $ 14.75     $ 14.48     $ 14.26     $ 13.52     $ 9.97    
Total Return(a)      2.82 %**      6.05 %     5.66 %     6.96 %     37.50 %     (21.55 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 532,118     $ 602,048     $ 749,822     $ 866,206     $ 709,525     $ 463,254    
Net expenses to average daily
net assets		     0.41 %*      0.41 %     0.43 %     0.44 %     0.44 %     0.44 %  
Net investment income to average
daily net assets		     1.64 %*      1.55 %     1.76 %     1.49 %     1.36 %     1.39 %  
Portfolio turnover rate     26 %**      78 %     65 %     65 %     57 %     74 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.03 %     0.03 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


19


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning of
period		   $ 14.75     $ 14.47     $ 14.26     $ 13.52     $ 11.54    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.13       0.23       0.25       0.21       0.10    
Net realized and unrealized gain
(loss)		     0.31       0.65       0.54       0.72       2.01    
Total from investment
operations		     0.44       0.88       0.79       0.93       2.11    
Less distributions to shareholders:  
From net investment income     (0.14 )     (0.23 )     (0.26 )     (0.19 )     (0.13 )  
From net realized gains     (0.74 )     (0.37 )     (0.32 )     —       —    
Total distributions     (0.88 )     (0.60 )     (0.58 )     (0.19 )     (0.13 )  
Net asset value, end of period   $ 14.31     $ 14.75     $ 14.47     $ 14.26     $ 13.52    
Total Return(b)      2.83 %**      6.17 %     5.64 %     7.01 %     18.41 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,068,999     $ 3,671,926     $ 2,543,300     $ 1,750,325     $ 542,274    
Net expenses to average daily
net assets		     0.37 %*      0.37 %     0.38 %     0.39 %     0.39 %*   
Net investment income to average
daily net assets		     1.70 %*      1.61 %     1.78 %     1.56 %     1.17 %*   
Portfolio turnover rate     26 %**      78 %     65 %     65 %     57 %***   
Fees and expenses reimbursed by the
Manager to average daily
net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.03 %*   

 

(a)  Period from June 30, 2003 (commencement of operations) through February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents the portfolio turnover rate of the Fund for the year ended February 29, 2004.

See accompanying notes to the financial statements.


20


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value, beginning of
period		   $ 14.75     $ 14.47     $ 14.26     $ 13.52     $ 9.96     $ 12.89    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.18       0.20       0.16       0.12       0.11    
Net realized and unrealized
gain (loss)		     0.31       0.64       0.53       0.72       3.57       (2.94 )  
Total from investment
operations		     0.41       0.82       0.73       0.88       3.69       (2.83 )  
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.17 )     (0.20 )     (0.14 )     (0.13 )     (0.10 )  
From net realized gains     (0.74 )     (0.37 )     (0.32 )     —       —       —    
Total distributions     (0.85 )     (0.54 )     (0.52 )     (0.14 )     (0.13 )     (0.10 )  
Net asset value, end of period   $ 14.31     $ 14.75     $ 14.47     $ 14.26     $ 13.52     $ 9.96    
Total Return(b)      2.63 %**      5.73 %     5.22 %     6.61 %     37.23 %     (22.03 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 117,254     $ 131,640     $ 157,009     $ 171,316     $ 141,188     $ 60,242    
Net expenses to average daily
net assets		     0.76 %*      0.76 %     0.77 %     0.78 %     0.78 %     0.78 %*   
Net investment income to average
daily net assets		     1.33 %*      1.22 %     1.41 %     1.17 %     0.98 %     1.18 %*   
Portfolio turnover rate     26 %**      78 %     65 %     65 %     57 %     74 %***   
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.03 %     0.03 %*   

 

(a)  Period from April 15, 2002 (commencement of operations) through February 28, 2003.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents the portfolio turnover rate of the Fund for the year ended February 28, 2003.

See accompanying notes to the financial statements.


21



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. Core 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, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P 500 Index. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index, and companies with similar market capitalizations.

Throughout the period ended August 31, 2007, the Fund had four classes of shares outstanding: Class III, Class IV, Class VI, and Class M. Class M shares bear an administration fee and a 12b-1 fee while Classes III, IV and VI bear a shareholder service fee (See Note 3). The principal economic difference among the classes of shares is the type and level of fees borne by the classes.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.


22


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values


23


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $137,979,062 collateralized by cash in the amount of $140,685,557, which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.


24


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 4,369,129,095     $ 323,575,835     $ (173,313,119 )   $ 150,262,716    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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, 12b-1, and administration fees, which are directly attributable to a class of shares, are charged to that class's operations.


25


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.31% of the Fund's 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 of each class at the annual rate of 0.15% for Class III shares, 0.10% for Class IV shares and 0.055% for Class VI shares.

Class M shares of the Fund pay GMO an administration fee monthly at the annual rate of 0.20% of the average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund and/or the provision of certain other services incidental thereto. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.


26


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (inc luding taxes)) exceed 0.31% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the independent Trustees and CCO during the six months ended August 31, 2007 was $22,466 and $15,732, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $1,270,522,029 and $3,348,995,963, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 12.48% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by four related parties comprised of certain GMO employee accounts, and 53.34% of the Fund's shares were held by accounts for which the Manager has investment discretion.


27


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     6,131,365     $ 89,842,462       13,256,030     $ 195,569,666    
Shares issued to shareholders
in reinvestment of distributions		     6,795,963       100,625,327       5,013,426       73,333,042    
Shares repurchased     (14,215,402 )     (209,248,157 )     (93,168,340 )     (1,364,661,156 )  
Net increase (decrease)     (1,288,074 )   $ (18,780,368 )     (74,898,884 )   $ (1,095,758,448 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     5,748,372     $ 85,031,250       7,111,440     $ 106,906,188    
Shares issued to shareholders
in reinvestment of distributions		     2,420,263       35,775,000       1,932,166       28,224,553    
Shares repurchased     (11,795,561 )     (170,345,178 )     (20,022,880 )     (294,892,279 )  
Net increase (decrease)     (3,626,926 )   $ (49,538,928 )     (10,979,274 )   $ (159,761,538 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     25,057,256     $ 360,657,749       78,510,638     $ 1,137,111,843    
Shares issued to shareholders
in reinvestment of distributions		     12,798,935       189,136,983       9,735,284       142,104,070    
Shares repurchased     (142,208,949 )     (2,099,847,598 )     (14,993,541 )     (217,532,235 )  
Net increase (decrease)     (104,352,758 )   $ (1,550,052,866 )     73,252,381     $ 1,061,683,678    

 


28


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     80,620     $ 1,181,022       191,371     $ 2,781,373    
Shares issued to shareholders
in reinvestment of distributions		     500,407       7,399,190       340,717       4,980,879    
Shares repurchased     (1,312,433 )     (19,418,407 )     (2,454,991 )     (35,281,801 )  
Net increase (decrease)     (731,406 )   $ (10,838,195 )     (1,922,903 )   $ (27,519,549 )  

 


29



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


30


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


31


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


32


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


33


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.46 %   $ 1,000.00     $ 1,027.80     $ 2.34    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    
Class IV      
1) Actual     0.41 %   $ 1,000.00     $ 1,028.20     $ 2.09    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.08     $ 2.08    
Class VI      
1) Actual     0.37 %   $ 1,000.00     $ 1,028.30     $ 1.89    
2) Hypothetical     0.37 %   $ 1,000.00     $ 1,023.28     $ 1.88    
Class M      
1) Actual     0.76 %   $ 1,000.00     $ 1,026.30     $ 3.87    
2) Hypothetical     0.76 %   $ 1,000.00     $ 1,021.32     $ 3.86    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


34



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.2 %  
Short-Term Investments     16.8    
Futures     0.1    
Rights and Warrants     0.0    
Other     (13.1 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financial     27.0 %  
Health Care     13.1    
Oil & Gas     13.1    
Retail Stores     12.4    
Utility     8.0    
Technology     7.9    
Services     4.4    
Consumer Goods     2.8    
Food & Beverage     2.8    
Automotive     2.6    
Manufacturing     2.1    
Primary Process Industry     1.6    
Construction     1.6    
Transportation     0.4    
Metals & Mining     0.1    
Machinery     0.1    
      100.0 %  

 


1



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.2%  
        Automotive — 2.5%  
    800     Autoliv, Inc.     45,896    
    39,254     Ford Motor Co. * (a)      306,574    
    6,400     General Motors Corp.     196,736    
    500     Goodyear Tire & Rubber Co. (The) *      13,830    
    1,400     Harley-Davidson, Inc.     75,306    
    300     Johnson Controls, Inc.     33,930    
    2,200     Paccar, Inc.     188,210    
    900     TRW Automotive Holdings Corp. *      27,504    
    Total Automotive     887,986    
        Construction — 1.5%  
    3,500     Annaly Capital Management, Inc.     49,315    
    1,800     Centex Corp.     52,038    
    1,600     D.R. Horton, Inc. (a)      24,176    
    600     iStar Financial, Inc. REIT     21,960    
    1,000     KB Home (a)      30,340    
    1,900     Lennar Corp. – Class A     53,713    
    700     Louisiana-Pacific Corp.     13,111    
    4,800     Masco Corp. (a)      124,896    
    431     MDC Holdings, Inc.     19,175    
    800     Pulte Homes, Inc.     13,312    
    800     Thor Industries, Inc.     35,192    
    1,100     Thornburg Mortgage, Inc. REIT (a)      12,958    
    2,200     Toll Brothers, Inc. *      46,992    
    700     Weyerhaeuser Co.     47,719    
    Total Construction     544,897    
        Consumer Goods — 2.7%  
    2,200     Altria Group, Inc.     152,702    
    1,200     Brunswick Corp.     30,180    
    300     Cintas Corp.     10,995    
    900     Coach, Inc. *      40,077    

 

See accompanying notes to the financial statements.


2


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued  
    600     Columbia Sportswear Co.     35,952    
    2,700     Eastman Kodak Co. (a)      72,009    
    1,300     Hasbro, Inc.     36,673    
    2,500     Jones Apparel Group, Inc.     47,975    
    900     Kimberly-Clark Corp.     61,821    
    2,800     Liz Claiborne, Inc.     95,676    
    5,000     Mattel Co.     108,150    
    400     Mohawk Industries, Inc. * (a)      34,924    
    600     Nike, Inc.     33,804    
    1,400     UST, Inc.     68,992    
    1,800     VF Corp.     143,730    
    Total Consumer Goods     973,660    
        Financial — 26.0%  
    800     ACE Ltd.     46,208    
    3,000     Aflac, Inc.     159,930    
    10,700     Allstate Corp. (The)     585,825    
    1,500     AMBAC Financial Group, Inc. (a)      94,230    
    300     American Capital Strategies Ltd.     12,387    
    9,800     American International Group, Inc.     646,800    
    1,000     AmeriCredit Corp. * (a)      17,310    
    14,476     Bank of America Corp.     733,644    
    2,169     Bank of New York Mellon Corp. (The)     87,693    
    4,000     BB&T Corp.     158,920    
    500     Chubb Corp.     25,565    
    300     Cincinnati Financial Corp.     12,642    
    36,000     Citigroup, Inc.     1,687,680    
    300     CNA Financial Corp.     12,588    
    3,600     Comerica, Inc. (a)      200,808    
    900     Commerce Group, Inc.     28,692    
    1,200     Conseco, Inc. *      16,872    
    2,500     Countrywide Financial Corp. (a)      49,625    
    3,700     Discover Financial Services *      85,618    
    400     Downey Financial Corp. (a)      22,636    

 

See accompanying notes to the financial statements.


3


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    12,800     Fannie Mae     839,808    
    1,600     Fifth Third Bancorp (a)      57,104    
    1,300     First American Corp.     54,379    
    2,000     First Horizon National Corp. (a)      61,360    
    7,800     Freddie Mac     480,558    
    500     Hartford Financial Services Group, Inc.     44,455    
    1,700     Huntington Bancshares, Inc.     29,257    
    4,300     JPMorgan Chase & Co.     191,436    
    4,300     KeyCorp     143,190    
    311     Lincoln National Corp.     18,934    
    2,300     MBIA, Inc. (a)      138,000    
    2,500     Merrill Lynch & Co., Inc.     184,250    
    1,600     MetLife, Inc.     102,480    
    1,200     MGIC Investment Corp. (a)      36,192    
    6,700     Morgan Stanley     417,879    
    13,472     National City Corp.     362,532    
    1,100     Nationwide Financial Services, Inc. – Class A     58,872    
    3,375     Old Republic International Corp.     61,391    
    1,400     PMI Group (The), Inc. (a)      44,352    
    400     PNC Financial Services Group, Inc.     28,148    
    1,900     Popular, Inc. (a)      23,446    
    3,800     Progressive Corp. (The)     77,292    
    800     Protective Life Corp.     33,440    
    1,400     Prudential Financial, Inc.     125,692    
    1,000     Radian Group, Inc.     17,640    
    300     Reinsurance Group of America, Inc.     16,293    
    1,300     Safeco Corp.     75,426    
    1,400     Torchmark Corp.     86,184    
    5,400     Travelers Cos. (The), Inc.     272,916    
    1,300     UnionBanCal Corp.     76,414    
    4,900     Unum Group     119,903    
    5,800     US Bancorp (a)      187,630    
    5,084     Washington Mutual, Inc. (a)      186,684    
    Total Financial     9,339,210    

 

See accompanying notes to the financial statements.


4


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Food & Beverage — 2.7%  
    1,200     Anheuser-Busch Cos., Inc.     59,280    
    1,700     Coca Cola Enterprises, Inc.     40,494    
    2,700     Coca-Cola Co. (The)     145,206    
    3,600     ConAgra Foods, Inc.     92,556    
    200     Corn Products International, Inc.     9,040    
    1,100     General Mills Co.     61,468    
    200     JM Smucker Co. (The)     11,002    
    8,607     Kraft Foods, Inc.     275,940    
    1,300     Pepsi Bottling Group, Inc.     44,967    
    600     PepsiAmericas, Inc.     17,760    
    300     Pilgrim's Pride Corp.     12,177    
    3,800     Sara Lee Corp.     63,156    
    6,424     Tyson Foods, Inc. – Class A     138,437    
    Total Food & Beverage     971,483    
        Health Care — 12.6%  
    1,100     Abbott Laboratories     57,101    
    4,900     Aetna, Inc.     249,459    
    4,200     AmerisourceBergen Corp.     200,970    
    200     Bausch & Lomb, Inc.     12,640    
    2,600     Cardinal Health, Inc.     177,788    
    2,100     Cigna Corp.     108,528    
    200     Coventry Health Care, Inc. *      11,474    
    775     Covidien Ltd. *      30,868    
    1,800     Express Scripts, Inc. *      98,550    
    2,800     Forest Laboratories, Inc. *      105,364    
    1,700     Johnson & Johnson     105,043    
    2,200     King Pharmaceuticals, Inc. *      33,066    
    700     Lincare Holdings, Inc. *      25,193    
    5,800     McKesson Corp.     331,818    
    400     Medco Health Solutions, Inc. *      34,180    
    22,000     Merck & Co., Inc.     1,103,740    
    700     Patterson Cos., Inc. *      25,746    
    51,600     Pfizer, Inc.     1,281,744    

 

See accompanying notes to the financial statements.


5


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    1,000     Quest Diagnostics, Inc.     54,750    
    1,600     Stryker Corp.     106,880    
    3,500     Tenet Healthcare Corp. * (a)      11,865    
    3,600     UnitedHealth Group, Inc.     180,036    
    600     Universal Health Services, Inc. – Class B     31,680    
    800     Watson Pharmaceuticals, Inc. *      23,856    
    500     WellPoint, Inc. *      40,295    
    1,200     Zimmer Holdings, Inc. *      93,996    
    Total Health Care     4,536,630    
        Machinery — 0.1%  
    100     Deere & Co. (a)      13,606    
    300     Ingersoll-Rand     15,579    
    Total Machinery     29,185    
        Manufacturing — 2.0%  
    700     American Standard Cos., Inc.     25,781    
    16,200     General Electric Co.     629,694    
    400     Honeywell International, Inc.     22,460    
    300     Pall Corp.     11,439    
    400     Sealed Air Corp.     10,580    
    775     Tyco International Ltd.     34,224    
    Total Manufacturing     734,178    
        Metals & Mining — 0.1%  
    1,300     Alcoa, Inc.     47,489    
        Oil & Gas — 12.6%  
    1,700     Anadarko Petroleum Corp.     83,266    
    600     Apache Corp.     46,428    
    10,900     Chevron Corp.     956,584    
    4,729     ConocoPhillips     387,258    
    1,000     Devon Energy Corp.     75,310    
    33,000     Exxon Mobil Corp.     2,829,090    

 

See accompanying notes to the financial statements.


6


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Oil & Gas — continued  
    1,700     Occidental Petroleum Corp.     96,373    
    300     Sunoco, Inc.     21,942    
    500     Valero Energy Corp.     34,255    
    Total Oil & Gas     4,530,506    
        Primary Process Industry — 1.5%  
    1,000     Albemarle Corp.     40,470    
    600     Cabot Corp.     24,204    
    3,500     Dow Chemical Co. (The)     149,205    
    600     Eastman Chemical Co.     40,056    
    800     International Flavors & Fragrances, Inc.     40,184    
    500     Lubrizol Corp.     31,790    
    500     Lyondell Chemical Co.     23,180    
    1,800     PPG Industries, Inc.     132,030    
    1,000     Sherwin-Williams Co. (The)     69,010    
    Total Primary Process Industry     550,129    
        Retail Stores — 11.9%  
    400     Abercrombie & Fitch Co. – Class A     31,480    
    400     American Eagle Outfitters, Inc.     10,332    
    5,200     AutoNation, Inc. * (a)      98,696    
    400     AutoZone, Inc. * (a)      48,516    
    1,500     Bed Bath & Beyond, Inc. *      51,960    
    1,000     Big Lots, Inc. * (a)      29,770    
    1,400     BJ's Wholesale Club, Inc. *      49,000    
    400     CDW Corp. *      34,428    
    200     Dillard's, Inc. – Class A     4,748    
    2,700     Dollar Tree Stores, Inc. *      117,315    
    1,900     Family Dollar Stores, Inc.     55,632    
    1,200     Foot Locker, Inc.     20,052    
    4,000     Gap (The), Inc.     75,040    
    25,900     Home Depot, Inc.     992,229    
    1,500     Kohls Corp. *      88,950    
    12,300     Kroger Co. (a)      326,934    

 

See accompanying notes to the financial statements.


7


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued  
    15,100     Lowe's Cos., Inc. (a)      469,006    
    800     OfficeMax, Inc.     28,416    
    600     O'Reilly Automotive, Inc. *      21,324    
    300     Penske Auto Group, Inc.     5,913    
    8,900     Rite Aid Corp. * (a)      45,123    
    9,400     Safeway, Inc.     298,262    
    100     Sears Holdings Corp. *      14,356    
    2,200     Staples, Inc.     52,250    
    2,475     Supervalu, Inc.     104,321    
    4,000     Target Corp. (a)      263,720    
    400     Tiffany & Co.     20,532    
    1,200     TJX Cos., Inc.     36,588    
    2,000     Walgreen Co. (a)      90,140    
    18,200     Wal-Mart Stores, Inc.     794,066    
    Total Retail Stores     4,279,099    
        Services — 4.3%  
    2,200     Avis Budget Group, Inc. *      51,062    
    1,400     Career Education Corp. *      41,580    
    2,600     Carnival Corp.     118,534    
    5,100     CBS Corp. – Class B     160,701    
    6,550     Comcast Corp. – Class A *      170,890    
    500     Expedia, Inc. *      14,925    
    6,100     Gannett Co., Inc.     286,700    
    600     IAC/InterActiveCorp. *      16,674    
    600     ITT Educational Services, Inc. *      65,880    
    500     Liberty Media Holding Corp. Capital – Class A *      54,495    
    7,300     McDonald's Corp.     359,525    
    700     McGraw-Hill, Inc.     35,322    
    200     Moody's Corp. (a)      9,170    
    1,800     New York Times Co. – Class A (a)      39,564    
    500     News Corp. – Class A     10,115    
    1,000     RR Donnelley & Sons Co.     35,820    
    400     Starbucks Corp. *      11,020    

 

See accompanying notes to the financial statements.


8


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    1,800     Tribune Co.     49,590    
    Total Services     1,531,567    
        Technology — 7.6%  
    600     Affiliated Computer Services, Inc. – Class A *      30,018    
    500     Arrow Electronics, Inc. *      20,980    
    700     Avnet, Inc. *      27,517    
    400     CA, Inc.     10,076    
    4,700     Cisco Systems, Inc. *      150,024    
    600     Computer Sciences Corp. *      33,570    
    2,300     Compuware Corp. *      18,653    
    800     Danaher Corp.     62,128    
    8,900     Dell, Inc. *      251,425    
    4,900     EMC Corp. *      96,334    
    400     Energizer Holdings, Inc. *      42,372    
    1,400     First Data Corp.     46,508    
    1,200     Fiserv, Inc. *      55,824    
    1,000     General Dynamics Corp.     78,560    
    3,200     Hewlett-Packard Co.     157,920    
    3,800     Ingram Micro, Inc. – Class A *      74,632    
    16,800     Intel Corp.     432,600    
    2,600     International Business Machines Corp.     303,394    
    600     KLA-Tencor Corp.     34,482    
    1,300     Lexmark International, Inc. *      48,438    
    400     McAfee, Inc. *      14,300    
    5,200     Microsoft Corp.     149,396    
    200     NCR Corp. *      9,954    
    700     Northrop Grumman Corp.     55,188    
    1,700     Novellus System, Inc. * (a)      46,529    
    1,100     Pitney Bowes, Inc.     49,137    
    1,100     Polycom, Inc. *      33,341    
    400     Raytheon Co.     24,536    
    800     Synopsys, Inc. *      21,856    
    1,900     Tech Data Corp. *      74,081    

 

See accompanying notes to the financial statements.


9


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued  
    12,600     Time Warner, Inc.     239,148    
    775     Tyco Electronics Ltd. *      27,024    
    1,700     Unisys Corp. *      12,529    
    Total Technology     2,732,474    
        Transportation — 0.4%  
    1,200     FedEx Corp.     131,616    
        Utility — 7.7%  
    2,000     American Electric Power Co., Inc.     88,960    
    21,358     AT&T, Inc.     851,543    
    1,200     Centerpoint Energy, Inc.     19,464    
    1,600     CenturyTel, Inc.     76,768    
    600     CMS Energy Corp.     9,792    
    200     Constellation Energy Group, Inc.     16,588    
    800     Edison International     42,168    
    600     Energen Corp.     32,220    
    1,500     Entergy Corp. (a)      155,430    
    1,100     NiSource, Inc.     20,724    
    300     OGE Energy Corp.     10,116    
    300     Pinnacle West Capital Corp.     11,952    
    200     Sempra Energy     11,006    
    800     Telephone & Data Systems, Inc.     51,800    
    32,052     Verizon Communications, Inc. (a)      1,342,338    
    1,200     Xcel Energy, Inc.     24,732    
    Total Utility     2,765,601    
    TOTAL COMMON STOCKS (COST $33,897,345)     34,585,710    
        RIGHTS AND WARRANTS — 0.0%  
        Technology — 0.0%  
    800     Seagate Technology, Inc. Rights * (b)      8    
    TOTAL RIGHTS AND WARRANTS (COST $0)     8    

 

See accompanying notes to the financial statements.


10


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 16.8%  
        Money Market Funds — 1.4%  
    125,734     Barclays Global Investors Institutional Money Market Fund (c)      125,734    
    377,202     Reserve Primary Money Market Fund (c)      377,202    
    Total Money Market Funds     502,936    
        Other Short-Term Investments — 15.4%  
    125,736     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (c)      125,736    
    1,288,804     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,289,413 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.13%,
maturity date of 08/15/19 and a market value, including accrued interest,
of $1,309,159.		     1,288,804    
    1,257,341     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $1,258,102 and
an effective yield of 5.45%, collateralized by various corporate debt
obligations with an interest rate range of 0.00% - 9.12%, maturity date
range of 04/01/09 - 05/29/37, and an aggregate market value of $1,353,567. (c) 		     1,257,341    
    220,035     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $220,168 and an effective yield
of 5.44%, collateralized by a corporate debt obligation with a rate of 5.38%,
maturity date of 07/22/15, and a market value of $224,459. (c) 		     220,035    
    1,257,341     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,258,089 and an effective yield
of 5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%,
maturity date of 11/30/11, and a market value of $1,282,503. (c) 		     1,257,341    
    1,257,341     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,258,102 and an effective yield
of 5.45%, collateralized by various corporate debt obligations with an interest
rate range of 0.00% - 8.50%, maturity date range of 11/16/07 - 06/15/37,
and an aggregate market value of $1,287,974. (c) 		     1,257,341    
    124,058     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (c) 		     124,058    
    Total Other Short-Term Investments     5,530,656    
    TOTAL SHORT-TERM INVESTMENTS (COST $6,033,592)     6,033,592    
    TOTAL INVESTMENTS — 113.0%
(Cost $39,930,937)		     40,619,310    
          Other Assets and Liabilities (net) — (13.0%)     (4,684,013 )  
    TOTAL NET ASSETS — 100.0%   $ 35,935,297    

 

See accompanying notes to the financial statements.


11


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  11     S&P 500 E-mini   September 2007   $ 812,185     $ (27,937 )  

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(c)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


12



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $4,649,086
(cost $34,650,075) (Note 2)		   $ 35,338,448    
Investments in repurchase agreements, at value, (cost $5,280,862) (Note 2)     5,280,862    
Cash     305    
Dividends and interest receivable     81,617    
Receivable for collateral on open futures contracts (Note 2)     34,650    
Receivable for variation margin on open futures contracts (Note 2)     8,305    
Receivable for expenses reimbursed by Manager (Note 3)     6,882    
Total assets     40,751,069    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     4,744,788    
Payable to affiliate for (Note 3):  
Management fee     9,317    
Shareholder service fee     4,507    
Trustees and Chief Compliance Officer of GMO Trust fees     103    
Accrued expenses     57,057    
Total liabilities     4,815,772    
Net assets   $ 35,935,297    
Net assets consist of:  
Paid-in capital   $ 34,562,286    
Accumulated undistributed net investment income     134,489    
Accumulated net realized gain     578,086    
Net unrealized appreciation     660,436    
    $ 35,935,297    
Net assets attributable to:  
Class III shares   $ 35,935,297    
Shares outstanding:  
Class III     3,699,389    
Net asset value per share:  
Class III   $ 9.71    

 

See accompanying notes to the financial statements.


13


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 415,569    
Interest     28,172    
Securities lending income     1,881    
Total investment income     445,622    
Expenses:  
Management fee (Note 3)     57,585    
Shareholder service fee – Class III (Note 3)     27,864    
Custodian, fund accounting agent and transfer agent fees     22,080    
Audit and tax fees     25,760    
Legal fees     552    
Trustees fees and related expenses (Note 3)     301    
Registration fees     92    
Miscellaneous     276    
Total expenses     134,510    
Fees and expenses reimbursed by Manager (Note 3)     (48,668 )  
Net expenses     85,842    
Net investment income (loss)     359,780    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,303,999    
Closed futures contracts     55,449    
Net realized gain (loss)     1,359,448    
Change in net unrealized appreciation (depreciation) on:  
Investments     (844,291 )  
Open futures contracts     (27,937 )  
Net unrealized gain (loss)     (872,228 )  
Net realized and unrealized gain (loss)     487,220    
Net increase (decrease) in net assets resulting from operations   $ 847,000    

 

See accompanying notes to the financial statements.


14


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 359,780     $ 1,723,568    
Net realized gain (loss)     1,359,448       12,682,583    
Change in net unrealized appreciation (depreciation)     (872,228 )     (5,467,234 )  
Net increase (decrease) in net assets from operations     847,000       8,938,917    
Distributions to shareholders from:  
Net investment income  
Class III     (225,291 )     (1,952,221 )  
Net realized gains  
Class III     (486,999 )     (13,723,856 )  
      (712,290 )     (15,676,077 )  
Net share transactions (Note 7):  
Class III     74,246       (53,141,064 )  
Total increase (decrease) in net assets     208,956       (59,878,224 )  
Net assets:  
Beginning of period     35,726,341       95,604,565    
End of period (including accumulated undistributed net investment
income of $134,489 and $0, respectively)		   $ 35,935,297     $ 35,726,341    

 

See accompanying notes to the financial statements.


15



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value,
beginning of period		   $ 9.68     $ 10.78     $ 11.71     $ 11.36     $ 8.05     $ 10.73    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.21       0.26       0.20       0.17       0.15    
Net realized and unrealized
gain (loss)		     0.12       0.80       0.58       0.86       3.31       (2.36 )  
Total from investment
operations		     0.22       1.01       0.84       1.06       3.48       (2.21 )  
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.23 )     (0.28 )     (0.19 )     (0.17 )     (0.15 )  
From net realized gains     (0.13 )     (1.88 )     (1.49 )     (0.52 )     —       (0.32 )  
Total distributions     (0.19 )     (2.11 )     (1.77 )     (0.71 )     (0.17 )     (0.47 )  
Net asset value, end of period   $ 9.71     $ 9.68     $ 10.78     $ 11.71     $ 11.36     $ 8.05    
Total Return(a)      2.23 %**      9.80 %     7.73 %     9.59 %     43.68 %     (21.05 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 35,935     $ 35,726     $ 95,605     $ 112,411     $ 71,931     $ 61,923    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     1.94 %*      1.91 %     2.31 %     1.79 %     1.77 %     1.56 %  
Portfolio turnover rate     26 %**      72 %     62 %     60 %     65 %     114 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.26 %*      0.13 %     0.12 %     0.10 %     0.14 %     0.15 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


16



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. Intrinsic 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks long-term capital growth. The Fund seeks to achieve its objective by outperforming the Russell 1000 Value Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 1000 Index, and companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. Futures contracts are


17


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their


18


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $4,649,086 collateralized by cash in the amount of $4,744,788 which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


19


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 40,453,275     $ 1,997,140     $ (1,831,105 )   $ 166,035    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure,


20


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.31% 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 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.31% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $209 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


21


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $9,314,522 and $10,252,066, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 94.07% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.05% of the Fund's shares were held by one related party comprised of a certain GMO employee account, and 0.19% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       909,979     $ 10,011,363    
Shares issued to shareholders
in reinvestment of distributions		     65,876       674,246       1,544,864       15,522,367    
Shares repurchased     (58,866 )     (600,000 )     (7,627,314 )     (78,674,794 )  
Net increase (decrease)     7,010     $ 74,246       (5,172,471 )   $ (53,141,064 )  

 


22



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall compet ence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


23


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


24


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


25


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,022.30     $ 2.34    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


26



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     86.3 %  
Preferred Stocks     7.8    
Rights and Warrants     0.0    
Short-Term Investments     1.8    
Other     4.1    
      100.0 %  
Country Summary   % of Equity Investments  
South Korea     17.7 %  
China     14.4    
Taiwan     12.9    
Brazil     11.8    
Russia     10.2    
South Africa     7.6    
India     6.9    
Mexico     5.5    
Israel     2.6    
Poland     2.0    
Malaysia     2.0    
Chile     1.5    
Indonesia     1.3    
Thailand     1.0    
Hungary     0.9    
Argentina     0.6    
Turkey     0.5    
Philippines     0.5    
Czech Republic     0.1    
      100.0 %  

 


1


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Information Technology     21.7 %  
Financials     17.9    
Energy     15.3    
Telecommunication Services     15.0    
Materials     10.9    
Consumer Staples     6.2    
Consumer Discretionary     4.8    
Industrials     4.8    
Health Care     2.2    
Utilities     1.2    
      100.0 %  

 


2



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 86.3%  
        Argentina — 0.6%  
    125,000     Tenaris SA ADR     5,866,250    
        Brazil — 3.6%  
    161,200     Companhia Vale do Rio Doce     7,967,980    
    46,710     Companhia Vale do Rio Doce ADR     2,304,204    
    50,000     Gol-Linhas Aereas Intel     1,108,563    
    752,900     Petroleo Brasileiro SA (Petrobras)     23,408,206    
    20,000     Unibanco-Uniao de Bancos Brasileiros SA GDR     2,231,600    
    Total Brazil     37,020,553    
        Chile — 1.4%  
    43,235     Banco de Chile ADR     2,099,059    
    82,906     Banco Santander Chile SA ADR     3,946,326    
    82,300     Compania Cervecerias Unidas ADR     2,985,844    
    336,000     Lan Airlines SA     5,392,800    
    Total Chile     14,424,029    
        China — 13.6%  
    1,329,096     China Merchants Holdings International Co Ltd     6,975,988    
    3,504,200     China Mobile Ltd     47,725,410    
    2,708,000     China Petroleum & Chemical Corp Class H     2,982,545    
    746,000     China Resources Enterprise Ltd     3,041,354    
    1,410,000     China Shenhua Energy Co Ltd Class H     6,127,754    
    1,022,000     China Shipping Development Co Ltd Class H     3,089,415    
    1,556,000     CITIC International Financial Holdings Ltd     1,265,848    
    4,196,000     CNOOC Ltd     5,148,645    
    1,606,000     Cosco Pacific Ltd     4,475,520    
    2,800,000     Datang International Power Generation Co Ltd     2,968,428    
    9,268,592     Denway Motors Ltd     4,345,189    
    2,778,000     Dongfeng Motor Group Co Ltd     1,800,116    
    3,644,000     Huaneng Power International Inc Class H     4,209,621    

 

See accompanying notes to the financial statements.


3


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        China — continued  
    4,694,000     Lenovo Group Ltd     3,124,437    
    108,000     Netease.Com Inc ADR * (a)      1,786,320    
    9,570,842     PetroChina Co Ltd Class H     13,992,369    
    1,496,000     Ping An Insurance (Group) Co of China Ltd     15,617,556    
    44,000     Sina.com *      1,833,920    
    56,000     Sohu.Com Inc *      1,835,120    
    80,200     Suntech Power Holdings Co Ltd ADR *      2,867,150    
    1,357,600     Yanzhou Coal Mining Co Ltd     2,396,991    
    1,670,000     Zhejiang Expressway Co Ltd Class H     2,226,545    
    Total China     139,836,241    
        Czech Republic — 0.1%  
    22,300     CEZ AS     1,177,065    
        Hungary — 0.8%  
    171,040     OTP Bank     8,588,847    
        India — 6.5%  
    285,500     Cipla Ltd     1,163,031    
    105,000     GAIL India Ltd     794,555    
    10,400     GAIL India Ltd GDR     478,400    
    78,140     HDFC Bank     2,264,930    
    64,700     Hero Honda Motors Ltd     1,025,509    
    882,500     Hindustan Lever     4,492,164    
    180,670     Housing Development Finance Corp Ltd     8,743,271    
    99,700     ICICI Bank Ltd     2,173,500    
    490,350     Infosys Technologies Inc     22,300,537    
    911,100     ITC Ltd     3,808,550    
    133,200     Oil & Natural Gas Corp Ltd     2,805,095    
    61,500     Reliance Industries Ltd     2,954,023    
    474,400     Satyam Computer Services Ltd     5,206,487    
    48,800     Suzlon Energy Ltd     1,511,649    

 

See accompanying notes to the financial statements.


4


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        India — continued  
    131,600     Tata Consultancy Services Ltd     3,422,827    
    345,300     Wipro Ltd     4,089,997    
    Total India     67,234,525    
        Indonesia — 1.2%  
    829,585     Astra International Tbk PT     1,577,443    
    850,000     Gudang Garam Tbk PT     863,333    
    7,312,000     Telekomunikasi Indonesia Tbk PT     8,547,558    
    25,200     Telekomunikasi Indonesia Tbk PT ADR     1,188,432    
    Total Indonesia     12,176,766    
        Israel — 2.4%  
    190,100     Check Point Software Technologies Ltd *      4,459,746    
    56,900     Teva Pharmaceutical Industries     2,443,039    
    415,600     Teva Pharmaceutical Industries ADR     17,870,800    
    Total Israel     24,773,585    
        Malaysia — 1.9%  
    103,000     British American Tobacco Berhad     1,233,261    
    1,915,000     Genting Berhad     4,062,764    
    1,942,750     IOI Corp. Berhad     2,782,324    
    1,272,400     Malayan Banking Berhad     4,255,663    
    917,400     MISC Berhad (Foreign Registered)     2,377,721    
    1,895,000     Resorts World Berhad     2,070,943    
    281,400     Tanjong Plc     1,364,181    
    1,750,985     YTL Power International Berhad     1,202,911    
    Total Malaysia     19,349,768    
        Mexico — 5.2%  
    106,600     America Movil SA de CV Class L ADR     6,445,036    
    1,416,805     America Movil SAB de CV Class L     4,276,226    
    1,138,413     Cemex SA de CV CPO *      3,687,744    

 

See accompanying notes to the financial statements.


5


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Mexico — continued  
    292,800     Corporacion GEO SA de CV Series B *      1,523,314    
    924,000     Fomento Economico Mexicano SA de CV     3,207,577    
    1,157,000     Grupo Financiero Banorte SA de CV     4,719,025    
    254,600     Grupo Mexico SA Class B     1,606,105    
    356,000     Grupo Modelo SA de CV Class C     1,731,116    
    215,000     Grupo Televisa SA-Series CPO     1,129,856    
    253,800     Kimberly Clark (Series A)     1,092,677    
    372,900     Telefonos de Mexico SA de CV Class L ADR     13,178,286    
    3,036,379     Wal-Mart de Mexico SA de CV Class V     10,801,946    
    Total Mexico     53,398,908    
        Philippines — 0.4%  
    62,000     Philippine Long Distance Telephone     3,544,393    
    631,701     San Miguel Corp Class B     928,007    
    Total Philippines     4,472,400    
        Poland — 1.9%  
    57,300     Bank Pekao SA     5,005,037    
    106,900     Polski Koncern Naftowy Orlen SA *      2,192,132    
    351,500     Powszechna Kasa Oszczednosci Bank Polski SA     6,730,110    
    20,800     Prokom Software SA     971,947    
    635,800     Telekomunikacja Polska SA     4,917,140    
    Total Poland     19,816,366    
        Russia — 9.6%  
    29,300     JSC Mining & Smelting Co ADR     6,519,250    
    437,803     Lukoil ADR     32,397,422    
    262,330     Mobile Telesystems ADR     17,355,753    
    260,650     OAO Gazprom ADR     10,830,007    
    5,910,000     Sberbank RF     22,635,300    
    375,500     Vimpel-Communications ADR     9,162,200    
    Total Russia     98,899,932    

 

See accompanying notes to the financial statements.


6


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Africa — 7.1%  
    197,300     Absa Group Ltd     3,599,833    
    289,000     African Bank Investments Ltd     1,282,316    
    18,000     Anglo American Platinum Corp     2,407,035    
    99,800     Barloworld Ltd     1,715,412    
    192,100     Bidvest Group Ltd     3,745,896    
    4,015,904     FirstRand Ltd     13,150,451    
    445,600     Impala Platinum Holdings Ltd     13,274,383    
    116,367     Imperial Holdings Ltd     2,333,542    
    101,600     JD Group Ltd     991,414    
    238,600     MTN Group Ltd     3,640,293    
    51,580     Nedbank Group Ltd     976,054    
    185,179     Pretoria Portland Cement Co Ltd     1,174,251    
    114,700     Sasol Ltd     4,630,454    
    976,114     Standard Bank Group Ltd     14,312,898    
    754,500     Steinhoff International Holdings     2,429,461    
    102,176     Tiger Brands Ltd     2,686,460    
    389,000     Woolworths Holdings     1,073,752    
    Total South Africa     73,423,905    
        South Korea — 16.4%  
    59,900     Doosan Infracore Co Ltd     2,180,460    
    83,700     Hana Financial Group Inc     3,958,291    
    54,300     Hynix Semiconductor Inc *      1,956,503    
    36,300     Hyundai Engineering & Construction *      2,929,991    
    74,800     Hyundai Mobis     8,042,142    
    84,830     Hyundai Motor Co     6,285,978    
    130,540     KIA Motors Corp *      1,765,119    
    116,100     KT Corp ADR     2,765,502    
    84,700     KT Freetel Co Ltd     2,752,505    
    130,600     KT&G Corp     9,930,192    
    47,300     LG Chemicals Ltd     4,921,902    
    38,400     LG Electronics Inc     2,946,256    
    34,300     NCSoft Corp *      2,852,167    

 

See accompanying notes to the financial statements.


7


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    35,400     NHN Corp *      6,833,434    
    50,340     POSCO     30,807,177    
    74,003     Samsung Electronics Co Ltd     46,650,744    
    7,500     Samsung Fire & Marine Insurance Co Ltd     1,458,709    
    37,000     Samsung SDI Co Ltd     2,432,116    
    45,600     Samsung Techwin Co Ltd     3,291,669    
    82,460     Shinhan Financial Group Co Ltd     5,055,634    
    12,500     Shinsegae Co Ltd     8,260,826    
    6,800     SK Telecom Co Ltd     1,492,409    
    328,700     SK Telecom Co Ltd ADR     8,996,519    
    Total South Korea     168,566,245    
        Taiwan — 12.1%  
    1,181,711     Acer Inc     2,078,282    
    2,654,238     Asustek Computer Inc     7,920,994    
    1,516,000     Cathay Financial Holding Co Ltd     3,374,042    
    1,372,957     China Motor Corp Ltd     1,217,538    
    2,196,189     China Steel Corp     2,986,065    
    1,627,000     Chinatrust Financial Holding Co Ltd *      1,223,691    
    3,639,240     Chunghwa Telecom Co Ltd     6,467,757    
    6,171     Chunghwa Telecom Co Ltd ADR     108,116    
    2,088,500     Compal Electronics Inc     2,312,102    
    359,417     Delta Electronics Inc     1,340,070    
    1,657,167     Formosa Chemicals & Fibre Co     4,035,443    
    504,582     Formosa Petrochemical Corp     1,405,253    
    1,242,869     Formosa Plastics Corp     3,087,539    
    261,855     Foxconn Technology Co Ltd     2,380,049    
    148,200     High Tech Computer Corp     2,013,288    
    4,229,685     Hon Hai Precision Industry Co Ltd     31,389,723    
    809,041     Lite-On Technology Corp     1,276,510    
    922,593     MediaTek Inc     15,594,397    
    1,616,444     Nan Ya Plastics Corp     3,922,536    
    422,636     Novatek Microelectronics     1,705,576    

 

See accompanying notes to the financial statements.


8


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    2,146,547     Quanta Computer Inc     3,492,504    
    272,848     Realtek Semiconductor Corp     1,335,152    
    551,350     Sunplus Technology Co Ltd     982,868    
    12,368,625     Taiwan Semiconductor Manufacturing Co Ltd     23,483,334    
    Total Taiwan     125,132,829    
        Thailand — 1.0%  
    959,000     Advanced Info Service Pcl (Foreign Registered) (b)      2,598,250    
    676,400     PTT Exploration & Production Pcl (Foreign Registered) (b)      2,400,234    
    431,611     PTT Pcl (Foreign Registered) (b)     3,840,716    
    48,000     Siam Cement Pcl (Foreign Registered) (b)      354,960    
    101,000     Siam Cement Pcl (Foreign Registered) NVDR (b)      735,133    
    Total Thailand     9,929,293    
        Turkey — 0.5%  
    351,810     Akbank TAS     2,247,713    
    173,130     Arcelik AS     1,216,019    
    66,575     Tupras-Turkiye Petrol Rafineriler AS     1,520,456    
    Total Turkey     4,984,188    
    TOTAL COMMON STOCKS (COST $577,398,327)     889,071,695    
        PREFERRED STOCKS — 7.8%  
        Brazil — 7.5%  
    279,748     Banco Bradesco SA 1.01%     6,979,442    
    445,100     Banco Itau Holding Financeira SA 0.34%     19,509,990    
    74,951     Companhia de Bebidas das Americas 0.60%     5,195,380    
    306,474     Companhia Vale do Rio Doce Class A 0.53%     12,683,837    
    158,400     Gerdau SA 2.43%     3,875,229    
    984,008     Itausa-Investimentos Itau SA 0.41%     5,918,091    
    863,000     Petroleo Brasileiro SA (Petrobras) 0.67%     22,960,550    
    Total Brazil     77,122,519    

 

See accompanying notes to the financial statements.


9


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        South Korea — 0.3%  
    6,200     Samsung Electronics Co Ltd (Non Voting) 1.28%     2,910,087    
    TOTAL PREFERRED STOCKS (COST $47,985,318)     80,032,606    
        RIGHTS AND WARRANTS — 0.0%  
        Thailand — 0.0%  
      480,663     True Corp Pcl Warrants, Expires 04/03/08 * (b)      —    
    TOTAL RIGHTS AND WARRANTS (COST $0)     —    
        SHORT-TERM INVESTMENTS — 1.8%  
    2,000,000     Bank Nationale de Paris Time Deposit, 5.19% due 09/04/07     2,000,000    
    2,000,000     Bank of Montreal Time Deposit, 5.05%, due 09/04/07     2,000,000    
    1,060,275     Bank of New York Institutional Cash Reserves Fund (c)      1,060,275    
    2,000,000     HSBC Bank USA Time Deposit, 5.00%, due 09/04/07     2,000,000    
    2,000,000     ING Bank Time Deposit, 5.32%, due 09/04/07     2,000,000    
    2,000,000     Rabobank Time Deposit, 5.13%, due 09/04/07     2,000,000    
    7,800,000     Societe Generale Time Deposit, 5.28%, due 09/04/07     7,800,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $18,860,275)     18,860,275    
    TOTAL INVESTMENTS — 95.9%
(Cost $644,243,920)		     987,964,576    
          Other Assets and Liabilities (net) — 4.1%     42,586,841    
    TOTAL NET ASSETS — 100.0%   $ 1,030,551,417    

 

See accompanying notes to the financial statements.


10


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

CPO - Ordinary Participation Certificate (Certificado de Participacion Ordinares), representing a bundle of shares of the multiple series of one issuer that trade together as a unit.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(c)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 57.56% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


11



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $1,046,982 (cost $644,243,920) (Note 2)   $ 987,964,576    
Cash     82,703    
Foreign currency, at value (cost $2,589,883) (Note 2)     2,580,441    
Receivable for Fund shares sold     42,000,000    
Dividends and interest receivable     2,941,022    
Receivable for expenses reimbursed by Manager (Note 3)     12,307    
Total assets     1,035,581,049    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     1,060,275    
Payable for Fund shares repurchased     3,050,000    
Accrued capital gain and repatriation taxes payable (Note 2)     192,062    
Payable to affiliate for (Note 3):  
Management fee     321,436    
Shareholder service fee     71,092    
Trustees and Chief Compliance Officer of GMO Trust fees     1,684    
Accrued expenses     333,083    
Total liabilities     5,029,632    
Net assets   $ 1,030,551,417    
Net assets consist of:  
Paid-in capital   $ 647,356,776    
Accumulated undistributed net investment income     10,357,831    
Accumulated net realized gain     29,308,518    
Net unrealized appreciation     343,528,292    
    $ 1,030,551,417    
Net assets attributable to:  
Class III shares   $ 347,171,422    
Class VI shares   $ 683,379,995    
Shares outstanding:  
Class III     25,911,338    
Class VI     50,870,323    
Net asset value per share:  
Class III   $ 13.40    
Class VI   $ 13.43    

 

See accompanying notes to the financial statements.


12


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,661,022)   $ 12,890,036    
Interest     510,429    
Securities lending income     5,280    
Total investment income     13,405,745    
Expenses:  
Management fee (Note 3)     1,890,710    
Shareholder service fee – Class III (Note 3)     254,761    
Shareholder service fee – Class VI (Note 3)     166,560    
Custodian and fund accounting agent fees     615,480    
Transfer agent fees     21,160    
Audit and tax fees     40,664    
Legal fees     11,132    
Trustees fees and related expenses (Note 3)     5,121    
Registration fees     736    
Miscellaneous     7,452    
Total expenses     3,013,776    
Fees and expenses reimbursed by Manager (Note 3)     (70,228 )  
Net expenses     2,943,548    
Net investment income (loss)     10,462,197    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $17,811) (Note 2)     29,336,900    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $5,567) (Note 2)		     72,477    
Net realized gain (loss)     29,409,377    
Change in net unrealized appreciation (depreciation) on:  
Investments (net of change in foreign capital gains tax accrual of ($1,847,016)) (Note 2)     135,107,127    
Foreign currency, forward contracts and foreign currency related transactions     2,693    
Net unrealized gain (loss)     135,109,820    
Net realized and unrealized gain (loss)     164,519,197    
Net increase (decrease) in net assets resulting from operations   $ 174,981,394    

 

See accompanying notes to the financial statements.


13


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,462,197     $ 12,620,530    
Net realized gain (loss)     29,409,377       45,066,930    
Change in net unrealized appreciation (depreciation)     135,109,820       60,935,011    
Net increase (decrease) in net assets from operations     174,981,394       118,622,471    
Distributions to shareholders from:  
Net investment income  
Class III     (392,896 )     (4,399,199 )  
Class VI     (757,471 )     (8,242,433 )  
Total distributions from net investment income     (1,150,367 )     (12,641,632 )  
Net realized gains  
Class III     (8,473,358 )     (13,817,514 )  
Class VI     (14,600,258 )     (24,802,423 )  
Total distributions from net realized gains     (23,073,616 )     (38,619,937 )  
      (24,223,983 )     (51,261,569 )  
Net share transactions (Note 7):  
Class III     679,651       70,136,125    
Class VI     46,582,329       104,030,228    
Increase (decrease) in net assets resulting from net share
transactions		     47,261,980       174,166,353    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     436,279       434,472    
Class VI     327,920       409,974    
Increase in net assets resulting from purchase premiums
and redemption fees		     764,199       844,446    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     48,026,179       175,010,799    
Total increase (decrease) in net assets     198,783,590       242,371,701    
Net assets:  
Beginning of period     831,767,827       589,396,126    
End of period (including accumulated undistributed net investment
income of $10,357,831 and $1,046,001, respectively)		   $ 1,030,551,417     $ 831,767,827    

 

See accompanying notes to the financial statements.


14



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007		  
Year Ended February 28/29,		  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 11.36     $ 10.38     $ 7.71     $ 13.77     $ 7.25     $ 8.09    
Income (loss) from investment operations:  
Net investment income (loss)     0.14 †      0.18 †      0.15 †      0.17 †      0.23       0.06    
Net realized and unrealized gain (loss)     2.22       1.57       2.67       0.19       6.35       (0.85 )  
Total from investment operations     2.36       1.75       2.82       0.36       6.58       (0.79 )  
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.18 )     (0.11 )     (0.52 )     (0.06 )     (0.05 )  
From net realized gains     (0.31 )     (0.59 )     (0.04 )     (5.90 )     —       —    
Total distributions     (0.32 )     (0.77 )     (0.15 )     (6.42 )     (0.06 )     (0.05 )  
Net asset value, end of period   $ 13.40     $ 11.36     $ 10.38     $ 7.71     $ 13.77     $ 7.25    
Total Return(a)      20.78 %**      17.27 %     36.86 %     16.19 %     91.04 %     (9.82 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 347,171     $ 292,123     $ 197,026     $ 82,153     $ 141,614     $ 105,354    
Net expenses to average daily
net assets		     0.68 %*      0.70 %     0.73 %     1.22 %     1.25 %     1.35 %  
Net investment income to average
daily net assets		     2.15 %*      1.70 %     1.71 %     1.84 %     1.76 %     0.80 %  
Portfolio turnover rate     7 %**      17 %     18 %     141 %     39 %     72 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.01 %*      0.02 %     0.04 %     0.11 %     0.07 %     0.06 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.02     $ 0.02     $ 0.04     $ 0.06     $ 0.02     $ 0.00 (b)   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


15


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months Ended
August 31, 2007		  
Year Ended February 28/29,		  
    (Unaudited)   2007   2006   2005(a)   
Net asset value, beginning of period   $ 11.38     $ 10.39     $ 7.72     $ 6.52    
Income (loss) from investment operations:  
Net investment income (loss)†      0.14       0.20       0.15       0.03    
Net realized and unrealized gain (loss)     2.24       1.57       2.67       1.44    
Total from investment operations     2.38       1.77       2.82       1.47    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.19 )     (0.11 )     (0.01 )  
From net realized gains     (0.31 )     (0.59 )     (0.04 )     (0.26 )  
Total distributions     (0.33 )     (0.78 )     (0.15 )     (0.27 )  
Net asset value, end of period   $ 13.43     $ 11.38     $ 10.39     $ 7.72    
Total Return(b)      20.85 %**      17.45 %     36.92 %     23.05 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 683,380     $ 539,645     $ 392,370     $ 103,152    
Net expenses to average daily net assets     0.59 %*      0.61 %     0.64 %     0.71 %*   
Net investment income to average daily net assets     2.25 %*      1.82 %     1.66 %     0.99 %*   
Portfolio turnover rate     7 %**      17 %     18 %     141 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.01 %*      0.02 %     0.04 %     0.16 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts:† 		   $ 0.01     $ 0.01     $ 0.03     $ 0.04    

 

(a)  Period from September 23, 2004 (commencement of operations) through February 28, 2005.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2005.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


16



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Emerging Markets Opportunities Fund (formerly GMO Emerging Markets Quality 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming its benchmark, the S&P/IFCI (Investable) Composite Index. The Fund typically makes equity investments in companies whose stocks are traded in the securities markets of the world's non-developed markets, which excludes countries that are included in the MSCI EAFE Index.

For the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different level of shareholder service fees.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and


17


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net


18


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an i lliquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or


19


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

loss. The risk associated with purchasing put and call options is limited to the premium paid. There were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to


20


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $1,046,982, collateralized by cash in the amount of $1,060,275, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund.


21


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 $192,062 for potential capital gains and repatriation taxes as of August 31, 2007. The accrual for capital gains and repatriation taxes is included in net unrealized gain (loss) in the Statement of Operations. For the period ended August 31, 2007, the Fund incurred $17,811 in capital gain taxes which is included in net realized gain (loss) in the Statement of Operations.

The Fund is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. For the period ended August 31, 2007, the Fund incurred $5,567 in CPMF tax which is included in the net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

The Fund is currently subject to a Taiwanese security transaction tax of 0.30% of the transaction amount on equities, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to such tax.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 644,392,558     $ 348,590,362     $ (5,018,344 )   $ 343,572,018    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash


22


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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 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's operations.

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.50% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. 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's net assets on the share transaction date. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $440,356 and $737,704 in purchase premiums and $323,843 and $106, 742 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

Investments in securities of issuers in 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


23


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

countries. These factors may result in significant volatility in the values of its holdings. The markets in emerging countries are typically less liquid than those of developed markets. Accordingly, the Fund may not be able to realize in an actual sale amounts approximating those used to value its holdings.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.40% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net assets of each class at the annual rate of 0.15% for Class III shares and 0.055% for Class VI shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, custodial fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including


24


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.40% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $3,833 and $2,760, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $61,951,962 and $64,204,292, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 45.90% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 0.09% of the Fund's shares were held by six related parties comprised of certain GMO employee accounts, and 97.84% of the Fund's shares were held by accounts for which the Manager has investment discretion.


25


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     3,411,895     $ 41,429,370       6,699,064     $ 70,948,543    
Shares issued to shareholders
in reinvestment of distributions		     654,636       8,831,039       1,632,202       17,790,965    
Shares repurchased     (3,875,574 )     (49,580,758 )     (1,601,291 )     (18,603,383 )  
Purchase premiums and
redemption fees		     —       436,279       —       434,472    
Net increase (decrease)     190,957     $ 1,115,930       6,729,975     $ 70,570,597    
    Six Months Ended
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     3,916,995     $ 51,463,387       7,184,647     $ 76,812,535    
Shares issued to shareholders
in reinvestment of distributions		     1,135,927       15,357,729       3,025,802       33,044,856    
Shares repurchased     (1,591,001 )     (20,238,787 )     (551,552 )     (5,827,163 )  
Purchase premiums and
redemption fees		     —       327,920       —       409,974    
Net increase (decrease)     3,461,921     $ 46,910,249       9,658,897     $ 104,440,202    

 


26



GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


27


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholde r servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


28


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


29


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


30


GMO Emerging Markets Opportunities Fund

(formerly GMO Emerging Markets Quality Fund)
(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
  1 ) Actual     0.68 %   $ 1,000.00     $ 1,207.80     $ 3.77    
  2 ) Hypothetical     0.68 %   $ 1,000.00     $ 1,021.72     $ 3.46    
Class VI      
  1 ) Actual     0.59 %   $ 1,000.00     $ 1,208.50     $ 3.28    
  2 ) Hypothetical     0.59 %   $ 1,000.00     $ 1,022.17     $ 3.00    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


31



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     93.9 %  
Short-Term Investments     3.7    
Preferred Stocks     0.6    
Rights and Warrants     0.0    
Futures     0.0    
Forward Currency Contracts     (0.3 )  
Other     2.1    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     23.8 %  
United Kingdom     22.3    
France     13.0    
Germany     9.4    
Netherlands     6.2    
Italy     4.3    
Switzerland     3.8    
Australia     3.4    
Canada     2.2    
Finland     2.0    
Belgium     1.9    
Sweden     1.8    
Spain     1.6    
Singapore     1.2    
Hong Kong     1.1    
Ireland     0.8    
Austria     0.5    
Norway     0.3    
Denmark     0.2    
Portugal     0.1    
Greece     0.1    
      100.0 %  

 


1


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     26.6 %  
Consumer Discretionary     13.0    
Energy     12.7    
Health Care     12.6    
Industrials     8.9    
Materials     8.4    
Telecommunication Services     8.2    
Utilities     4.5    
Consumer Staples     2.6    
Information Technology     2.5    
      100.0 %  

 


2



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            COMMON STOCKS — 93.9%          
            Australia — 3.2%          
    1,127,380     Australia and New Zealand Banking Group Ltd     26,791,269    
    498,425     BlueScope Steel Ltd     4,339,051    
    907,564     Centro Properties Group     6,084,909    
    315,009     Commonwealth Bank of Australia     14,218,879    
    306,700     Macquarie Bank Ltd     18,320,142    
    2,941,907     Mirvac Group Ltd     12,943,149    
    2,414,840     Qantas Airways Ltd     11,033,199    
    721,737     QBE Insurance Group Ltd     20,568,548    
    288,341     Rio Tinto Ltd     21,987,864    
    4,003,203     Stockland     28,103,833    
    2,289,013     Suncorp-Metway Ltd     37,668,937    
    6,732,990     Telstra Corp Ltd     24,159,090    
    1,062,733     Westpac Banking Corp     23,674,831    
    356,019     Woodside Petroleum Ltd     13,150,702    
    105,934     Woolworths Ltd     2,593,438    
    360,706     Zinifex Ltd     4,952,313    
    Total Australia     270,590,154    
            Austria — 0.5%          
    13,644     Flughafen Wien AG     1,365,752    
    204,281     OMV AG     12,658,287    
    295,647     Voestalpine AG     24,184,885    
    Total Austria     38,208,924    
            Belgium — 1.8%          
    208,601     Belgacom SA     9,152,299    
    23,323     Colruyt SA     4,982,332    
    85,440     Delhaize Group     8,380,894    
    1,651,548     Dexia     45,544,932    
    1,569,052     Fortis     57,547,609    
    28,241     Solvay SA     4,192,245    
    261,587     UCB SA     14,737,723    

 

See accompanying notes to the financial statements.


3


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Belgium — continued          
    27,392     Umicore     6,282,327    
    Total Belgium     150,820,361    
            Canada — 2.1%          
    510,911     BCE Inc     19,541,378    
    554,300     Canadian Imperial Bank of Commerce     50,233,437    
    430,200     Canadian Natural Resources     29,409,222    
    739,800     EnCana Corp     43,358,165    
    109,200     Magna International Inc Class A     9,805,250    
    256,400     National Bank of Canada     13,334,742    
    162,600     Royal Bank of Canada     8,367,125    
    Total Canada     174,049,319    
            Denmark — 0.2%          
    544     AP Moller-Maersk A/S     7,119,816    
    332,800     Danske Bank A/S     13,664,501    
    Total Denmark     20,784,317    
            Finland — 1.9%          
    168,804     Kesko Oyj Class B     9,946,467    
    2,185,203     Nokia Oyj     71,988,375    
    348,479     Outokumpu Oyj     10,579,273    
    599,149     Rautaruukki Oyj     32,760,916    
    966,504     Sampo Oyj Class A     27,785,292    
    38,955     Stockmann Oyj AB Class A     1,716,705    
    32,400     Wartsila Oyj Class A     2,020,278    
    Total Finland     156,797,306    
            France — 12.2%          
    198,115     Air France     8,199,425    
    1,924,142     Arcelor Mittal     126,197,700    
    1,141,608     BNP Paribas     119,839,350    
    24,560     Bongrain SA     2,935,629    
    221,214     Bouygues     17,351,662    

 

See accompanying notes to the financial statements.


4


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            France — continued          
    118,326     Casino Guichard-Perrachon SA     12,050,840    
    331,787     Cie de Saint-Gobain     35,931,662    
    844,958     Credit Agricole SA     31,739,003    
    218,944     France Telecom SA     6,595,107    
    3,655     Fromageries Bel     1,075,469    
    35,030     Lafarge SA     5,423,420    
    303,521     Michelin SA Class B     38,096,229    
    703,581     Peugeot SA     59,684,032    
    573,153     Renault SA     76,996,859    
    2,273,788     Sanofi-Aventis     186,229,051    
    31,013     Societe Generale     4,979,957    
    3,957,451     Total SA     296,784,169    
    Total France     1,030,109,564    
            Germany — 8.4%          
    758     Aareal Bank AG     36,326    
    194,367     Adidas AG     11,450,496    
    370,678     Allianz SE (Registered)     79,631,578    
    508,073     BASF AG     67,304,755    
    909,372     Bayerische Motoren Werke AG     55,564,529    
    300,931     Commerzbank AG     12,372,087    
    516,467     DaimlerChrysler AG (Registered)     46,012,428    
    1,575,034     Depfa Bank Plc     29,866,614    
    704,925     Deutsche Bank AG (Registered)     87,577,908    
    264,290     Deutsche Lufthansa AG (Registered)     7,712,110    
    756,435     Deutsche Post AG (Registered)     21,970,816    
    351,366     Infineon Technologies AG *      5,481,720    
    156,482     MAN AG     22,467,546    
    515,624     Muenchener Rueckversicherungs AG (Registered)     89,276,158    
    143,830     Salzgitter AG     28,484,792    
    196,850     Siemens AG (Registered)     24,750,531    
    967,209     ThyssenKrupp AG     56,618,013    
    299,338     Volkswagen AG     61,985,236    
    Total Germany     708,563,643    

 

See accompanying notes to the financial statements.


5


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Greece — 0.1%          
    98,324     National Bank of Greece SA     5,832,566    
            Hong Kong — 1.0%          
    782,000     Bank of East Asia Ltd     4,358,617    
    2,594,500     BOC Hong Kong Holdings Ltd     6,236,329    
    5,025,598     CLP Holdings Ltd     34,607,868    
    171,000     Guoco Group     2,300,713    
    1,506,511     Hang Lung Group Ltd     7,192,164    
    331,900     Hong Kong Aircraft Engineering Co Ltd     7,243,372    
    3,961,969     Hong Kong Electric Holdings Ltd     19,864,593    
    564,700     Hong Kong Ferry Co Ltd     579,231    
    1,479,400     Yue Yuen Industrial Holdings     4,463,613    
    Total Hong Kong     86,846,500    
            Ireland — 0.8%          
    278,179     Allied Irish Banks Plc     7,090,900    
    355,536     Anglo Irish Bank Corp     6,636,178    
    580,741     Bank of Ireland     10,669,365    
    906,394     CRH Plc     39,183,952    
    Total Ireland     63,580,395    
            Italy — 4.0%          
    4,192,174     Enel SPA     43,317,477    
    7,003,608     ENI SPA     241,915,964    
    996,406     Fiat SPA     26,572,921    
    186,680     Fiat SPA-Di RISP     4,275,347    
    198,854     Fondiaria-Sai SPA-Di RISP     6,406,061    
    291,136     Italcementi SPA-Di RISP     4,861,721    
    24,468     Italmobiliare SPA     3,139,744    
    97,300     Natuzzi SPA ADR *      745,318    
    779,886     Snam Rete Gas SPA     4,600,828    
    Total Italy     335,835,381    

 

See accompanying notes to the financial statements.


6


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Japan — 22.5%          
    437,470     Acom Co Ltd (a)      13,051,048    
    350,100     Astellas Pharma Inc     16,228,279    
    873,900     Canon Inc     49,881,755    
    1,179,500     Chubu Electric Power Co Inc     31,440,061    
    1,286,000     Cosmo Oil Co Ltd     5,809,269    
    187,250     Daiei Inc *      1,411,763    
    765,580     Daiichi Sankyo Co Ltd     20,887,446    
    816,000     Daikyo Inc     2,930,310    
    577,800     Eisai Co Ltd     24,067,414    
    3,223,000     Fuji Heavy Industries Ltd     13,509,609    
    486,900     Fuji Photo Film Co Ltd     20,973,166    
    5,821,500     Haseko Corp *      15,682,314    
    271,100     Hitachi Construction Machinery     9,530,612    
    1,704,000     Hitachi Ltd     10,987,348    
    453,000     Hokkaido Electric Power     10,243,947    
    5,541,100     Honda Motor Co Ltd     182,124,639    
    3,633,000     Isuzu Motors Ltd     19,703,680    
    5,760,000     Itochu Corp     62,201,657    
    532,600     JFE Holdings Inc     34,678,962    
    1,019,700     Kansai Electric Power Co Inc     23,823,134    
    1,069,000     Kao Corp     30,395,103    
    1,413,000     Kawasaki Heavy Industries Ltd     5,538,692    
    4,029,000     Kawasaki Kisen Kaisha Ltd     51,825,512    
    742     KDDI Corp     5,722,791    
    280,000     Konami Corp     7,063,787    
    892,200     Kyushu Electric Power Co Inc     23,809,061    
    5,851,000     Marubeni Corp     47,582,147    
    1,408,000     Mazda Motor Corp     7,085,389    
    965,500     Mitsubishi Chemical Holdings     9,022,068    
    2,934,500     Mitsubishi Corp     82,366,770    
    1,276,000     Mitsubishi Materials Corp     7,066,599    
    2,510,000     Mitsui & Co     52,175,868    
    2,362,000     Mitsui OSK Lines Ltd     34,697,037    
    3,139,000     Mitsui Trust Holding Inc     26,175,202    
    220,000     Nagase & Co     2,672,605    
    5,246,000     Nippon Oil Corp     44,139,597    

 

See accompanying notes to the financial statements.


7


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Japan — continued          
    7,653,000     Nippon Steel Corp     53,477,960    
    10,823     Nippon Telegraph & Telephone Corp     49,825,501    
    3,433,000     Nippon Yusen Kabushiki Kaisha     33,851,841    
    8,056,100     Nissan Motor Co     76,958,917    
    39,683     NTT Docomo Inc     60,492,195    
    177,000     Olympus Corp     7,515,832    
    163,700     Ono Pharmaceutical Co Ltd     8,462,783    
    8,812,000     Osaka Gas Co Ltd     32,729,027    
    854,000     Pacific Metals Co Ltd     11,794,882    
    361,050     Promise Co Ltd     9,935,368    
    17,006     Resona Holdings Inc     35,778,880    
    1,700,000     Ricoh Company Ltd     37,418,600    
    78,200     Ryosan Co     2,065,472    
    513,700     Sega Sammy Holdings Inc     7,800,535    
    1,061,000     Seven & I Holdings Co Ltd     28,290,070    
    1,070,000     Shinko Securities Co Ltd     5,092,919    
    781,700     Showa Shell Sekiyu KK     9,471,299    
    5,790,200     Sojitz Corp     24,094,138    
    290,600     Sony Corp     13,912,600    
      2,386,900     Sumitomo Corp     41,174,845    
    2,544,000     Sumitomo Metal Industries Ltd     12,831,201    
    504,000     Taisho Pharmaceutical Co Ltd (a)      9,862,246    
    2,352,900     Takeda Pharmaceutical Co Ltd     160,982,177    
    523,340     Takefuji Corp     14,043,390    
    159,500     TDK Corp     13,638,674    
    865,300     Tokyo Electric Power Co Inc     22,694,540    
    3,588,000     Tokyo Gas Co Ltd     17,826,727    
    479,400     Tokyo Steel Manufacturing Co     6,338,732    
    896,000     TonenGeneral Sekiyu KK (a)      8,875,167    
    237,000     Toyo Suisan Kaisha Ltd     4,148,597    
    200     Toyota Industries Corp     8,473    
    994,500     Toyota Motor Corp     57,590,449    
    273,500     Urban Corp     4,621,936    
    Total Japan     1,890,110,614    

 

See accompanying notes to the financial statements.


8


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            Netherlands — 5.8%          
    3,807,215     ABN Amro Holdings NV     176,941,087    
    4,238,988     Aegon NV     77,330,616    
    14,863     Gamma Holdings NV     1,222,017    
    442,871     Heineken NV     28,074,553    
    4,479,797     ING Groep NV     180,296,537    
    256,990     Koninklijke DSM     13,143,087    
    496,616     Reed Elsevier NV     8,959,022    
    126,135     TNT NV     5,336,908    
    Total Netherlands     491,303,827    
            Norway — 0.3%          
    368,732     Orkla ASA     5,985,367    
    567,000     Statoil ASA     16,313,510    
    Total Norway     22,298,877    
            Portugal — 0.1%          
    2,247,739     Banco Commercial Portugues SA     10,499,844    
            Singapore — 1.2%          
    1,274,000     DBS Group Holdings Ltd     16,743,654    
    151,193     Haw Par Corp Ltd     794,255    
    3,387,000     Oversea-Chinese Banking Corp     19,040,390    
    3,258,100     Sembcorp Industrie     12,058,187    
    12,507,000     Singapore Telecommunications     29,912,271    
    1,323,201     Straits Trading Co Ltd     3,900,290    
    1,133,000     United Overseas Bank Ltd     15,483,379    
    Total Singapore     97,932,426    
            Spain — 1.5%          
    534,380     Banco Santander Central Hispano SA     9,763,097    
    118,893     Gas Natural SDG SA     6,338,658    
    1,669,334     Repsol YPF SA     60,153,404    
    2,098,068     Telefonica SA     52,174,204    
    Total Spain     128,429,363    

 

See accompanying notes to the financial statements.


9


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Sweden — 1.7%        
  720,400     Electrolux AB Series B     16,207,060    
  432,200     Investor AB     10,671,439    
  852,800     Nordea AB     13,029,167    
  556,200     Sandvik AB     11,367,180    
  612,800     Scania AB Class B     14,299,185    
  255,400     Skandinaviska Enskilda Banken AB Class A     7,738,428    
  336,600     SKF AB Class B     6,896,739    
  239,300     Svenska Handelsbanken AB Class A     6,669,639    
  346,100     Swedbank AB     11,369,482    
  291,500     Tele2 AB Class B     5,340,050    
  408,700     Volvo AB Class A     7,101,407    
  1,757,700     Volvo AB Class B     30,482,607    
    Total Sweden     141,172,383    
        Switzerland — 3.6%        
  4,136     Banque Cantonale Vaudoise     1,955,533    
  213,209     Credit Suisse Group     13,992,517    
  42,367     Nestle SA (Registered)     18,465,262    
  1,998,027     Novartis AG (Registered)     105,325,888    
  558,969     Swiss Reinsurance Co (Registered)     47,161,374    
  404,771     Zurich Financial Services AG     116,250,372    
    Total Switzerland     303,150,946    
        United Kingdom — 21.0%        
  1,326,055       3 i Group Plc     28,280,354    
  835,467     Alliance & Leicester Plc     17,792,472    
  2,224,284     AstraZeneca Plc     109,620,279    
  3,184,907     Aviva Plc     45,624,604    
  1,110,573     Barratt Developments Plc     20,855,618    
  803,682     BG Group Plc     12,861,304    
  9,119,851     BT Group Plc     58,160,926    
  5,196,401     Centrica Plc     40,499,785    
  815,153     Compass Group Plc     5,356,994    
  6,261,224     DSG International Plc     19,645,769    

 

See accompanying notes to the financial statements.


10


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
            United Kingdom — continued          
    708,110     FirstGroup Plc     9,349,326    
    593,509     GKN Plc     4,419,155    
    12,964,326     GlaxoSmithKline Plc     338,323,863    
    1,706,346     HBOS Plc     30,331,776    
    2,243,256     Home Retail Group     18,792,919    
    480,673     Imperial Tobacco Group Plc     21,751,177    
    1,020,747     International Power Plc     8,342,844    
    1,358,431     J Sainsbury Plc     15,207,397    
    4,451,832     Kingfisher Plc     18,767,034    
    2,079,859     Legal & General Group Plc     6,101,146    
    1,192,886     National Grid Plc     17,877,046    
    901,923     Next Plc     35,252,757    
    6,324,963     Old Mutual Plc     20,426,010    
    1,156,444     Rio Tinto Plc     79,880,799    
    8,341,530     Royal & Sun Alliance Insurance Group     23,855,516    
    15,193,539     Royal Bank of Scotland Group     176,552,777    
    1,344,333     Royal Dutch Shell Group Class A (Amsterdam)     52,072,235    
    2,760,783     Royal Dutch Shell Plc A Shares (London)     107,275,658    
    1,323,843     Royal Dutch Shell Plc B Shares (London)     51,623,633    
    180,911     Scottish & Southern Energy Plc     5,183,922    
    471,114     Smith News Plc     1,393,669    
    2,881,273     Taylor Woodrow Plc     20,252,614    
    706,644     Unilever Plc     22,331,433    
    764,160     United Utilities Plc     10,679,469    
    97,501,566     Vodafone Group Inc     315,090,498    
    Total United Kingdom     1,769,832,778    
    TOTAL COMMON STOCKS (COST $6,252,155,840)     7,896,749,488    
            PREFERRED STOCKS — 0.6%          
            Germany — 0.5%          
    9,049     Villeroy & Boch AG (Non Voting) 2.78%     191,568    
    310,387     Volkswagen AG 1.39%     38,606,558    
    Total Germany     38,798,126    

 

See accompanying notes to the financial statements.


11


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
            Italy — 0.1%          
    156,205     Fiat SPA 1.79%     3,600,751    
    107,075     IFI Istituto Finanziario Industries *      3,719,869    
    Total Italy     7,320,620    
    TOTAL PREFERRED STOCKS (COST $13,742,171)     46,118,746    
            RIGHTS AND WARRANTS — 0.0%          
            Italy — 0.0%          
    1,195,710     Unipol Gruppo Finanziario SPA Rights, Expires 07/03/07 * (b)      —    
    TOTAL RIGHTS AND WARRANTS (COST $0)     —    
            SHORT-TERM INVESTMENTS — 3.7%          
    10,490,290     Bank of New York Institutional Cash Reserves Fund (c)      10,490,290    
    300,700,000     Societe Generale Time Deposit, 5.13%, due 09/04/07     300,700,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $311,190,290)     311,190,290    
    TOTAL INVESTMENTS — 98.2%
(Cost $6,577,088,301)		     8,254,058,524    
          Other Assets and Liabilities (net) — 1.8%     154,158,725    
    TOTAL NET ASSETS — 100.0%   $ 8,408,217,249    

 

See accompanying notes to the financial statements.


12


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
11/20/2007   CAD     11,598,011     $ 10,998,100     $ 7,745    
11/20/2007   CAD     11,598,011       10,998,100       17,474    
11/20/2007   CAD     11,598,011       10,998,100       19,813    
11/20/2007   CAD     11,598,011       10,998,100       24,799    
11/20/2007   CAD     11,598,011       10,998,099       26,241    
11/20/2007   CAD     11,598,011       10,998,099       29,365    
11/20/2007   CAD     11,598,011       10,998,099       42,627    
11/20/2007   CHF     133,137,561       110,844,697       (287,817 )  
11/20/2007   CHF     116,201,561       96,744,501       (268,395 )  
11/20/2007   CHF     116,201,561       96,744,501       (229,938 )  
11/20/2007   CHF     116,201,561       96,744,501       (189,248 )  
11/20/2007   CHF     116,201,561       96,744,500       (154,733 )  
11/20/2007   CHF     116,201,561       96,744,500       (149,724 )  
11/20/2007   CHF     116,201,561       96,744,500       (126,460 )  
11/20/2007   EUR     29,947,000       40,912,214       430,159    
11/20/2007   EUR     102,754,000       140,377,788       (1,873,103 )  
11/20/2007   EUR     14,533,000       19,854,316       (24,575 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (747,442 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (616,628 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (577,651 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (510,945 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (402,293 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (396,981 )  
11/20/2007   JPY     7,171,178,875       62,593,410       (310,233 )  
11/20/2007   JPY     10,310,973,000       89,999,005       (168,765 )  
11/20/2007   NOK     239,628,384       41,152,426       665,084    
11/20/2007   NOK     239,628,384       41,152,426       667,889    
11/20/2007   NOK     239,628,384       41,152,426       684,229    
11/20/2007   NOK     239,628,384       41,152,426       692,428    
11/20/2007   NOK     239,628,384       41,152,426       723,147    
11/20/2007   NOK     239,628,384       41,152,426       746,277    
11/20/2007   NOK     239,628,384       41,152,426       758,558    

 

See accompanying notes to the financial statements.


13


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
11/20/2007   NZD     20,164,286     $ 14,062,788     $ 83,957    
11/20/2007   NZD     20,164,286       14,062,788       100,028    
11/20/2007   NZD     20,164,286       14,062,788       100,028    
11/20/2007   NZD     20,164,286       14,062,788       102,408    
11/20/2007   NZD     20,164,286       14,062,788       115,555    
11/20/2007   NZD     20,164,286       14,062,788       147,152    
11/20/2007   NZD     71,105,286       49,589,585       (2,744,164 )  
11/20/2007   SEK     351,824,145       51,193,931       167,053    
11/20/2007   SEK     351,824,145       51,193,931       179,047    
11/20/2007   SEK     351,824,145       51,193,931       186,229    
11/20/2007   SEK     351,824,145       51,193,931       210,835    
11/20/2007   SEK     351,824,145       51,193,931       271,345    
11/20/2007   SEK     351,824,145       51,193,931       278,840    
11/20/2007   SEK     351,824,145       51,193,931       300,073    
11/20/2007   SGD     31,113,073       20,529,703       28,205    
11/20/2007   SGD     31,113,073       20,529,703       29,556    
11/20/2007   SGD     31,113,073       20,529,703       32,932    
11/20/2007   SGD     31,113,073       20,529,703       40,356    
11/20/2007   SGD     31,113,073       20,529,704       42,866    
11/20/2007   SGD     31,113,073       20,529,704       45,752    
11/20/2007   SGD     31,113,073       20,529,704       60,576    
                $ 2,421,694,326     $ (1,720,467 )  
Sales  
11/20/2007   AUD     32,646,957     $ 26,656,643     $ (674,562 )  
11/20/2007   AUD     32,646,957       26,656,643       (654,713 )  
11/20/2007   AUD     32,646,957       26,656,643       (591,965 )  
11/20/2007   AUD     32,646,957       26,656,643       (590,007 )  
11/20/2007   AUD     32,646,957       26,656,643       (583,477 )  
11/20/2007   AUD     32,646,957       26,656,643       (487,397 )  
11/20/2007   AUD     32,646,957       26,656,643       (483,055 )  
11/20/2007   CHF     11,420,000       9,507,809       38,611    
11/20/2007   CHF     10,155,000       8,454,623       48,807    
11/20/2007   CHF     34,109,000       28,397,709       580,176    
11/20/2007   DKK     8,141,143       1,493,578       (17,021 )  

 

See accompanying notes to the financial statements.


14


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
11/20/2007   DKK     8,141,143     $ 1,493,578     $ (16,616 )  
11/20/2007   DKK     8,141,143       1,493,578       (16,539 )  
11/20/2007   DKK     8,141,143       1,493,577       (16,029 )  
11/20/2007   DKK     8,141,143       1,493,577       (15,855 )  
11/20/2007   DKK     8,141,143       1,493,577       (15,258 )  
11/20/2007   DKK     8,141,143       1,493,577       (14,513 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,661,474 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,622,390 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,603,877 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,557,593 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,496,190 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,495,368 )  
11/20/2007   EUR     102,852,166       140,511,898       (1,474,386 )  
11/20/2007   GBP     37,936,327       76,366,875       (1,321,234 )  
11/20/2007   GBP     37,936,327       76,366,875       (1,234,815 )  
11/20/2007   GBP     37,936,327       76,366,876       (1,233,980 )  
11/20/2007   GBP     37,936,327       76,366,876       (1,211,977 )  
11/20/2007   GBP     37,936,327       76,366,876       (1,189,215 )  
11/20/2007   GBP     37,936,327       76,366,876       (1,116,985 )  
11/20/2007   GBP     37,936,327       76,366,876       (1,077,645 )  
11/20/2007   HKD     86,283,546       11,082,923       (25,466 )  
11/20/2007   HKD     86,283,546       11,082,923       (25,183 )  
11/20/2007   HKD     86,283,546       11,082,923       (23,765 )  
11/20/2007   HKD     86,283,546       11,082,923       (22,348 )  
11/20/2007   HKD     86,283,546       11,082,923       (21,422 )  
11/20/2007   HKD     86,283,546       11,082,923       (20,646 )  
11/20/2007   HKD     86,283,546       11,082,923       (19,795 )  
11/20/2007   JPY     1,397,115,000       12,194,675       51,289    
11/20/2007   JPY     3,228,820,000       28,182,654       (422,783 )  
11/20/2007   NOK     379,848,000       65,232,952       829,868    
11/20/2007   NOK     379,755,000       65,216,981       849,198    
                $ 2,009,970,823     $ (21,657,595 )  

 

See accompanying notes to the financial statements.


15


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  65     AEX   September 2007   $ 9,268,136     $ 11,079    
  287     CAC 40   September 2007     22,181,442       18,776    
  1,348     DAX   September 2007     351,263,723       (2,897,482 )  
  240     FTSE 100   September 2007     30,560,705       15,935    
  365     Hang Seng   September 2007     55,829,064       2,396,480    
  246     OMXS 30   September 2007     4,337,484       3,713    
  28     S&P/MIB   September 2007     7,676,279       (15,502 )  
  1,282     SGX SiMSCI   September 2007     70,611,553       3,049,575    
    $ 551,728,386     $ 2,582,574    
Sales      
  510     IBEX 35   September 2007   $ 100,717,545     $ (1,445,618 )  
  924     S&P Toronto 60   September 2007     139,090,000       200,419    
    $ 239,807,545     $ (1,245,199 )  

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


16


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  As of August 31, 2007, these rights have been exercised but shares have not yet been credited to the Fund.

(c)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 88.74% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

See accompanying notes to the financial statements.


17



GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $9,906,892
(cost $6,577,088,301) (Note 2)		   $ 8,254,058,524    
Cash     56,992    
Foreign currency, at value (cost $12,197,026) (Note 2)     12,045,113    
Receivable for investments sold     9,788,288    
Receivable for Fund shares sold     102,518,964    
Dividends and interest receivable     20,714,914    
Foreign taxes receivable     3,498,124    
Unrealized appreciation on open forward currency contracts (Note 2)     10,456,577    
Receivable for collateral on open futures contracts (Note 2)     54,320,000    
Receivable for variation margin on open futures contracts (Note 2)     3,622,259    
Receivable for expenses reimbursed by Manager (Note 3)     296,732    
Total assets     8,471,376,487    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     10,490,290    
Payable for investments purchased     9,780,046    
Payable for Fund shares repurchased     3,669,485    
Payable to affiliate for (Note 3):  
Management fee     3,727,713    
Shareholder service fee     821,117    
Administration fee – Class M     3,447    
Trustees and Chief Compliance Officer of GMO Trust fees     15,948    
Payable for 12b-1 fee – Class M     8,825    
Unrealized depreciation on open forward currency contracts (Note 2)     33,834,639    
Accrued expenses     807,728    
Total liabilities     63,159,238    
Net assets   $ 8,408,217,249    

 

See accompanying notes to the financial statements.


18


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 6,051,102,040    
Accumulated undistributed net investment income     136,156,918    
Accumulated net realized gain     566,057,140    
Net unrealized appreciation     1,654,901,151    
    $ 8,408,217,249    
Net assets attributable to:`  
Class II shares   $ 548,561,225    
Class III shares   $ 2,838,457,616    
Class IV shares   $ 5,000,375,539    
Class M shares   $ 20,822,869    
Shares outstanding:  
Class II     15,165,403    
Class III     77,790,943    
Class IV     137,067,126    
Class M     577,453    
Net asset value per share:  
Class II   $ 36.17    
Class III   $ 36.49    
Class IV   $ 36.48    
Class M   $ 36.06    

 

See accompanying notes to the financial statements.


19


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $19,745,507)   $ 174,346,661    
Interest     7,057,637    
Securities lending income     6,026,748    
Total investment income     187,431,046    
Expenses:  
Management fee (Note 3)     22,630,889    
Shareholder service fee – Class II (Note 3)     658,525    
Shareholder service fee – Class III (Note 3)     2,184,864    
Shareholder service fee – Class IV (Note 3)     2,182,747    
12b-1 fee – Class M (Note 3)     24,314    
Administration fee – Class M (Note 3)     19,451    
Custodian and fund accounting agent fees     1,423,792    
Transfer agent fees     38,180    
Audit and tax fees     42,964    
Legal fees     95,496    
Trustees fees and related expenses (Note 3)     46,948    
Registration fees     15,640    
Miscellaneous     67,988    
Total expenses     29,431,798    
Fees and expenses reimbursed by Manager (Note 3)     (1,659,036 )  
Net expenses     27,772,762    
Net investment income (loss)     159,658,284    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     516,554,230    
Closed futures contracts     51,605,187    
Foreign currency, forward contracts and foreign currency related transactions     740,319    
Net realized gain (loss)     568,899,736    
Change in net unrealized appreciation (depreciation) on:  
Investments     (234,899,864 )  
Open futures contracts     2,536,655    
Foreign currency, forward contracts and foreign currency related transactions     (31,597,800 )  
Net unrealized gain (loss)     (263,961,009 )  
Net realized and unrealized gain (loss)     304,938,727    
Net increase (decrease) in net assets resulting from operations   $ 464,597,011    

 

See accompanying notes to the financial statements.


20


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 159,658,284     $ 165,472,351    
Net realized gain (loss)     568,899,736       597,081,731    
Change in net unrealized appreciation (depreciation)     (263,961,009 )     585,852,751    
Net increase (decrease) in net assets from operations     464,597,011       1,348,406,833    
Distributions to shareholders from:  
Net investment income  
Class II     —       (8,365,929 )  
Class III     —       (39,875,988 )  
Class IV     —       (70,325,262 )  
Class M     —       (208,724 )  
Total distributions from net investment income     —       (118,775,903 )  
Net realized gains  
Class II     (14,615,370 )     (48,849,679 )  
Class III     (70,540,828 )     (226,473,274 )  
Class IV     (114,363,000 )     (379,033,945 )  
Class M     (499,133 )     (1,509,855 )  
Total distributions from net realized gains     (200,018,331 )     (655,866,753 )  
      (200,018,331 )     (774,642,656 )  
Net share transactions (Note 7):  
Class II     (34,715,202 )     (56,916,409 )  
Class III     47,976,011       (325,585,440 )  
Class IV     276,365,573       1,130,419,119    
Class M     3,045,122       (14,361,930 )  
Increase (decrease) in net assets resulting from net
share transactions		     292,671,504       733,555,340    
Total increase (decrease) in net assets     557,250,184       1,307,319,517    
Net assets:  
Beginning of period     7,850,967,065       6,543,647,548    
End of period (including accumulated undistributed net investment
income of $136,156,918 and distributions in excess of net
investment income of $23,501,366, respectively)		   $ 8,408,217,249     $ 7,850,967,065    

 

See accompanying notes to the financial statements.


21



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class II share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 34.99     $ 32.35     $ 29.04     $ 24.18     $ 16.04     $ 17.41    
Income (loss) from investment operations:  
Net investment income (loss)†      0.69       0.79       0.65       0.49       0.44       0.37    
Net realized and unrealized gain (loss)     1.39       5.60       4.45       5.07       8.31       (1.05 )  
Total from investment operations     2.08       6.39       5.10       5.56       8.75       (0.68 )  
Less distributions to shareholders:  
From net investment income     —       (0.54 )     (0.36 )     (0.66 )     (0.61 )     (0.69 )  
From net realized gains     (0.90 )     (3.21 )     (1.43 )     (0.04 )     —       —    
Total distributions     (0.90 )     (3.75 )     (1.79 )     (0.70 )     (0.61 )     (0.69 )  
Net asset value, end of period   $ 36.17     $ 34.99     $ 32.35     $ 29.04     $ 24.18     $ 16.04    
Total Return(a)      5.82 %**      20.46 %     18.16 %     23.17 %     54.99 %     (4.11 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 548,561     $ 564,440     $ 567,313     $ 231,695     $ 85,625     $ 67,896    
Net expenses to average daily net assets     0.76 %*      0.76 %     0.76 %     0.76 %     0.76 %     0.76 %  
Net investment income to average
daily net assets		     3.72 %*      2.32 %     2.16 %     1.88 %     2.15 %     2.06 %  
Portfolio turnover rate     20 %**      36 %     38 %     46 %     44 %     51 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.04 %*      0.04 %     0.06 %     0.07 %     0.09 %     0.10 %  

 

†  Calculated using average shares outstanding throughout the period.

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


22


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 35.28     $ 32.59     $ 29.23     $ 24.32     $ 16.13     $ 17.50    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.70       0.81       0.72       0.59       0.45       0.40    
Net realized and unrealized
gain (loss)		     1.41       5.66       4.44       5.02       8.36       (1.08 )  
Total from investment
operations		     2.11       6.47       5.16       5.61       8.81       (0.68 )  
Less distributions to shareholders:  
From net investment income     —       (0.57 )     (0.37 )     (0.66 )     (0.62 )     (0.69 )  
From net realized gains     (0.90 )     (3.21 )     (1.43 )     (0.04 )     —       —    
Total distributions     (0.90 )     (3.78 )     (1.80 )     (0.70 )     (0.62 )     (0.69 )  
Net asset value, end of period   $ 36.49     $ 35.28     $ 32.59     $ 29.23     $ 24.32     $ 16.13    
Total Return(a)      5.85 %**      20.54 %     18.26 %     23.28 %     55.05 %     (4.05 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,838,458     $ 2,703,050     $ 2,795,610     $ 1,804,485     $ 1,350,850     $ 845,997    
Net expenses to average daily
net assets		     0.69 %*      0.69 %     0.69 %     0.69 %     0.69 %     0.69 %  
Net investment income to
average daily net assets		     3.77 %*      2.36 %     2.39 %     2.30 %     2.22 %     2.26 %  
Portfolio turnover rate     20 %**      36 %     38 %     46 %     44 %     51 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.04 %     0.06 %     0.07 %     0.09 %     0.10 %  

 

†  Calculated using average shares outstanding throughout the period.

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


23


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 35.26     $ 32.58     $ 29.22     $ 24.31     $ 16.12     $ 17.50    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.72       0.80       0.74       0.54       0.43       0.38    
Net realized and unrealized
gain (loss)		     1.40       5.68       4.43       5.09       8.39       (1.05 )  
Total from investment
operations		     2.12       6.48       5.17       5.63       8.82       (0.67 )  
Less distributions to shareholders:  
From net investment income     —       (0.59 )     (0.38 )     (0.68 )     (0.63 )     (0.71 )  
From net realized gains     (0.90 )     (3.21 )     (1.43 )     (0.04 )     —       —    
Total distributions     (0.90 )     (3.80 )     (1.81 )     (0.72 )     (0.63 )     (0.71 )  
Net asset value, end of period   $ 36.48     $ 35.26     $ 32.58     $ 29.22     $ 24.31     $ 16.12    
Total Return(a)      5.89 %**      20.61 %     18.32 %     23.37 %     55.15 %     (4.02 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 5,000,376     $ 4,566,106     $ 3,150,741     $ 2,193,988     $ 863,612     $ 334,240    
Net expenses to average daily
net assets		     0.63 %*      0.63 %     0.63 %     0.63 %     0.63 %     0.63 %  
Net investment income to
average daily net assets		     3.85 %*      2.32 %     2.45 %     2.06 %     2.08 %     2.13 %  
Portfolio turnover rate     20 %**      36 %     38 %     46 %     44 %     51 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.04 %     0.06 %     0.07 %     0.09 %     0.10 %  

 

†  Calculated using average shares outstanding throughout the period.

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


24


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning of period   $ 34.93     $ 32.28     $ 28.98     $ 24.15     $ 20.92    
Income (loss) from investment operations:  
Net investment income (loss)†      0.63       0.68       0.61       0.44       0.01    
Net realized and unrealized gain (loss)     1.40       5.62       4.41       5.04       3.73    
Total from investment operations     2.03       6.30       5.02       5.48       3.74    
Less distributions to shareholders:  
From net investment income     —       (0.44 )     (0.29 )     (0.61 )     (0.51 )  
From net realized gains     (0.90 )     (3.21 )     (1.43 )     (0.04 )     —    
Total distributions     (0.90 )     (3.65 )     (1.72 )     (0.65 )     (0.51 )  
Net asset value, end of period   $ 36.06     $ 34.93     $ 32.28     $ 28.98     $ 24.15    
Total Return(b)      5.68 %**      20.18 %     17.92 %     22.88 %     18.06 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 20,823     $ 17,371     $ 29,984     $ 18,347     $ 7,408    
Net expenses to average daily net assets     0.99 %*      0.99 %     0.99 %     0.99 %     0.99 %*   
Net investment income to average daily
net assets		     3.42 %*      2.00 %     2.07 %     1.72 %     0.12 %*   
Portfolio turnover rate     20 %**      36 %     38 %     46 %     44 %††   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.04 %*      0.04 %     0.06 %     0.07 %     0.09 %*   

 

(a)  Period from October 2, 2003 (commencement of operations) to February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 29, 2004.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


25



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO International Intrinsic 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P/Citigroup Primary Market Index ("PMI") Europe, Pacific, Asia Composite ("EPAC") Value Index. The Fund typically makes equity investments in companies from developed countries, other than the U.S.

Throughout the period ended August 31, 2007, the Fund had four classes of shares outstanding: Class II, Class III, Class IV and Class M. Class M shares bear an administration fee and a 12b-1 fee while classes II, III, and IV bear a shareholder service fee (See Note 3). The principal economic difference among the classes of shares is the type and level of fees borne by the classes.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.


26


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price,


27


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


28


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a


29


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $9,906,892, collateralized by cash in the amount of $10,490,290, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 6,593,316,489     $ 1,790,248,804     $ (129,506,769 )   $ 1,660,742,035    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.


30


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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, 12b-1, and administration fees, which are directly attributable to a class of shares, are charged to that class's operations.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.


31


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.54% 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 average daily net assets of each class at the annual rate of 0.22% for Class II shares, 0.15% for Class III shares, and 0.09% for Class IV shares.

Class M shares of the Fund pay GMO an administration fee monthly at the annual rate of 0.20% of average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund and/or the provision of certain other services incidental thereto. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (inc luding taxes)) exceed 0.54% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $35,448 and $25,024, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


32


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $1,659,064,610 and $1,572,239,959, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 10.59% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 0.23% of the Fund's shares were held by seven related parties comprised of certain GMO employee accounts, and 57.24% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class II:   Shares   Amount   Shares   Amount  
Shares sold     1,060,440     $ 39,538,369       5,095,447     $ 178,165,420    
Shares issued to shareholders
in reinvestment of distributions		     354,615       13,436,353       1,546,695       52,194,974    
Shares repurchased     (2,379,286 )     (87,689,924 )     (8,046,545 )     (287,276,803 )  
Net increase (decrease)     (964,231 )   $ (34,715,202 )     (1,404,403 )   $ (56,916,409 )  

 


33


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,099,497     $ 263,666,015       14,491,808     $ 507,451,764    
Shares issued to shareholders
in reinvestment of distributions		     1,842,481       70,419,646       7,640,858       259,775,124    
Shares repurchased     (7,766,930 )     (286,109,650 )     (31,298,044 )     (1,092,812,328 )  
Net increase (decrease)     1,175,048     $ 47,976,011       (9,165,378 )   $ (325,585,440 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     13,662,704     $ 500,515,762       40,351,070     $ 1,405,437,963    
Shares issued to shareholders
in reinvestment of distributions		     2,993,012       114,363,000       12,864,438       437,301,495    
Shares repurchased     (9,074,439 )     (338,513,189 )     (20,437,344 )     (712,320,339 )  
Net increase (decrease)     7,581,277     $ 276,365,573       32,778,164     $ 1,130,419,119    
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     169,295     $ 6,403,581       154,337     $ 5,220,668    
Shares issued to shareholders
in reinvestment of distributions		     13,209       499,132       50,922       1,714,741    
Shares repurchased     (102,420 )     (3,857,591 )     (636,857 )     (21,297,339 )  
Net increase (decrease)     80,084     $ 3,045,122       (431,598 )   $ (14,361,930 )  

 


34



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


35


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total


36


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


37


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $35,000,000 account value divided by $1,000 = 35,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class II      
1) Actual     0.76 %   $ 1,000.00     $ 1,058.20     $ 3.93    
2) Hypothetical     0.76 %   $ 1,000.00     $ 1,021.32     $ 3.86    
Class III      
1) Actual     0.69 %   $ 1,000.00     $ 1,058.50     $ 3.57    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.67     $ 3.51    
Class IV      
1) Actual     0.63 %   $ 1,000.00     $ 1,058.90     $ 3.26    
2) Hypothetical     0.63 %   $ 1,000.00     $ 1,021.97     $ 3.20    
Class M      
1) Actual     0.99 %   $ 1,000.00     $ 1,056.80     $ 5.12    
2) Hypothetical     0.99 %   $ 1,000.00     $ 1,020.16     $ 5.03    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


38



GMO Global Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Global Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.4 %  
Short-Term Investments     4.5    
Futures     0.5    
Options Purchased     0.5    
Forward Currency Contracts     0.3    
Loan Participations     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.2 )  
Swaps     (0.3 )  
Reverse Repurchase Agreements     (0.4 )  
Other     0.5    
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region     49.3 %  
Sweden     21.5    
Switzerland     11.4    
Japan     10.4    
Australia     9.9    
Canada     3.3    
Emerging     3.0    
United Kingdom     (3.0 )  
United States     (5.8 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Global Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
      DEBT OBLIGATIONS — 4.2%  
      Australia — 0.3%  
      Asset-Backed Securities  
USD     991,017     Medallion Trust, Series 03-1G, Class A,
Variable Rate, 3 mo. LIBOR + .19%, 5.55%, due 12/21/33		     986,845    
      Austria — 1.0%  
      Corporate Debt  
USD     2,500,000     Bank Austria Creditanstalt AG, 144A, 7.25%, due 02/15/17     2,802,150    
      Canada — 0.8%  
      Foreign Government Obligations  
GBP     1,000,000     Province of Quebec, 8.63%, due 11/04/11     2,192,470    
      United Kingdom — 0.4%  
      Asset-Backed Securities  
GBP     163,060     RMAC, Series 03-NS1X Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. LIBOR + .45%, 6.29%, due 06/12/35		     329,231    
GBP     398,264     RMAC, Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. LIBOR + .40%, 6.24%, due 09/12/35		     802,840    
    Total United Kingdom     1,132,071    
      United States — 1.7%  
      U.S. Government  
USD     3,811,080     U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (a) (b)      3,864,673    
USD     1,238,310     U.S. Treasury Inflation Indexed Note, 4.25%, due 01/15/10 (a) (b)      1,286,488    
    Total United States     5,151,161    
    TOTAL DEBT OBLIGATIONS (COST $11,269,109)     12,264,697    

 

See accompanying notes to the financial statements.


2


GMO Global Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Principal Amount /
Shares		   Description   Value ($)  
      OPTIONS PURCHASED — 0.1%  
      Currency Options — 0.1%  
EUR     6,400,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     315,932    
JPY     1,410,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     18,471    
    Total Currency Options     334,403    
    TOTAL OPTIONS PURCHASED (COST $260,816)     334,403    
      MUTUAL FUNDS — 95.2%  
      United States — 95.2%  
      Affiliated Issuers  
    813,146     GMO Emerging Country Debt Fund, Class III     8,456,715    
    8,283,254     GMO Short-Duration Collateral Fund     213,873,613    
    45,838     GMO Special Purpose Holding Fund (c) (d)      66,007    
    2,249,913     GMO World Opportunity Overlay Fund     59,307,698    
    Total United States     281,704,033    
    TOTAL MUTUAL FUNDS (COST $279,355,660)     281,704,033    
      SHORT-TERM INVESTMENTS — 0.6%  
      Money Market Funds — 0.6%  
    1,875,787     Merrimac Cash Series - Premium Class     1,875,787    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,875,787)     1,875,787    
    TOTAL INVESTMENTS — 100.1%
(Cost $292,761,372)		     296,178,920    
          Other Assets and Liabilities (net) — (0.1%)     (258,347 )  
    TOTAL NET ASSETS — 100.0%   $ 295,920,573    

 

See accompanying notes to the financial statements.


3


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
9/11/07   CHF     27,600,000     $ 22,845,577     $ 128,099    
9/11/07   CHF     35,000,000       28,970,840       39,025    
9/11/07   CHF     5,600,000       4,635,334       2,341    
9/11/07   CHF     13,600,000       11,257,241       (127,460 )  
9/11/07   CHF     5,100,000       4,221,465       (44,497 )  
9/25/07   EUR     33,000,000       44,997,445       (535,625 )  
9/25/07   EUR     15,200,000       20,726,096       (147,152 )  
9/25/07   EUR     800,000       1,090,847       (6,639 )  
9/04/07   GBP     12,900,000       26,009,625       628,707    
9/04/07   GBP     800,000       1,613,000       20,368    
9/04/07   GBP     4,900,000       9,879,625       (159,348 )  
11/06/07   GBP     11,500,000       23,158,450       66,450    
10/02/07   JPY     2,562,500,000       22,218,515       781,962    
10/02/07   JPY     1,100,000,000       9,537,704       91,143    
10/02/07   JPY     1,200,000,000       10,404,768       (68,308 )  
10/02/07   JPY     60,000,000       520,238       12,812    
9/18/07   NZD     14,700,000       10,307,690       (855,236 )  
9/18/07   NZD     4,600,000       3,225,536       (456,594 )  
                $ 255,619,996     $ (629,952 )  
Sales  
10/16/07   AUD     9,200,000     $ 7,520,850     $ 354,350    
10/16/07   AUD     900,000       735,735       27,680    
10/16/07   AUD     5,700,000       4,659,657       140,427    
10/23/07   CAD     800,000       758,273       1,411    
9/11/07   CHF     1,300,000       1,076,060       (22,029 )  
9/11/07   CHF     600,000       496,643       3,766    
9/11/07   CHF     2,300,000       1,903,798       10,062    
9/25/07   EUR     2,700,000       3,681,609       18,698    
9/25/07   EUR     6,400,000       8,726,777       62,471    
9/25/07   EUR     1,900,000       2,590,762       (27,520 )  
9/04/07   GBP     3,500,000       7,056,875       24,984    
9/04/07   GBP     2,700,000       5,443,875       42,051    
9/04/07   GBP     900,000       1,814,625       4,041    
9/04/07   GBP     11,500,000       23,186,875       (63,825 )  
9/18/07   NZD     1,700,000       1,192,046       129,984    
9/18/07   NZD     1,300,000       911,565       102,929    
9/18/07   NZD     2,400,000       1,682,888       193,228    
9/18/07   NZD     10,400,000       7,292,515       654,847    
                $ 80,731,428     $ 1,657,555    

 

See accompanying notes to the financial statements.


4


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
10/09/07   EUR 400,000     NOK 3,189,000     $ 1,779    
10/09/07   EUR 15,100,000     NOK 120,780,370       135,102    
10/30/07   SEK 1,872,000     EUR 200,000       902    
    $ 137,783    

 

Futures Contracts

    Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
      101     Australian Government Bond 10 Yr.   September 2007   $ 8,309,529     $ 161,807    
      226     Australian Government Bond 3 Yr.   September 2007     18,399,588       125,124    
      73     Canadian Government Bond 10 Yr.   December 2007     7,712,699       (30,636 )  
      227     Euro BOBL   September 2007     33,404,652       431,717    
      432     Euro Bund   September 2007     66,952,735       1,066,665    
    6     Japanese Government Bond
10 Yr. (TSE)		  
September 2007		     7,013,559       (18,486 )  
      3     U.S. Treasury Note 5 Yr. (CBT)   December 2007     320,109       1,958    
                  $ 1,738,149    
Sales  
      8     U.S. Long Bond (CBT)   December 2007   $ 892,500     $ (7,153 )  
      79     U.S. Treasury Note 10 Yr.   December 2007     8,614,703       (56,440 )  
      171     U.S. Treasury Note 2 Yr. (CBT)   December 2007     35,252,719       (65,030 )  
      84     UK Gilt Long Bond   December 2007     18,130,523       (49,368 )  
                  $ (177,991 )  

 

See accompanying notes to the financial statements.


5


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  54,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month    
   
                                SEK STIBOR   $ (74,295 )  
  12,000,000     SEK   9/19/2012   Barclays Bank PLC   Receive     4.15 %   3 month
SEK STIBOR		     (40,636 )  
  38,000,000     SEK   9/19/2012   Citigroup   Receive     4.15 %   3 month
SEK STIBOR		     (128,681 )  
  92,000,000     SEK   9/19/2012   Deutsche Bank AG   Receive     4.15 %   3 month
SEK STIBOR		     (311,544 )  
  22,000,000     SEK   9/19/2012   JP Morgan
Chase Bank		   Receive     4.15 %   3 month
SEK STIBOR		     (74,500 )  
  1,800,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month
CHF LIBOR		     (32,339 )  
  31,100,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month
CHF LIBOR		     (558,738 )  
  8,800,000     CHF   9/19/2012   JP Morgan
Chase Bank		   Receive     2.70 %   6 month
CHF LIBOR		     (158,100 )  
  8,200,000     SEK   9/19/2014   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (33,918 )  
  3,100,000     AUD   9/17/2017   JP Morgan
Chase Bank		   Receive     6.83 %   6 month
AUD BBSW		     36,316    
  8,400,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (50,262 )  
  12,800,000     SEK   9/19/2017   JP Morgan
Chase Bank		   Receive     4.25 %   3 month
SEK STIBOR		     (76,589 )  
  3,000,000     EUR   3/21/2030   UBS Warburg   Receive     5.90 %   3 Month Floating
Rate EUR LIBOR		     609,915    
  Premiums to (Pay) Receive   $ 1,062,507     $ (893,371 )  

 

See accompanying notes to the financial statements.


6


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
75,000,000   USD   9/24/2007   JP Morgan Chase Bank   1 month LIBOR   Return on  
 
                    JP Morgan  
 
                    Hedged Traded  
 
                    Total Return  
 
                    Government  
 
                    Bond Index   $ 149,432    
    Premiums to (Pay) Receive   $ —     $ 149,432    

 

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.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

RMAC - Residential Mortgage Acceptance Corp.

STIBOR - Stockholm Interbank Offered Rate

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

(a)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(b)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(c)  Bankrupt issuer.

(d)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NZD - New Zealand Dollar

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


7



GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $13,405,712) (Note 2)   $ 14,474,887    
Investments in affiliated issuers, at value (cost $279,355,660) (Notes 2 and 8)     281,704,033    
Foreign currency, at value (cost $1,978) (Note 2)     1,979    
Receivable for Fund shares sold     3,522,977    
Interest receivable     208,644    
Unrealized appreciation on open forward currency contracts (Note 2)     3,679,619    
Interest receivable for open swap contracts     60,271    
Receivable for open swap contracts (Note 2)     795,663    
Receivable for expenses reimbursed by Manager (Note 3)     4,249    
Total assets     304,452,322    
Liabilities:  
Payable for investments purchased     4,275,000    
Payable to affiliate for (Note 3):  
Management fee     46,993    
Shareholder service fee     37,100    
Trustees and Chief Compliance Officer of GMO Trust fees     412    
Unrealized depreciation on open forward currency contracts (Note 2)     2,514,233    
Payable for open swap contracts (Note 2)     1,539,602    
Payable for variation margin on open futures contracts (Note 2)     43,605    
Accrued expenses     74,804    
Total liabilities     8,531,749    
Net assets   $ 295,920,573    
Net assets consist of:  
Paid-in capital   $ 309,664,936    
Distributions in excess of net investment income     (3,125,963 )  
Accumulated net realized loss     (17,109,821 )  
Net unrealized appreciation     6,491,421    
    $ 295,920,573    
Net assets attributable to:  
Class III shares   $ 295,920,573    
Shares outstanding:  
Class III     34,098,754    
Net asset value per share:  
Class III   $ 8.68    

 

See accompanying notes to the financial statements.


8


GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,074,891    
Interest     686,086    
Total investment income     1,760,977    
Expenses:  
Management fee (Note 3)     201,572    
Shareholder service fee – Class III (Note 3)     159,136    
Custodian, fund accounting agent and transfer agent fees     51,704    
Audit and tax fees     31,740    
Legal fees     2,944    
Trustees fees and related expenses (Note 3)     1,139    
Registration fees     920    
Miscellaneous     1,196    
Total expenses     450,351    
Fees and expenses reimbursed by Manager (Note 3)     (23,562 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (13,959 )  
Shareholder service fee waived (Note 3)     (5,014 )  
Net expenses     407,816    
Net investment income (loss)     1,353,161    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (468,592 )  
Investments in affiliated issuers     361,397    
Realized gains distributions from affiliated issuers (Note 8)     447,378    
Closed futures contracts     (1,884,585 )  
Closed swap contracts     (935,590 )  
Foreign currency, forward contracts and foreign currency related transactions     (327,826 )  
Net realized gain (loss)     (2,807,818 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (193,746 )  
Investments in affiliated issuers     35,743    
Open futures contracts     1,855,101    
Open swap contracts     (907,587 )  
Foreign currency, forward contracts and foreign currency related transactions     1,378,913    
Net unrealized gain (loss)     2,168,424    
Net realized and unrealized gain (loss)     (639,394 )  
Net increase (decrease) in net assets resulting from operations   $ 713,767    

 

See accompanying notes to the financial statements.


9


GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,353,161     $ 7,675,517    
Net realized gain (loss)     (2,807,818 )     7,986,161    
Change in net unrealized appreciation (depreciation)     2,168,424       (588,542 )  
Net increase (decrease) in net assets from operations     713,767       15,073,136    
Distributions to shareholders from:  
Net investment income  
Class III     (5,778,187 )     (7,434,973 )  
Net share transactions (Note 7):  
Class III     115,663,737       9,358,867    
Total increase (decrease) in net assets     110,599,317       16,997,030    
Net assets:  
Beginning of period     185,321,256       168,324,226    
End of period (including distributions in excess of net investment
income of $3,125,963 and accumulated undistributed net
investment income of $1,299,063, respectively)		   $ 295,920,573     $ 185,321,256    

 

See accompanying notes to the financial statements.


10



GMO Global Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 8.92     $ 8.53     $ 9.11     $ 8.73     $ 9.20     $ 9.33    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.06       0.38       0.18       0.21       0.12       0.09    
Net realized and unrealized gain (loss)     (0.04 )     0.38       (0.57 )     0.63       1.42       1.49    
Total from investment operations     0.02       0.76       (0.39 )     0.84       1.54       1.58    
Less distributions to shareholders:  
From net investment income     (0.26 )     (0.37 )     (0.19 )     (0.46 )     —       (1.51 )  
From net realized gains     —       —       —       —       (1.90 )     (0.20 )  
Return of capital     —       —       —       —       (0.11 )     —    
Total distributions     (0.26 )     (0.37 )     (0.19 )     (0.46 )     (2.01 )     (1.71 )  
Net asset value, end of period   $ 8.68     $ 8.92     $ 8.53     $ 9.11     $ 8.73     $ 9.20    
Total Return(b)      0.29 %**      8.99 %     (4.33 )%     9.52 %     20.21 %     17.76 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 295,921     $ 185,321     $ 168,324     $ 170,750     $ 138,684     $ 235,842    
Net expenses to average daily
net assets(c) 		     0.38 %*      0.39 %     0.37 %     0.33 %     0.32 %     0.33 %  
Net investment income to average
daily net assets(a) 		     1.28 %*      4.33 %     2.12 %     2.40 %     1.44 %     1.10 %  
Portfolio turnover rate     6 %**      22 %     20 %     38 %     45 %     50 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.04 %*      0.06 %     0.07 %     0.12 %     0.12 %     0.08 %  

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


11



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the JPMorgan Global Government Bond Index. The Fund typically invests in bonds included in the JPMorgan Global Government Bond Index and in securities and instruments with similar characteristics. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its assets in shares of Short-Duration Collateral Fund; in futures contracts, currency options, currency forwards, swap contracts, and other types of derivatives; in investment-grade bonds denominated in various currencies, including foreign and U.S. government securities and asset-backed securities issued by foreign governments and U.S. government agencies (including securities neither guaranteed nor insured by the U.S. government), corporate bonds, and mortgage-backed and other asset-backed securities issued by private issuers ; in shares of World Opportunity Overlay Fund; and up to 5% of the Fund's total assets in sovereign debt of emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund ("ECDF").

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available without charge, upon request by calling (617) 346-7646 (collect). Shares of the GMO Short-Duration Collateral Fund, the GMO World Opportunity Overlay Fund and the GMO Special Purpose Holding Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


12


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $280,781 in conjunction with a settlement agreement related to the default of those asset-backed securities

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on


13


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 using rates supplied by a quotation service and changes in value are 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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


14


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively.


15


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.


16


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.


17


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $9,184,566, $7,575,780 and $269,796 expiring in 2012, 2014 and 2015 respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 294,739,662     $ 1,539,363     $ (100,105 )   $ 1,439,258    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. securities. These risks may involve adverse political and economic developments


18


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.19% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net assets at the annual rate of 0.15% for Class III shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by the Fund exceeds 0.15%; provided, however, that the amount of this waiver will not exceed 0.15%.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees,


19


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, th e Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's fees and expenses of the independent trustees of the Trust, fees for legal services not procured or provided by the Manager for the Trust, compensation and expenses of the Trust's CCO (excluding any employee benefits), and investment-related expenses such as brokerage commissions, hedging transaction fees, securities lending fees and expenses, interest expense and transfer taxes), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.015 %     0.004 %     0.049 %     0.068 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $863 and $552, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $123,921,677 and $12,001,136, respectively.


20


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 72.37% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.01% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts, and 37.45% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     12,657,372     $ 109,995,904       2,029,627     $ 17,848,889    
Shares issued to shareholders
in reinvestment of distributions		     658,285       5,667,833       824,308       7,278,642    
Shares repurchased     —       —       (1,798,812 )     (15,768,664 )  
Net increase (decrease)     13,315,657     $ 115,663,737       1,055,123     $ 9,358,867    

 


21


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging Country
Debt Fund, Class III		   $ 6,061,685     $ 2,650,546     $ —     $ 83,949     $ 166,597     $ 8,456,715    
GMO Short-Duration
Collateral Fund		     124,359,943       98,390,942       9,200,000       990,942       —       213,873,613    
GMO Special Purpose
Holding Fund		     64,632       —       —       —       280,781       66,007    
GMO World Opportunity
Overlay Fund		     37,179,145       22,800,000       1,000,000       —       —       59,307,698    
Totals   $ 167,665,405     $ 123,841,488     $ 10,200,000     $ 1,074,891     $ 447,378     $ 281,704,033    

 


22



GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


23


GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying fun ds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set


24


GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


25


GMO Global Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
  1 ) Actual     0.45 %   $ 1,000.00     $ 1,002.90     $ 2.27    
  2 ) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.87     $ 2.29    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


26



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.4 %  
Short-Term Investments     3.4    
Options Purchased     0.4    
Loan Participations     0.1    
Loan Assignments     0.1    
Forward Currency Contracts     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Futures     (0.1 )  
Swaps     (0.1 )  
Written Options     (0.1 )  
Reverse Repurchase Agreements     (0.4 )  
Other     1.3    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     84.9 %  
Sweden     10.2    
Euro Region     5.6    
Switzerland     5.2    
Australia     4.8    
Emerging     3.1    
Canada     0.6    
United Kingdom     (4.8 )  
Japan     (9.6 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 6.1%  
        Austria — 0.3%  
        Corporate Debt  
    8,000,000     Bank Austria Creditanstalt AG, 144A, 7.25%, due 02/15/17     8,966,880    
        Canada — 0.6%  
        Corporate Debt  
    15,000,000     Transalta Corp., 5.75%, due 12/15/13     14,977,500    
        Luxembourg — 0.4%  
        Corporate Debt  
    10,000,000     Telecom Italia Capital, 4.95%, due 09/30/14     9,480,000    
        Mexico — 0.4%  
        Corporate Debt  
    10,000,000     Telefonos de Mexico SA de CV, 5.50%, due 01/27/15     9,750,240    
        United States — 4.4%  
        Corporate Debt — 2.1%  
      7,000,000     CVS Corp., 6.13%, due 08/15/16     6,946,520    
      10,000,000     Eastman Chemical Co., 7.25%, due 01/15/24     10,503,000    
      10,000,000     Kinder Morgan Energy Partners, L.P., 6.00%, due 02/01/17     9,940,000    
      5,000,000     Ryder System, Inc., MTN, 5.85%, due 11/01/16     4,920,000    
      10,000,000     Southwest Airlines Co., 5.75%, due 12/15/16     9,760,800    
      5,000,000     Spectra Energy Capital, Series B, 6.75%, due 07/15/18     5,195,500    
      5,000,000     Wyeth, 5.50%, due 02/01/14     4,992,000    
      52,257,820    
        Structured Notes — 0.9%  
      20,000,000     Boston Scientific Corp., 6.25%, due 11/15/15     17,750,000    
      5,000,000     RPM UK Group, 144A, 6.70%, due 11/01/15     5,230,000    
      22,980,000    

 

See accompanying notes to the financial statements.


2


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Principal Amount /
Shares		   Description   Value ($)  
      U.S. Government — 1.4%        
  15,000,000     U.S. Treasury Note, 4.00%, due 09/30/07 (a)      15,000,000    
  20,000,000     U.S. Treasury Note, 4.88%, due 05/15/09 (a)      20,212,500    
      35,212,500    
    Total United States     110,450,320    
    TOTAL DEBT OBLIGATIONS (COST $156,886,133)     153,624,940    
      OPTIONS PURCHASED — 0.2%        
      Currency Options — 0.2%        
EUR 85,200,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     4,205,847    
JPY 18,260,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     239,206    
    Total Currency Options     4,445,053    
    TOTAL OPTIONS PURCHASED (COST $3,443,067)     4,445,053    
      MUTUAL FUNDS — 93.6%        
      United States — 93.6%        
      Affiliated Issuers        
  7,527,888     GMO Emerging Country Debt Fund, Class III     78,290,034    
  78,622,049     GMO Short-Duration Collateral Fund     2,030,021,309    
  9,571,230     GMO World Opportunity Overlay Fund     252,297,633    
    Total United States     2,360,608,976    
    TOTAL MUTUAL FUNDS (COST $2,344,329,203)     2,360,608,976    

 

See accompanying notes to the financial statements.


3


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
  SHORT-TERM INVESTMENTS — 0.1%    
  Money Market Funds — 0.1%    
  2,335,885     Merrimac Cash Series-Premium Class     2,335,885    
    TOTAL SHORT-TERM INVESTMENTS (COST $2,335,885)     2,335,885    
    TOTAL INVESTMENTS — 100.0%
(Cost $2,506,994,288)		     2,521,014,854    
    Other Assets and Liabilities (net) — 0.0%     (721,767 )  
    TOTAL NET ASSETS — 100.0%   $ 2,520,293,087    

 

See accompanying notes to the financial statements.


4


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date 		  Deliver/
Receive 		  Units of
Currency 		 
Value 		  Net Unrealized
Appreciation (Depreciation)		  
Buys  
9/11/07   CHF     210,400,000     $ 174,156,138     $ 1,898,863    
9/11/07   CHF     50,800,000       42,049,106       77,647    
9/11/07   CHF     39,700,000       32,861,210       16,602    
9/11/07   CHF     133,600,000       110,585,837       (1,258,410 )  
9/11/07   CHF     26,800,000       22,183,386       (233,825 )  
9/25/07   EUR     61,400,000       83,722,518       (315,003 )  
9/04/07   GBP     98,400,000       198,399,000       4,795,721    
11/06/07   GBP     22,200,000       44,705,878       128,278    
10/02/07   JPY     7,185,000,000       62,298,547       2,038,164    
10/02/07   JPY     5,710,000,000       49,509,353       (407,863 )  
10/02/07   JPY     270,000,000       2,341,073       57,657    
10/02/07   JPY     2,580,000,000       22,370,251       (267,741 )  
9/18/07   NZD     123,000,000       86,248,016       (7,168,470 )  
9/18/07   NZD     15,400,000       10,798,532       (1,528,598 )  
                $ 942,228,845     $ (2,166,978 )  
Sales  
10/16/07   AUD     10,900,000     $ 8,910,572     $ 335,244    
10/16/07   AUD     48,100,000       39,320,967       1,852,633    
10/16/07   AUD     16,400,000       13,406,733       404,035    
10/23/07   CAD     31,500,000       29,857,006       55,535    
9/11/07   CHF     33,500,000       27,729,233       (567,658 )  
9/11/07   CHF     48,700,000       40,310,855       324,119    
9/11/07   CHF     9,200,000       7,615,192       32,081    
9/11/07   CHF     11,400,000       9,436,217       49,870    
9/25/07   EUR     285,400,000       389,159,719       4,219,561    
9/25/07   EUR     4,200,000       5,726,947       40,661    
9/25/07   EUR     15,600,000       21,271,519       108,031    
9/25/07   EUR     3,200,000       4,363,389       (46,349 )  
9/04/07   GBP     13,200,000       26,614,500       (336,072 )  
9/04/07   GBP     37,100,000       74,802,875       367,355    
9/04/07   GBP     16,600,000       33,469,750       262,168    
9/04/07   GBP     9,300,000       18,751,125       153,877    
9/04/07   GBP     22,200,000       44,760,750       (123,210 )  

 

See accompanying notes to the financial statements.


5


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date 		  Deliver/
Receive 		  Units of
Currency 		 
Value 		  Net Unrealized
Appreciation (Depreciation)		  
10/02/07   JPY     35,600,000,000     $ 308,674,777     $ (14,411,262 )  
10/02/07   JPY     1,320,000,000       11,445,245       (378,754 )  
9/18/07   NZD     11,200,000       7,853,478       856,370    
9/18/07   NZD     10,600,000       7,432,756       839,272    
9/18/07   NZD     21,000,000       14,725,271       1,690,744    
9/18/07   NZD     86,000,000       60,303,491       5,717,925    
                $ 1,205,942,367     $ 1,446,176    

 

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
10/09/07   EUR 1,800,000     NOK 14,350,500     $ 8,008    
10/09/07   EUR 66,000,000     NOK 527,914,200       590,510    
10/30/07   SEK 105,768,000     EUR 11,300,000       50,942    
    $ 649,460    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  378     Australian Government Bond 10 Yr.   September 2007   $ 31,099,027     $ 680,987    
  954     Australian Government Bond 3 Yr.   September 2007     77,669,058       547,345    
  146     Canadian Government Bond 10 Yr.   December 2007     15,425,398       (61,271 )  
  280     Euro BOBL   September 2007     41,203,976       703,776    
  597     Euro Bund   September 2007     92,524,960       2,290,460    
                        $ 4,161,297    

 

See accompanying notes to the financial statements.


6


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales      
  188     Japanese Government Bond
10 Yr. (TSE)		   September 2007   $ 219,758,183     $ (4,615,309 )  
  729     U.S. Long Bond (CBT)   December 2007     81,329,063       (651,818 )  
  1,725     U.S. Treasury Note 10 Yr.   December 2007     188,105,859       (1,232,404 )  
  296     U.S. Treasury Note 2 Yr. (CBT)   December 2007     61,022,250       (112,566 )  
  415     U.S. Treasury Note 5 Yr. (CBT)   December 2007     44,281,797       (273,796 )  
  713     UK Gilt Long Bond   December 2007     153,893,608       (419,039 )  
                        $ (7,304,932 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  15,000,000     USD   12/15/2013   Goldman Sachs   (Pay)     0.42 %   TransAlta Corp.   $ 312,161    
  5,000,000     USD   3/20/2014   Morgan Stanley   (Pay)     0.15 %   Wyeth     48,636    
  10,000,000     USD   9/30/2014   Goldman Sachs   (Pay)     0.74 %   Telecom Italia Capital     (27,863 )  
  10,000,000     USD
  2/20/2015   JP Morgan
Chase Bank		   (Pay)     0.61 %   Telefonos de Mexico
SA de CV		     10,660    
  5,000,000     USD   11/1/2015   Goldman Sachs   (Pay)     0.62 %   RPM UK     11,826    
  15,000,000     USD   12/20/2015   Barclays Bank PLC   (Pay)     0.73 %   Boston Scientific Corp.     1,569,206    
  5,000,000     USD   12/20/2015   Morgan Stanley   (Pay)     0.81 %   Boston Scientific Corp.     498,308    
  7,000,000     USD   9/20/2016   Barclays Bank PLC   (Pay)     0.32 %   CVS Corp.     170,390    
  5,000,000     USD   12/20/2016   Morgan Stanley   (Pay)     0.46 %   Ryder System, Inc., MTN     44,298    
  10,000,000     USD   12/20/2016   Barclays Bank PLC   (Pay)     0.72 %   Southwest Airlines     42,586    
  10,000,000     USD
  2/1/2017   Goldman Sachs   (Pay)     0.49 %   Kinder Morgan Energy
Partners LP		     242,900    
  5,000,000     USD   7/15/2018   Goldman Sachs   (Pay)     0.93 %   Spectra Energy Capital     (44,826 )  
  10,000,000     USD   1/20/2024   Goldman Sachs   (Pay)     1.11 %   Eastman Chemical Co.     (226,089 )  
    Premiums to (Pay) Receive   $ —     $ 2,652,193    

 

See accompanying notes to the financial statements.


7


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  177,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month    
   
                                SEK STIBOR   $ (243,524 )  
  171,000,000     SEK   9/19/2012   Barclays Bank PLC   Receive     4.15 %   3 month
SEK STIBOR		     (579,066 )  
  108,000,000     SEK   9/19/2012   Citigroup   Receive     4.15 %   3 month
SEK STIBOR		     (365,726 )  
  4,000,000     SEK   9/19/2012   JP Morgan Chase Bank   Receive     4.15 %   3 month
SEK STIBOR		     (13,545 )  
  17,600,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month
CHF LIBOR		     (316,199 )  
  119,100,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month
CHF LIBOR		     (2,139,734 )  
  29,000,000     CHF   9/19/2012   JP Morgan Chase Bank   Receive     2.70 %   6 month
CHF LIBOR		     (521,010 )  
  63,000,000     SEK   9/19/2014   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (260,590 )  
  18,900,000     AUD   9/17/2017   JP Morgan Chase Bank   Receive     6.83 %   6 month
AUD BBSW		     221,410    
  102,100,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (610,919 )  
  183,900,000     SEK   9/19/2017   JP Morgan Chase Bank   Receive     4.25 %   3 month
SEK STIBOR		     (1,100,373 )  
  Premiums to (Pay) Receive   $ 2,491,625     $ (5,929,276 )  

 

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.

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

MTN - Medium Term Note

STIBOR - Stockholm Interbank Offered Rate

(a)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

See accompanying notes to the financial statements.


8


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


9



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $162,665,085) (Note 2)   $ 160,405,878    
Investments in affiliated issuers, at value (cost $2,344,329,203) (Notes 2 and 8)     2,360,608,976    
Interest receivable     1,969,957    
Unrealized appreciation on open forward currency contracts (Note 2)     26,971,873    
Receivable for variation margin on open futures contracts (Note 2)     2,082,774    
Receivable for open swap contracts (Note 2)     3,172,381    
Receivable for expenses reimbursed by Manager (Note 3)     101,811    
Total assets     2,555,313,650    
Liabilities:  
Payable for Fund shares repurchased     323,322    
Foreign currency due to custodian     353,653    
Payable to affiliate for (Note 3):  
Management fee     538,873    
Shareholder service fee     135,413    
Trustees and Chief Compliance Officer of GMO Trust fees     6,872    
Unrealized depreciation on open forward currency contracts (Note 2)     27,043,215    
Payable for open swap contracts (Note 2)     6,449,464    
Accrued expenses     169,751    
Total liabilities     35,020,563    
Net assets   $ 2,520,293,087    
Net assets consist of:  
Paid-in capital   $ 2,484,190,729    
Accumulated undistributed net investment income     21,963,580    
Accumulated net realized gain     4,093,939    
Net unrealized appreciation     10,044,839    
    $ 2,520,293,087    
Net assets attributable to:  
Class III shares   $ 202,785,013    
Class VI shares   $ 2,317,508,074    
Shares outstanding:  
Class III     8,029,354    
Class VI     91,725,813    
Net asset value per share:  
Class III   $ 25.26    
Class VI   $ 25.27    

 

See accompanying notes to the financial statements.


10


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 21,387,909    
Interest     4,611,612    
Total investment income     25,999,521    
Expenses:  
Management fee (Note 3)     4,226,528    
Shareholder service fee – Class III (Note 3)     196,916    
Shareholder service fee – Class VI (Note 3)     857,634    
Custodian, fund accounting agent and transfer agent fees     191,360    
Audit and tax fees     32,568    
Legal fees     40,112    
Trustees fees and related expenses (Note 3)     19,545    
Registration fees     1,840    
Miscellaneous     22,264    
Total expenses     5,588,767    
Fees and expenses reimbursed by Manager (Note 3)     (277,656 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (213,862 )  
Shareholder service fee waived (Note 3)     (76,948 )  
Net expenses     5,020,301    
Net investment income (loss)     20,979,220    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (4,094,626 )  
Investments in affiliated issuers     18,773,862    
Realized gains distributions from affiliated issuers (Note 8)     2,654,220    
Closed futures contracts     (1,051,475 )  
Closed swap contracts     (8,849,162 )  
Foreign currency, forward contracts and foreign currency related transactions     (6,888,203 )  
Net realized gain (loss)     544,616    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (2,974,566 )  
Investments in affiliated issuers     11,123,777    
Open futures contracts     5,849,798    
Open swap contracts     (3,918,297 )  
Foreign currency, forward contracts and foreign currency related transactions     2,800,782    
Net unrealized gain (loss)     12,881,494    
Net realized and unrealized gain (loss)     13,426,110    
Net increase (decrease) in net assets resulting from operations   $ 34,405,330    

 

See accompanying notes to the financial statements.


11


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
May 31, 2006
(commencement of operations)
through February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 20,979,220     $ 30,368,989    
Net realized gain (loss)     544,616       12,612,912    
Change in net unrealized appreciation (depreciation)     12,881,494       (2,836,655 )  
Net increase (decrease) in net assets from operations     34,405,330       40,145,246    
Distributions to shareholders from:  
Net investment income  
Class III     —       (9,486,069 )  
Class VI     —       (28,962,149 )  
Total distributions from net investment income     —       (38,448,218 )  
Net share transactions (Note 7):  
Class III     (26,284,366 )     227,768,727    
Class VI     60,945,471       2,221,760,897    
Increase (decrease) in net assets resulting from net share
transactions		     34,661,105       2,449,529,624    
Total increase (decrease) in net assets     69,066,435       2,451,226,652    
Net assets:  
Beginning of period     2,451,226,652       —    
End of period (including accumulated undistributed net investment
income of $21,963,580 and $984,360, respectively)		   $ 2,520,293,087     $ 2,451,226,652    

 

See accompanying notes to the financial statements.


12



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
July 13, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.22     $ 25.06    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.13       0.96    
Net realized and unrealized gain (loss)     (0.09 )     0.34    
Total from investment operations     0.04       1.30    
Less distributions to shareholders:  
From net investment income     —       (1.14 )  
Total distributions     —       (1.14 )  
Net asset value, end of period   $ 25.26     $ 25.22    
Total Return(b)      0.16 %**      5.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 202,785     $ 226,917    
Net expenses to average daily net assets(c)      0.38 %*      0.39 %*   
Net investment income to average daily net assets(a)      1.05 %*      5.96 %*   
Portfolio turnover rate     64 %**      7 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.03 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover rate of the Fund for the period May 31, 2006 through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


13


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
May 31, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.22     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.16       0.76    
Net realized and unrealized gain (loss)     (0.11 )     0.61    
Total from investment operations     0.05       1.37    
Less distributions to shareholders:  
From net investment income     —       (1.15 )  
Total distributions     —       (1.15 )  
Net asset value, end of period   $ 25.27     $ 25.22    
Total Return(b)      0.20 %**      5.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,317,508     $ 2,224,310    
Net expenses to average daily net assets(c)      0.29 %*      0.29 %*   
Net investment income to average daily net assets(a)      1.26 %*      4.01 %*   
Portfolio turnover rate     64 %**      7 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.03 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Strategic Fixed 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the JPMorgan U.S. 3 Month Cash Index. The Manager may, in the future, depending on the Manager's assessment of interest rate conditions, change the Fund's benchmark to another nationally recognized debt index with a duration between 90 days and 15 years.

The Fund typically invests in fixed income securities included in the Fund's benchmark and in securities and instruments with similar characteristics. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of Short-Duration Collateral Fund; in futures contracts, currency options, currency forwards, swap contracts and other types of derivatives; in U.S. and foreign investment-grade bonds, including U.S. and foreign government securities and asset-backed securities issued by U.S. government agencies (including securities neither guaranteed nor insured by the U.S. government), and foreign governments, corporate bonds, and mortgage-backed and other asset-backed securities issued by private issuers; in shares of World Opportunity Overlay Fund, and up to 5% of the Fund's total assets in sovereign debt o f emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund ("ECDF").

As of August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect). Shares of GMO Short-Duration Collateral Fund and GMO World Opportunity Overlay Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


15


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


16


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument


17


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.


18


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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


19


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements outstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

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. There were no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.


20


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $1,019,648, expiring in 2015. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital losses of $12,287,100.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 2,514,995,177     $ 12,733,504     $ (6,713,827 )   $ 6,019,677    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal or face amount


21


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

of the securities adjusted for inflation is recorded as interest income. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial


22


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.25% 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 0.15% for Class III shares and 0.055% for Class VI shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by a class of shares of the Fund exceeds 0.15% for Class III shares and 0.055% for Class VI shares; provided, however, that the amount of this waiver will not exceed the respective Class's shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, ext raordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.


23


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.014 %     0.005 %     0.034 %     0.053 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $14,761 and $10,488, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $1,895,288,399 and $1,843,857,047, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 76.21% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is another fund of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 99.99% of the Fund's shares were held by accounts for which the Manager has investment discretion.


24


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Period from July 13, 2006
(commencement of operations)
through February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4,628,284     $ 117,045,634       8,706,666     $ 220,472,019    
Shares issued to shareholders
in reinvestment of distributions		     —       —       295,257       7,384,377    
Shares repurchased     (5,597,355 )     (143,330,000 )     (3,498 )     (87,669 )  
Net increase (decrease)     (969,071 )   $ (26,284,366 )     8,998,425     $ 227,768,727    
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from May 31, 2006
(commencement of operations)
through February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     60,229,793     $ 1,516,922,904       87,191,248     $ 2,196,531,526    
Shares issued to shareholders
in reinvestment of distributions		     —       —       1,158,486       28,962,149    
Shares repurchased     (56,710,229 )     (1,455,977,433 )     (143,485 )     (3,732,778 )  
Net increase (decrease)     3,519,564     $ 60,945,471       88,206,249     $ 2,221,760,897    

 


25


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging
Country
Debt Fund,
Class III		   $ 75,423,462     $ 46,491,681     $ 41,400,000     $ 1,337,460     $ 2,654,220     $ 78,290,034    
GMO Short-Duration
Collateral Fund		     1,759,931,834       1,662,150,449       1,417,173,000       20,050,449       —       2,030,021,309    
GMO World
Opportunity
Overlay Fund		     472,286,910       155,800,000       382,800,000       —       —       252,297,633    
Totals   $ 2,307,642,206     $ 1,864,442,130     $ 1,841,373,000     $ 21,387,909     $ 2,654,220     $ 2,360,608,976    

 


26



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed the Fund's performance since inception in 2006, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the


27


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and po ssible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund


28


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


29


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.43 %   $ 1,000.00     $ 1,001.60     $ 2.16    
2) Hypothetical     0.43 %   $ 1,000.00     $ 1,022.97     $ 2.19    
Class VI      
1) Actual     0.34 %   $ 1,000.00     $ 1,002.00     $ 1.71    
2) Hypothetical     0.34 %   $ 1,000.00     $ 1,023.43     $ 1.73    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


30



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     98.1 %  
Short-Term Investments     2.1    
Other     (0.2 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financial     19.7 %  
Retail Stores     15.5    
Technology     12.3    
Services     9.8    
Health Care     9.3    
Consumer Goods     9.2    
Construction     6.5    
Automotive     3.8    
Primary Process Industry     3.6    
Food & Beverage     2.7    
Utility     2.7    
Manufacturing     1.7    
Transportation     1.2    
Machinery     0.9    
Oil & Gas     0.9    
Metals & Mining     0.2    
      100.0 %  

 


1



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 98.1%        
        Automotive — 3.7%        
  500     American Axle & Manufacturing Holdings, Inc.     11,660    
  4,825     ArvinMeritor, Inc.     84,196    
  1,900     Autoliv, Inc.     109,003    
  1,200     BorgWarner, Inc.     101,400    
  900     Cooper Tire & Rubber Co.     21,996    
  1,500     Gentex Corp.     30,060    
  6,400     Goodyear Tire & Rubber Co. (The) *      177,024    
  2,600     Lear Corp. *      75,998    
  2,800     Spartan Motors, Inc.     41,440    
  2,200     TRW Automotive Holdings Corp. *      67,232    
    Total Automotive     720,009    
        Construction — 6.3%        
  700     American Woodmark Corp.     21,119    
  300     Amrep Corp.     10,080    
  8,500     Annaly Capital Management, Inc.     119,765    
  1,500     Anthracite Capital, Inc. REIT     13,590    
  300     Apartment Investment & Management Co.-Class A     13,410    
  500     Crane Co.     22,395    
  600     EMCOR Group, Inc. *      18,810    
  200     Entertainment Properties Trust REIT     9,568    
  1,100     Health Care Property Investors, Inc.     33,462    
  400     Home Properties, Inc.     20,328    
  1,000     HRPT Properties Trust REIT     9,780    
  300     iStar Financial, Inc. REIT     10,980    
  300     Jacobs Engineering Group, Inc. *      19,827    
  2,400     KB Home     72,816    
  4,200     Louisiana-Pacific Corp.     78,666    
  200     Martin Marietta Materials, Inc.     27,000    
  2,474     MDC Holdings, Inc.     110,068    
  800     Nationwide Health Properties, Inc. REIT     22,200    
  1,700     Newcastle Investment Corp. REIT     28,288    

 

See accompanying notes to the financial statements.


2


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Construction — continued        
  200     NVR, Inc. *      111,900    
  200     Perini Corp. *      11,320    
  400     Quanta Services, Inc. *      11,308    
  2,200     Ryland Group, Inc.     63,008    
  1,100     Senior Housing Properties Trust REIT     22,374    
  1,200     Simpson Manufacturing Co., Inc.     39,600    
  2,800     Thor Industries, Inc.     123,172    
  5,400     Thornburg Mortgage, Inc. REIT     63,612    
  4,100     Toll Brothers, Inc. *      87,576    
  700     Winnebago Industries, Inc.     18,669    
    Total Construction     1,214,691    
        Consumer Goods — 9.0%        
  3,200     Alberto-Culver Co.     74,144    
  1,900     Bebe Stores, Inc.     26,505    
  3,300     Blyth, Inc.     73,788    
  3,700     Brunswick Corp.     93,055    
  400     Chattem, Inc. *      24,684    
  1,600     Church & Dwight Co., Inc.     71,888    
  1,600     Columbia Sportswear Co.     95,872    
  700     Crocs, Inc. *      41,328    
  300     Deckers Outdoor Corp. *      28,257    
  1,900     Estee Lauder Cos. (The), Inc.-Class A     79,021    
  2,100     Ethan Allen Interiors, Inc.     70,560    
  3,700     Fossil, Inc. *      123,987    
  3,400     Furniture Brands International, Inc.     38,692    
  1,000     Guess?, Inc.     53,000    
  1,600     Hasbro, Inc.     45,136    
  4,100     Jones Apparel Group, Inc.     78,679    
  500     K-Swiss, Inc.-Class A     12,060    
  1,300     Leggett & Platt, Inc.     26,520    
  6,000     Liz Claiborne, Inc.     205,020    
  900     Marvel Entertainment, Inc. *      20,340    
  200     Middleby Corp. *      14,708    

 

See accompanying notes to the financial statements.


3


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued        
  400     Phillips-Van Heusen Corp.     23,292    
  1,800     Polaris Industries, Inc.     85,950    
  1,300     Tempur-Pedic International, Inc.     37,570    
  3,000     Timberland Co.-Class A *      60,270    
  3,200     Tupperware Corp.     98,528    
  1,500     Universal Corp.     73,695    
  600     Warnaco Group (The), Inc. *      20,940    
  1,100     Wolverine World Wide, Inc.     28,919    
    Total Consumer Goods     1,726,408    
        Financial — 19.3%        
  200     AG Edwards, Inc.     16,716    
  3,700     American Financial Group, Inc.     104,340    
  3,400     AmeriCredit Corp. *      58,854    
  400     AMERIGROUP Corp. *      12,668    
  3,600     Associated Banc Corp.     101,556    
  3,050     Astoria Financial Corp.     79,513    
  1,700     Bancorpsouth, Inc.     42,483    
  4,800     Brown & Brown, Inc.     129,216    
  825     Chittenden Corp.     28,693    
  1,300     City National Corp.     92,807    
  200     Cohen & Steers, Inc.     6,646    
  300     Commerce Bancshares, Inc.     14,010    
  4,000     Commerce Group, Inc.     127,520    
  1,600     Downey Financial Corp.     90,544    
  500     Eaton Vance Corp.     19,195    
  1,100     EZCORP, Inc.-Class A *      13,387    
  4,300     First American Corp.     179,869    
  4,400     First Horizon National Corp.     134,992    
  1,050     First Marblehead Corp. (The)     35,165    
  900     FirstFed Financial Corp. *      45,225    
  3,900     FirstMerit Corp.     75,348    
  5,400     Flagstar Bancorp, Inc.     66,420    
  2,500     Fremont General Corp.     11,250    

 

See accompanying notes to the financial statements.


4


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued        
  900     Greater Bay Bancorp     25,335    
  1,900     HCC Insurance Holdings, Inc.     52,459    
  3,100     IndyMac Bancorp, Inc.     75,020    
  100     IntercontinentalExchange, Inc. *      14,587    
  400     Janus Capital Group, Inc.     10,636    
  1,300     LandAmerica Financial Group, Inc.     72,007    
  300     MAF Bancorp, Inc.     16,107    
  100     Markel Corp. *      47,566    
  1,900     Mercury General Corp.     100,092    
  2,500     MoneyGram International, Inc.     53,175    
  2,300     Nationwide Financial Services, Inc.-Class A     123,096    
  1,200     New York Community Bancorp, Inc.     21,228    
  1,000     Odyssey Re Holdings Corp.     36,220    
  8,400     Old Republic International Corp.     152,796    
  2,300     Pacific Capital Bancorp     58,006    
  1,610     Peoples United Financial     28,465    
  3,700     Philadelphia Consolidated Holding Corp. *      148,074    
  3,100     PMI Group (The), Inc.     98,208    
  3,600     Popular, Inc.     44,424    
  200     Pre-Paid Legal Services, Inc. *      11,038    
  2,300     Protective Life Corp.     96,140    
  1,600     Radian Group, Inc.     28,224    
  1,600     Redwood Trust, Inc. REIT     59,728    
  2,700     Reinsurance Group of America, Inc.     146,637    
  300     Safety Insurance Group, Inc.     10,242    
  7,000     SEI Investment Co.     177,590    
  600     Selective Insurance Group, Inc.     12,660    
  2,000     StanCorp Financial Group, Inc.     94,200    
  1,700     Stewart Information Services Corp.     63,002    
  6,000     TCF Financial Corp.     151,620    
  400     Transatlantic Holdings, Inc.     28,332    
  900     Triad Guaranty, Inc. *      15,057    
  3,000     Trustmark Corp.     84,720    
  840     Valley National Bancorp     19,068    

 

See accompanying notes to the financial statements.


5


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued        
  400     Westamerica Bancorporation     19,420    
  200     World Acceptance Corp. *      6,202    
  500     Zenith National Insurance Corp.     21,555    
    Total Financial     3,709,353    
        Food & Beverage — 2.7%        
  700     Corn Products International, Inc.     31,640    
  600     Dean Foods Co.     16,116    
  800     JM Smucker Co. (The)     44,008    
  700     Lancaster Colony Corp.     28,469    
  400     M&F Worldwide Corp. *      22,560    
  1,500     McCormick & Co., Inc. (Non Voting)     53,760    
  100     Molson Coors Brewing Co.-Class B     8,946    
  3,400     NBTY, Inc. *      124,780    
  300     Ralcorp Holdings, Inc. *      18,537    
  300     Sanderson Farms, Inc.     12,582    
  2,900     Smithfield Foods, Inc. *      94,917    
  1,800     Tyson Foods, Inc.-Class A     38,790    
  500     USANA Health Sciences, Inc. *      19,040    
    Total Food & Beverage     514,145    
        Health Care — 9.1%        
  700     Align Technology, Inc. *      15,911    
  900     Allscripts Healthcare Solutions, Inc. *      20,349    
  3,300     Apria Healthcare Group *      87,879    
  200     Beckman Coulter, Inc.     14,390    
  200     Chemed Corp.     12,408    
  500     Conmed Corp. *      14,525    
  300     Covance, Inc. *      21,996    
  1,200     Cytyc Corp. *      51,288    
  700     DENTSPLY International, Inc.     27,566    
  2,500     Endo Pharmaceuticals Holdings, Inc. *      79,700    
  100     HMS Holdings Corp. *      2,355    
  1,300     Idexx Laboratories, Inc. *      145,275    

 

See accompanying notes to the financial statements.


6


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued        
  2,200     Immucor, Inc. *      73,370    
  400     Inverness Medical Innovations, Inc. *      19,256    
  600     Kinetic Concepts, Inc. *      36,066    
  8,200     King Pharmaceuticals, Inc. *      123,246    
  3,000     Lincare Holdings, Inc. *      107,970    
  400     Manor Care, Inc.     25,556    
  500     Medicis Pharmaceutical Corp.-Class A     15,270    
  1,000     MGI Pharma, Inc. *      23,570    
  2,800     Owens & Minor, Inc.     111,720    
  4,300     Patterson Cos., Inc. *      158,154    
  1,900     Pediatrix Medical Group, Inc. *      113,335    
  3,200     Pharmaceutical Product Development, Inc.     112,096    
  2,200     Respironics, Inc. *      104,346    
  1,600     Techne Corp. *      100,816    
  12,500     Tenet Healthcare Corp. *      42,375    
  500     Universal Health Services, Inc.-Class B     26,400    
  300     WellCare Health Plans, Inc. *      29,610    
  400     West Pharmaceutical Services, Inc.     16,020    
  1,000     Zoll Medical Corp. *      23,110    
    Total Health Care     1,755,928    
        Machinery — 0.9%        
  1,200     AGCO Corp. *      51,840    
  200     Cascade Corp.     14,722    
  600     Graco, Inc.     24,246    
  500     Manitowoc Co. (The), Inc.     39,745    
  500     Robbins & Myers, Inc.     27,090    
  200     Terex Corp. *      15,976    
    Total Machinery     173,619    
        Manufacturing — 1.7%        
  500     Bemis Co., Inc.     14,935    
  600     Carlisle Cos., Inc.     29,538    
  600     Greif, Inc.-Class A     34,932    

 

See accompanying notes to the financial statements.


7


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Manufacturing — continued        
  600     Mueller Industries, Inc.     20,784    
  1,100     Owens-IIlinois, Inc. *      44,242    
  600     Pactiv Corp. *      17,550    
  800     Pall Corp.     30,504    
  500     Reliance Steel & Aluminum Co.     26,485    
  1,000     Rock-Tenn Co.-Class A     28,990    
  500     Sealed Air Corp.     13,225    
  1,100     Sonoco Products Co.     39,622    
  200     SPX Corp.     18,010    
  200     Temple-Inland, Inc.     11,016    
    Total Manufacturing     329,833    
        Metals & Mining — 0.2%        
  300     Cleveland-Cliffs, Inc.     22,881    
  900     USEC, Inc. *      12,051    
    Total Metals & Mining     34,932    
        Oil & Gas — 0.9%        
  2,000     Cimarex Energy Co.     71,620    
  2,100     Dynegy, Inc.-Class A *      16,989    
  200     Holly Corp.     13,330    
  200     Tesoro Corp.     9,866    
  1,200     Unit Corp. *      58,872    
    Total Oil & Gas     170,677    
        Primary Process Industry — 3.6%        
  1,000     AK Steel Holding Corp. *      40,000    
  1,600     Albemarle Corp.     64,752    
  500     Cabot Corp.     20,170    
  1,200     Celanese Corp.-Class A     43,104    
  400     CF Industries Holdings, Inc.     25,332    
  200     Chaparral Steel Co.     17,100    
  600     Eastman Chemical Co.     40,056    
  200     FMC Corp.     18,000    

 

See accompanying notes to the financial statements.


8


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Primary Process Industry — continued        
  1,600     Hercules, Inc. *      33,312    
  900     International Flavors & Fragrances, Inc.     45,207    
  700     Lubrizol Corp.     44,506    
  400     OM Group, Inc. *      19,760    
  1,300     Quanex Corp.     56,303    
  3,100     Sensient Technologies Corp.     83,979    
  700     Sigma Aldrich Corp.     31,360    
  800     Steel Dynamics, Inc.     34,704    
  1,400     Terra Industries, Inc. *      36,358    
  1,400     W.R. Grace & Co. *      31,276    
    Total Primary Process Industry     685,279    
        Retail Stores — 15.2%        
  2,900     Advance Auto Parts, Inc.     103,124    
  6,700     American Eagle Outfitters, Inc.     173,061    
  2,500     Asbury Automotive Group, Inc.     54,050    
  8,200     AutoNation, Inc. *      155,636    
  1,400     Big Lots, Inc. *      41,678    
  3,200     BJ's Wholesale Club, Inc. *      112,000    
  1,600     CarMax, Inc. *      36,256    
  1,300     Casual Male Retail Group, Inc. *      13,130    
  3,800     CDW Corp. *      327,066    
  3,500     Chico's FAS, Inc. *      55,930    
  5,500     Dollar Tree Stores, Inc. *      238,975    
  5,700     Family Dollar Stores, Inc.     166,896    
  500     Fastenal Co.     22,805    
  2,100     Group 1 Automotive, Inc.     73,626    
  2,900     Insight Enterprises, Inc. *      68,788    
  400     Men's Wearhouse, Inc.     20,272    
  600     OfficeMax, Inc.     21,312    
  3,400     O'Reilly Automotive, Inc. *      120,836    
  4,000     Pacific Sunwear of California, Inc. *      56,040    
  5,800     Penske Auto Group, Inc.     114,318    
  800     PetSmart, Inc.     27,760    

 

See accompanying notes to the financial statements.


9


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued        
  400     Priceline.com, Inc. *      33,192    
  5,100     RadioShack Corp.     121,227    
  4,050     Rent-A-Center, Inc. *      77,841    
  18,000     Rite Aid Corp. *      91,260    
  3,500     Ross Stores, Inc.     97,405    
  700     Ruddick Corp.     22,806    
  500     Saks, Inc.     8,085    
  2,500     Sonic Automotive, Inc.     66,500    
  600     Spartan Stores, Inc.     15,264    
  1,000     Supervalu, Inc.     42,150    
  2,700     Talbots, Inc.     57,456    
  1,400     Tiffany & Co.     71,862    
  1,800     Tween Brands, Inc. *      53,100    
  500     Urban Outfitters, Inc. *      11,450    
  2,700     Williams-Sonoma, Inc.     89,991    
  2,400     Zale Corp. *      53,928    
    Total Retail Stores     2,917,076    
        Services — 9.6%        
  1,200     ABM Industries, Inc.     28,056    
  500     Ameristar Casinos, Inc.     14,455    
  1,550     Applebee's International, Inc.     38,456    
  800     Bob Evans Farms, Inc.     26,696    
  4,350     Brinker International, Inc.     125,454    
  5,100     Career Education Corp. *      151,470    
  1,800     CBRL Group, Inc.     67,356    
  200     CEC Entertainment, Inc. *      6,140    
  500     Choice Hotels International, Inc.     18,740    
  3,900     Copart, Inc. *      114,426    
  5,300     Corinthian Colleges, Inc. *      74,518    
  1,400     Corrections Corporation of America *      35,924    
  800     Discovery Holding Co.-Class A *      20,096    
  2,550     Factset Research Systems, Inc.     152,822    
  800     Geo Group (The), Inc. *      23,816    

 

See accompanying notes to the financial statements.


10


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued        
  300     Huron Consulting Group, Inc. *      19,815    
  400     Interactive Data Corp.     10,936    
  3,100     Interpublic Group of Cos., Inc. *      33,945    
  2,300     ITT Educational Services, Inc. *      252,540    
  800     Jack in the Box, Inc. *      49,776    
  200     Manpower, Inc.     14,052    
  400     Nalco Holding Co.     10,000    
  900     Nash Finch Co.     33,759    
  4,700     New York Times Co.-Class A     103,306    
  900     O'Charley's, Inc.     14,652    
  2,800     Performance Food Group Co. *      79,632    
  200     R.H. Donnelley Corp. *      11,766    
  2,400     Regis Corp.     79,224    
  2,100     Resources Connection, Inc.     63,000    
  500     Scholastic Corp. *      17,040    
  1,600     Service Corporation International     19,552    
  700     Sothebys Holdings, Inc.-Class A     30,296    
  900     TeleTech Holdings, Inc. *      26,325    
  2,500     Valassis Communications, Inc. *      22,800    
  400     Watson Wyatt Worldwide, Inc.     18,924    
  1,800     Westwood One, Inc.     5,202    
  600     World Fuel Services Corp.     23,130    
    Total Services     1,838,097    
        Technology — 12.1%        
  1,400     Activision, Inc. *      27,286    
  500     Acuity Brands, Inc.     26,270    
  900     Akamai Technologies, Inc. *      28,998    
  500     Alliance Data Systems Corp. *      39,225    
  1,100     Alliant Techsystems, Inc. *      115,841    
  1,000     Amkor Technology, Inc. *      11,520    
  3,100     Avnet, Inc. *      121,861    
  500     AZZ, Inc. *      14,200    
  300     BE Aerospace, Inc. *      11,691    

 

See accompanying notes to the financial statements.


11


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued        
  400     Belden, Inc.     19,444    
  300     Blue Coat Systems, Inc. *      25,023    
  1,500     BMC Software, Inc. *      45,930    
  1,600     Brocade Communications Systems, Inc. *      11,200    
  800     Citrix Systems, Inc. *      29,080    
  1,000     Cogent Communications Group, Inc. *      24,970    
  600     CommScope, Inc. *      33,960    
  1,600     Compuware Corp. *      12,976    
  1,000     Convergys Corp. *      16,750    
  3,400     Deluxe Corp.     129,268    
  400     Diebold, Inc.     17,548    
  2,400     Energizer Holdings, Inc. *      254,232    
  700     FLIR Systems, Inc. *      34,468    
  500     General Cable Corp. *      29,090    
  900     GrafTech International Ltd *      15,111    
  7,700     Ingram Micro, Inc.-Class A *      151,228    
  900     Macrovision Corp. *      21,357    
  1,700     McAfee, Inc. *      60,775    
  300     Mettler-Toledo International, Inc. *      28,293    
  1,300     Novellus System, Inc. *      35,581    
  2,100     Nuance Communications, Inc. *      39,480    
  1,100     ON Semiconductor Corp. *      12,892    
  1,400     Perot Systems Corp.-Class A *      21,882    
  1,300     Polycom, Inc. *      39,403    
  3,500     Sonus Networks, Inc. *      20,230    
  500     Sybase, Inc. *      11,525    
  400     Synopsys, Inc. *      10,928    
  900     Syntel, Inc.     31,113    
  1,000     Take-Two Interactive Software, Inc. *      15,980    
  3,500     Tech Data Corp. *      136,465    
  300     Teledyne Technologies, Inc. *      14,973    
  300     Teleflex, Inc.     23,331    
  400     Tessera Technologies, Inc. *      14,652    
  3,900     Total System Services, Inc.     108,186    

 

See accompanying notes to the financial statements.


12


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued        
  1,200     United Stationers, Inc. *      70,824    
  800     Valueclick, Inc. *      16,032    
  800     Varian Semiconductor Equipment Associates, Inc. *      44,504    
  500     Vasco Data Security International *      15,660    
  2,700     Waters Corp. *      166,239    
  4,600     Western Digital Corp. *      107,456    
    Total Technology     2,314,931    
        Transportation — 1.1%        
  500     Continental Airlines, Inc.-Class B *      16,630    
  2,600     JetBlue Airways Corp. *      24,752    
  1,400     Overseas Shipholding Group, Inc.     99,960    
  2,600     YRC Worldwide, Inc. *      80,106    
    Total Transportation     221,448    
        Utility — 2.7%        
  2,200     Centerpoint Energy, Inc.     35,684    
  3,600     CenturyTel, Inc.     172,728    
  300     Energen Corp.     16,110    
  200     Equitable Resources, Inc.     9,838    
  300     Golden Telecom, Inc.     20,583    
  1,000     j2 Global Communications, Inc. *      34,000    
  800     Northeast Utilities     22,120    
  400     OGE Energy Corp.     13,488    
  700     ONEOK, Inc.     32,795    
  800     Pepco Holdings, Inc.     22,304    
  400     Reliant Energy, Inc. *      10,204    
  1,900     Telephone & Data Systems, Inc.     123,025    
    Total Utility     512,879    
    TOTAL COMMON STOCKS (COST $17,676,790)     18,839,305    

 

See accompanying notes to the financial statements.


13


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 2.1%    
  391,613     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $391,798 and an effective yield of
4.25% collateralized by a U.S. Treasury Bond with a rate or 8.75%, maturity
date of 05/15/17 and a market value, including accrued interest, of $413,814.		     391,613    
    TOTAL SHORT-TERM INVESTMENTS (COST $391,613)     391,613    
    TOTAL INVESTMENTS — 100.2%
(Cost $18,068,403)		     19,230,918    
    Other Assets and Liabilities (net) — (0.2%)     (34,055 )  
    TOTAL NET ASSETS — 100.0%   $ 19,196,863    

 

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security

See accompanying notes to the financial statements.


14



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $18,068,403) (Note 2)   $ 19,230,918    
Dividends and interest receivable     18,455    
Receivable for expenses reimbursed by Manager (Note 3)     4,712    
Total assets     19,254,085    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     8,837    
Shareholder service fee     2,410    
Trustees and Chief Compliance Officer of GMO Trust fees     122    
Accrued expenses     45,853    
Total liabilities     57,222    
Net assets   $ 19,196,863    
Net assets consist of:  
Paid-in capital   $ 17,568,076    
Accumulated undistributed net investment income     22,106    
Accumulated net realized gain     444,166    
Net unrealized appreciation     1,162,515    
    $ 19,196,863    
Net assets attributable to:  
Class III shares   $ 19,196,863    
Shares outstanding:  
Class III     1,037,835    
Net asset value per share:  
Class III   $ 18.50    

 

See accompanying notes to the financial statements.


15


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 137,777    
Interest     9,790    
Total investment income     147,567    
Expenses:  
Management fee (Note 3)     62,226    
Shareholder service fee – Class III (Note 3)     16,971    
Custodian, fund accounting agent and transfer agent fees     15,640    
Audit and tax fees     25,760    
Legal fees     276    
Trustees fees and related expenses (Note 3)     16    
Registration fees     276    
Miscellaneous     184    
Total expenses     121,349    
Fees and expenses reimbursed by Manager (Note 3)     (42,044 )  
Net expenses     79,305    
Net investment income (loss)     68,262    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,662,199    
Closed futures contracts     (1,396 )  
Net realized gain (loss)     1,660,803    
Change in net unrealized appreciation (depreciation) on investments     (2,578,141 )  
Net realized and unrealized gain (loss)     (917,338 )  
Net increase (decrease) in net assets resulting from operations   $ (849,076 )  

 

See accompanying notes to the financial statements.


16


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 68,262     $ 233,829    
Net realized gain (loss)     1,660,803       5,681,764    
Change in net unrealized appreciation (depreciation)     (2,578,141 )     (3,743,425 )  
Net increase (decrease) in net assets from operations     (849,076 )     2,172,168    
Distributions to shareholders from:  
Net investment income  
Class III     (59,164 )     (236,763 )  
Net realized gains  
Class III     (594,943 )     (242,583 )  
      (654,107 )     (479,346 )  
Net share transactions (Note 7):  
Class III     (3,141,259 )     (9,646,449 )  
Purchase premiums (Notes 2 and 7):  
Class III     1,964       3,071    
Total increase (decrease) in net assets resulting from net share
transactions and purchase premiums		     (3,139,295 )     (9,643,378 )  
Total increase (decrease) in net assets     (4,642,478 )     (7,950,556 )  
Net assets:  
Beginning of period     23,839,341       31,789,897    
End of period (including accumulated undistributed net investment
income of $22,106 and $13,008, respectively)		   $ 19,196,863     $ 23,839,341    

 

See accompanying notes to the financial statements.


17



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 20.12     $ 19.07     $ 16.94     $ 14.80     $ 9.66     $ 11.76    
Income (loss) from investment operations:  
Net investment income (loss)     0.06 †      0.16 †      0.11 †      0.08 †      0.08       0.11    
Net realized and unrealized gain (loss)     (1.05 )     1.23       2.13       2.13       5.14       (2.10 )  
Total from investment operations     (0.99 )     1.39       2.24       2.21       5.22       (1.99 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.16 )     (0.11 )     (0.07 )     (0.08 )     (0.11 )  
From net realized gains     (0.58 )     (0.18 )     —       —       —       —    
Total distributions     (0.63 )     (0.34 )     (0.11 )     (0.07 )     (0.08 )     (0.11 )  
Net asset value, end of period   $ 18.50     $ 20.12     $ 19.07     $ 16.94     $ 14.80     $ 9.66    
Total Return(a)      (5.22 )%**      7.38 %     13.25 %     14.99 %     54.21 %     (17.00 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 19,197     $ 23,839     $ 31,790     $ 27,085     $ 24,529     $ 20,723    
Net expenses to average daily
net assets		     0.70 %*      0.70 %     0.70 %     0.70 %     0.70 %     0.71 %  
Net investment income to average
daily net assets		     0.60 %*      0.84 %     0.61 %     0.56 %     0.62 %     0.90 %  
Portfolio turnover rate     35 %**      65 %     78 %     90 %     66 %     55 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.37 %*      0.34 %     0.27 %     0.25 %     0.31 %     0.18 %  
Purchase premiums consisted of the
following per share amounts:† 		   $ 0.00 (b)    $ 0.00 (b)    $ 0.03     $ 0.00 (b)      —     $ 0.01    

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums which are borne by the shareholders.

(b)  Purchase premiums were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


18



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Tax-Managed Small/Mid Cap 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high after-tax total return. The Fund seeks to achieve its objective by outperforming the Russell 2500 Index (after tax), which is computed by GMO by adjusting the return of the Russell 2500 Index by its tax cost. The Fund typically makes equity investment in companies that issue stocks included in the Russell 2500 Index and in companies with similar market capitalizations, and uses quantitative models integrated with tax management techniques to provide exposure to the U.S. small- and mid-cap company equity market to investors subject to U.S. federal income tax.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency


19


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to


20


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are paid


21


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $820,904 and $393,614 expiring in 2010 and 2011, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 18,068,403     $ 2,510,931     $ (1,348,416 )   $ 1,162,515    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

For the period ended August 31, 2007, the Fund had realized gross gains attributed to redemption in-kind transactions of $1,212,103.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.


22


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 of Fund shares

As of August 31, 2007, the premium on cash purchases of Fund shares is currently 0.50%. If the Manager determines that any portion of a cash purchase is offset by a corresponding cash redemption occurring on the same day, it will waive the purchase premium in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums are paid to and recorded by the Fund as paid-in-capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $1,974 and $3,071 in purchase premiums, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connec tion with the transfer of the purchasing shareholder's securities to the Fund. There is no premium for reinvested distributions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


23


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.55% 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 average daily net assets at the annual rate of 0.15% for Class III shares.

GMO has entered into a binding agreement effective until at least June 30, 2008 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (inc luding taxes)) exceed 0.55% of the average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $16 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $7,689,993 and $11,254,768, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


24


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 78.31% of the outstanding shares of the Fund were held by four shareholders, each holding in excess of 10% of the Fund's shares outstanding. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 1.72% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     18,421     $ 392,845       33,181     $ 611,099    
Shares issued to shareholders
in reinvestment of distributions		     23,468       486,105       18,058       349,234    
Shares repurchased     (189,024 )     (4,020,209 )     (533,119 )     (10,606,782 )  
Purchase premiums     —       1,964       —       3,071    
Net increase (decrease)     (147,135 )   $ (3,139,295 )     (481,880 )   $ (9,643,378 )  

 

8.  Subsequent event

On September 25, 2007, the Trustees approved the liquidation of the Fund. It is anticipated that the Fund will be liquidated prior to the second quarter of 2008.


25



GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


26


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual


27


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


28


GMO Tax-Managed Small/Mid Cap Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums; and (2) ongoing costs, including management fees, shareholder service fees, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $5,000,000 account value divided by $1,000 = 5,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.70 %   $ 1,000.00     $ 947.80     $ 3.43    
2) Hypothetical     0.70 %   $ 1,000.00     $ 1,021.62     $ 3.56    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


29



GMO U.S. Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Growth Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.7 %  
Short-Term Investments     9.1    
Futures     0.0    
Other     (5.8 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Technology     26.2 %  
Health Care     17.7    
Retail Stores     16.8    
Services     8.7    
Oil & Gas     7.6    
Financial     5.5    
Consumer Goods     4.6    
Automotive     2.7    
Manufacturing     2.4    
Utility     2.2    
Food & Beverage     1.7    
Primary Process Industry     1.3    
Construction     0.9    
Transportation     0.7    
Machinery     0.7    
Metals & Mining     0.3    
      100.0 %  

 


1



GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.7%  
        Automotive — 2.6%  
    25,200     Goodyear Tire & Rubber Co. (The) *      697,032    
    45,500     Harley-Davidson, Inc.     2,447,445    
    7,100     Johnson Controls, Inc.     803,010    
    36,650     Paccar, Inc.     3,135,407    
    Total Automotive     7,082,894    
        Construction — 0.9%  
    4,400     Centex Corp.     127,204    
    5,900     General Growth Properties REIT     293,289    
    3,600     Martin Marietta Materials, Inc.     486,000    
    11,600     Masco Corp.     301,832    
    4,200     Quanta Services, Inc. * (a)      118,734    
    800     Simon Property Group, Inc. REIT     75,936    
    11,500     Thor Industries, Inc.     505,885    
    4,800     Vulcan Materials Co.     432,048    
    Total Construction     2,340,928    
        Consumer Goods — 4.5%  
    14,184     Altria Group, Inc.     984,511    
    10,500     Avon Products, Inc.     360,675    
    3,600     Church & Dwight Co., Inc.     161,748    
    64,900     Coach, Inc. *      2,889,997    
    7,500     Estee Lauder Cos. (The), Inc.-Class A     311,925    
    12,300     Hasbro, Inc.     346,983    
    25,300     Kimberly-Clark Corp.     1,737,857    
    6,600     Liz Claiborne, Inc.     225,522    
    46,900     Mattel Co.     1,014,447    
    35,100     Nike, Inc.     1,977,534    
    5,600     Polo Ralph Lauren Corp.     423,024    
    8,500     Tempur-Pedic International, Inc.     245,650    
    16,200     UST, Inc.     798,336    
    8,800     VF Corp.     702,680    
    Total Consumer Goods     12,180,889    

 

See accompanying notes to the financial statements.


2


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — 5.3%  
    17,400     Aflac, Inc.     927,594    
    13,400     Allstate Corp. (The)     733,650    
    5,400     AMBAC Financial Group, Inc. (a)      339,228    
    19,600     American International Group, Inc.     1,293,600    
    9,700     Brown & Brown, Inc. (a)      261,124    
    18,200     Citigroup, Inc.     853,216    
    10,500     Countrywide Financial Corp. (a)      208,425    
    12,500     Discover Financial Services *      289,250    
    7,300     Eaton Vance Corp.     280,247    
    12,900     First Marblehead Corp. (The) (a)      432,021    
    10,400     Franklin Resources, Inc.     1,370,408    
    12,800     Goldman Sachs Group, Inc.     2,252,928    
    3,400     Hartford Financial Services Group, Inc.     302,294    
    400     Markel Corp. * (a)      190,264    
    5,000     MBIA, Inc. (a)      300,000    
    1,300     MoneyGram International, Inc.     27,651    
    12,100     Morgan Stanley     754,677    
    16,020     Peoples United Financial     283,234    
    3,200     Philadelphia Consolidated Holding Corp. *      128,064    
    7,700     PMI Group (The), Inc. (a)      243,936    
    13,500     Progressive Corp. (The)     274,590    
    7,500     Prudential Financial, Inc.     673,350    
    1,000     Reinsurance Group of America, Inc.     54,310    
    19,800     SEI Investment Co.     502,326    
    2,700     Torchmark Corp.     166,212    
    26,000     Travelers Cos. (The), Inc.     1,314,040    
    Total Financial     14,456,639    
        Food & Beverage — 1.6%  
    24,700     Anheuser-Busch Cos., Inc.     1,220,180    
    37,500     Coca-Cola Co. (The)     2,016,750    
    16,844     Kraft Foods, Inc.     540,019    
    10,200     McCormick & Co., Inc. (Non Voting)     365,568    
    13,200     Sara Lee Corp.     219,384    
    Total Food & Beverage     4,361,901    

 

See accompanying notes to the financial statements.


3


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — 17.1%  
    5,100     Abbott Laboratories     264,741    
    19,000     Aetna, Inc.     967,290    
    4,400     Amgen, Inc. *      220,484    
    4,700     Bard (C.R.), Inc.     391,933    
    28,000     Baxter International, Inc.     1,533,280    
    6,500     Becton Dickinson & Co.     500,110    
    11,900     Cardinal Health, Inc.     813,722    
    4,800     Celgene Corp. *      308,208    
    27,700     Cigna Corp.     1,431,536    
    2,300     Coventry Health Care, Inc. *      131,951    
    6,200     Covidien Ltd. *      246,946    
    31,100     Express Scripts, Inc. *      1,702,725    
    52,900     Forest Laboratories, Inc. *      1,990,627    
    2,300     Idexx Laboratories, Inc. *      257,025    
    8,500     Immucor, Inc. *      283,475    
    72,364     Johnson & Johnson     4,471,372    
    5,300     Kinetic Concepts, Inc. *      318,583    
    7,300     Lincare Holdings, Inc. *      262,727    
    14,200     McKesson Corp.     812,382    
    6,300     Medco Health Solutions, Inc. *      538,335    
    4,100     Medtronic, Inc.     216,644    
    186,400     Merck & Co., Inc.     9,351,688    
    11,900     Patterson Cos., Inc. *      437,682    
    51,676     Pfizer, Inc.     1,283,632    
    18,000     Quest Diagnostics, Inc. (a)      985,500    
    3,100     Respironics, Inc. *      147,033    
    142,200     Schering-Plough Corp.     4,268,844    
    13,700     St. Jude Medical, Inc. *      596,909    
    47,900     Stryker Corp.     3,199,720    
    2,600     Techne Corp. *      163,826    
    72,100     UnitedHealth Group, Inc.     3,605,721    
    3,500     WellCare Health Plans, Inc. *      345,450    
    5,200     WellPoint, Inc. *      419,068    
    49,800     Zimmer Holdings, Inc. *      3,900,834    
    Total Health Care     46,370,003    

 

See accompanying notes to the financial statements.


4


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Machinery — 0.6%  
    2,800     Cummins, Inc.     331,576    
    5,200     Deere & Co.     707,512    
    700     Lincoln Electric Holdings, Inc.     50,358    
    7,000     Schlumberger Ltd.     675,500    
    Total Machinery     1,764,946    
        Manufacturing — 2.4%  
    18,000     American Standard Cos., Inc.     662,940    
    200     Carlisle Cos., Inc.     9,846    
    3,600     Crown Holdings, Inc. *      86,472    
    24,800     Honeywell International, Inc.     1,392,520    
    8,100     Illinois Tool Works, Inc.     471,177    
    5,800     ITT Industries, Inc.     394,342    
    8,700     Owens-IIlinois, Inc. *      349,914    
    16,900     Pactiv Corp. *      494,325    
    7,200     Pall Corp.     274,536    
    12,500     Precision Castparts Corp.     1,628,875    
    6,200     Tyco International Ltd.     273,792    
    5,500     United Technologies Corp.     410,465    
    Total Manufacturing     6,449,204    
        Metals & Mining — 0.3%  
    3,900     Cleveland-Cliffs, Inc. (a)      297,453    
    3,700     Southern Copper Corp. (a)      389,425    
    Total Metals & Mining     686,878    
        Oil & Gas — 7.4%  
    7,500     Anadarko Petroleum Corp.     367,350    
    5,200     Apache Corp.     402,376    
    56,700     Chevron Corp.     4,975,992    
    14,129     ConocoPhillips     1,157,024    
    3,600     Devon Energy Corp.     271,116    
    20,700     Dynegy, Inc.-Class A *      167,463    
    130,000     Exxon Mobil Corp.     11,144,900    

 

See accompanying notes to the financial statements.


5


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Oil & Gas — continued  
    6,000     Occidental Petroleum Corp.     340,140    
    6,700     Transocean, Inc. *      704,103    
    7,500     Valero Energy Corp.     513,825    
    Total Oil & Gas     20,044,289    
        Primary Process Industry — 1.3%  
    13,100     Albemarle Corp.     530,157    
    10,300     Celanese Corp.-Class A     369,976    
    1,200     Ecolab, Inc.     49,992    
    14,900     Hercules, Inc. * (a)      310,218    
    9,900     International Flavors & Fragrances, Inc.     497,277    
    6,500     Lyondell Chemical Co.     301,340    
    10,200     Monsanto Co.     711,348    
    10,100     Sherwin-Williams Co. (The)     697,001    
    Total Primary Process Industry     3,467,309    
        Retail Stores — 16.2%  
    10,500     Abercrombie & Fitch Co.-Class A     826,350    
    3,900     Advance Auto Parts, Inc.     138,684    
    36,300     Amazon.com, Inc. *      2,900,733    
    35,500     American Eagle Outfitters, Inc.     916,965    
    21,200     AutoNation, Inc. *      402,376    
    10,400     AutoZone, Inc. * (a)      1,261,416    
    31,700     Bed Bath & Beyond, Inc. * (a)      1,098,088    
    9,600     Best Buy Co., Inc. (a)      421,920    
    11,400     Big Lots, Inc. * (a)      339,378    
    28,800     CarMax, Inc. * (a)      652,608    
    12,400     CDW Corp. *      1,067,268    
    13,800     Dollar Tree Stores, Inc. *      599,610    
    47,500     eBay, Inc. *      1,619,750    
    17,300     Family Dollar Stores, Inc.     506,544    
    16,400     Gap (The), Inc.     307,664    
    169,200     Home Depot, Inc.     6,482,052    
    6,400     JC Penney Co., Inc.     440,064    

 

See accompanying notes to the financial statements.


6


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued  
    46,500     Kohls Corp. *      2,757,450    
    33,000     Kroger Co.     877,140    
    20,100     Limited Brands, Inc.     465,516    
    124,568     Lowe's Cos., Inc. (a)      3,869,082    
    28,400     Nordstrom, Inc.     1,366,040    
    7,200     O'Reilly Automotive, Inc. *      255,888    
    2,000     Priceline.com, Inc. * (a)      165,960    
    16,300     RadioShack Corp. (a)      387,451    
    15,700     Safeway, Inc.     498,161    
    4,000     Sears Holdings Corp. *      574,240    
    43,600     Staples, Inc.     1,035,500    
    51,000     Target Corp. (a)      3,362,430    
    10,800     Tiffany & Co.     554,364    
    13,460     TJX Cos., Inc.     410,395    
    35,000     Walgreen Co. (a)      1,577,450    
    135,600     Wal-Mart Stores, Inc.     5,916,228    
    Total Retail Stores     44,054,765    
        Services — 8.4%  
    6,700     Apollo Group, Inc.-Class A *      393,089    
    9,700     Career Education Corp. *      288,090    
    91,150     Comcast Corp.-Class A *      2,378,104    
    6,700     Corrections Corporation of America *      171,922    
    87,500     Direct TV Group (The) *      2,041,375    
    4,700     EchoStar Communications Corp.-Class A *      198,904    
    15,500     Expedia, Inc. *      462,675    
    6,000     Factset Research Systems, Inc.     359,580    
    13,900     Gannett Co., Inc.     653,300    
    6,700     Hilton Hotels Corp     307,865    
    8,600     IAC/InterActiveCorp. *      238,994    
    12,200     Interpublic Group of Cos., Inc. *      133,590    
    5,900     ITT Educational Services, Inc. *      647,820    
    7,500     Jack in the Box, Inc. *      466,650    
    9,600     Liberty Global, Inc.-Class A *      393,408    

 

See accompanying notes to the financial statements.


7


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    6,300     Liberty Media Holding Corp. Capital-Class A *      686,637    
    26,700     Marriott International, Inc.-Class A     1,186,014    
    88,200     McDonald's Corp.     4,343,850    
    6,000     McGraw-Hill, Inc.     302,760    
    26,900     MGM Mirage *      2,258,793    
    7,300     Moody's Corp.     334,705    
    9,100     Nalco Holding Co.     227,500    
    6,400     News Corp.-Class A     129,472    
    10,200     Omnicom Group, Inc.     519,486    
    5,500     RR Donnelley & Sons Co.     197,010    
    32,300     Starbucks Corp. *      889,865    
    40,200     Sysco Corp.     1,341,876    
    1,900     TeleTech Holdings, Inc. * (a)      55,575    
    34,200     Yum! Brands, Inc.     1,119,024    
    Total Services     22,727,933    
        Technology — 25.3%  
    14,900     Activision, Inc. *      290,401    
    14,800     Adobe Systems, Inc. *      632,700    
    4,400     Affiliated Computer Services, Inc.-Class A *      220,132    
    3,200     Amphenol Corp.-Class A     115,552    
    65,200     Apple, Inc. *      9,028,896    
    4,900     Autodesk, Inc. *      226,968    
    11,600     Avnet, Inc. *      455,996    
    20,700     BMC Software, Inc. *      633,834    
    15,000     CA, Inc.     377,850    
    212,000     Cisco Systems, Inc. *      6,767,040    
    8,400     Cognizant Technologies Solutions Corp.-Class A *      617,484    
    19,900     Compuware Corp. *      161,389    
    16,800     Danaher Corp.     1,304,688    
    226,600     Dell, Inc. *      6,401,450    
    165,400     EMC Corp. *      3,251,764    
    12,300     Energizer Holdings, Inc. *      1,302,939    
    18,500     First Data Corp.     614,570    

 

See accompanying notes to the financial statements.


8


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued  
    26,500     Fiserv, Inc. *      1,232,780    
    9,100     FLIR Systems, Inc. * (a)      448,084    
    6,000     General Dynamics Corp.     471,360    
    3,500     Goodrich Corp.     221,060    
    24,400     Hewlett-Packard Co.     1,204,140    
    5,500     Ingram Micro, Inc.-Class A *      108,020    
    101,408     Intel Corp.     2,611,256    
    85,500     International Business Machines Corp.     9,976,995    
    10,300     Intuit, Inc. *      281,293    
    8,900     Juniper Networks, Inc. *      292,988    
    6,100     KLA-Tencor Corp.     350,567    
    1,200     L-3 Communications Holdings, Inc.     118,212    
    22,400     Lexmark International, Inc. *      834,624    
    10,900     Lockheed Martin Corp.     1,080,626    
    19,500     McAfee, Inc. *      697,125    
    600     Mettler-Toledo International, Inc. *      56,586    
    331,600     Microsoft Corp.     9,526,868    
    1,800     Molex, Inc.     47,070    
    3,900     NCR Corp. *      194,103    
    139,400     Oracle Corp. *      2,827,032    
    6,900     Pitney Bowes, Inc.     308,223    
    12,900     Polycom, Inc. * (a)      390,999    
    14,600     Symantec Corp. *      274,626    
    38,000     Time Warner, Inc.     721,240    
    9,900     Total System Services, Inc. (a)      274,626    
    4,200     Trimble Navigation Ltd. *      148,302    
    6,200     Tyco Electronics Ltd. *      216,194    
    4,700     Valueclick, Inc. *      94,188    
    6,700     VeriSign, Inc. * (a)      215,740    
    13,200     Waters Corp. *      812,724    
    10,900     Xilinx, Inc.     278,713    
    Total Technology     68,720,017    

 

See accompanying notes to the financial statements.


9


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Transportation — 0.7%  
    6,800     CH Robinson Worldwide, Inc.     333,472    
    7,300     CSX Corp.     299,300    
    11,400     FedEx Corp.     1,250,352    
    Total Transportation     1,883,124    
        Utility — 2.1%  
    20,500     AES Corp. (The) *      371,255    
    6,700     American Electric Power Co., Inc.     298,016    
    49,745     AT&T, Inc.     1,983,333    
    18,000     Centerpoint Energy, Inc.     291,960    
    10,300     Constellation Energy Group, Inc.     854,282    
    8,600     Entergy Corp.     891,132    
    5,300     Mirant Corp. *       206,541    
    3,400     Public Service Enterprise Group, Inc.     288,966    
    4,900     Sempra Energy     269,647    
    4,400     Telephone & Data Systems, Inc.     284,900    
    Total Utility     5,740,032    
    TOTAL COMMON STOCKS (COST $252,594,294)     262,331,751    
        SHORT-TERM INVESTMENTS — 9.1%  
        Money Market Funds — 0.6%  
    429,685     Barclays Global Investors Institutional Money Market Fund (b)      429,685    
    1,289,056     Reserve Primary Money Market Fund (b)      1,289,056    
    Total Money Market Funds     1,718,741    
        Other Short-Term Investments — 8.5%  
    429,685     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      429,685    
    8,450,248     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $8,454,238 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.13%,
maturity date of 08/15/19 and a market value, including accrued interest,
of $8,644,393.		     8,450,248    

 

See accompanying notes to the financial statements.


10


GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — continued  
    4,296,853     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement, dated
08/31/07, due 09/04/07, with a maturity value of $4,299,453 and an effective
yield of 5.45%, collateralized by various corporate debt obligations with an
interest rate range of 0.00% - 9.12%, maturity date range of 04/01/09 -
05/29/37, and an aggregate market value of $4,625,695. (b) 		     4,296,853    
    751,949     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $752,403 and an effective yield of
5.44%, collateralized by a corporate debt obligation with a rate of 5.38%,
maturity date of 07/22/15, and a market value of $767,069. (b) 		     751,949    
    4,296,853     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $4,299,410 and an effective yield of
5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%, maturity
date of 11/30/11, and a market value of $4,382,839. (b) 		     4,296,853    
    4,296,853     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $4,299,453 and an effective yield of
5.45%, collateralized by various corporate debt obligations with an interest
rate range of 0.00% - 8.50%, maturity date range of 11/16/07 - 06/15/37, and
an aggregate market value of $4,401,537. (b) 		     4,296,853    
    423,959     Svenska Handlesbanken Eurodollar Overnight Time Deposit, 5.31%,
due 09/04/07 (b) 		     423,959    
    Total Other Short-Term Investments     22,946,400    
    TOTAL SHORT-TERM INVESTMENTS (COST $24,665,141)     24,665,141    
    TOTAL INVESTMENTS — 105.8%
(Cost $277,259,435)		     286,996,892    
            Other Assets and Liabilities (net) — (5.8%)     (15,818,560 )  
    TOTAL NET ASSETS — 100.0%   $ 271,178,332    

 

See accompanying notes to the financial statements.


11


GMO U.S. Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  14     S&P 500   September 2007   $ 5,168,450     $ 9,516    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


12



GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $16,079,721 (cost $277,259,435) (Note 2)   $ 286,996,892    
Cash     1,469    
Receivable for Fund shares sold     11,111    
Dividends and interest receivable     413,053    
Receivable for collateral on open futures contracts (Note 2)     220,500    
Receivable for variation margin on open futures contracts (Note 2)     52,850    
Receivable for expenses reimbursed by Manager (Note 3)     15,686    
Total assets     287,711,561    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     16,214,893    
Payable for Fund shares repurchased     73,700    
Payable to affiliate for (Note 3):  
Management fee     71,377    
Shareholder service fee – Class III     24,568    
Administration fee – Class M     13,293    
Trustees and Chief Compliance Officer of GMO Trust fees     788    
Payable for 12b-1 fee – Class M     34,194    
Accrued expenses     100,416    
Total liabilities     16,533,229    
Net assets   $ 271,178,332    

 

See accompanying notes to the financial statements.


13


GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 266,553,085    
Accumulated undistributed net investment income     347,681    
Distributions in excess of net realized gain     (5,469,407 )  
Net unrealized appreciation     9,746,973    
    $ 271,178,332    
Net assets attributable to:  
Class III shares   $ 191,440,633    
Class M shares   $ 79,737,699    
Shares outstanding:  
Class III     10,791,116    
Class M     4,510,210    
Net asset value per share:  
Class III   $ 17.74    
Class M   $ 17.68    

 

See accompanying notes to the financial statements.


14


GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 1,840,933    
Interest     195,107    
Securities lending income     6,371    
Total investment income     2,042,411    
Expenses:  
Management fee (Note 3)     453,720    
Shareholder service fee – Class III (Note 3)     157,738    
12b-1 fee – Class M (Note 3)     103,007    
Administration fee – Class M (Note 3)     82,406    
Custodian, fund accounting agent and transfer agent fees     60,076    
Audit and tax fees     25,944    
Legal fees     3,956    
Trustees fees and related expenses (Note 3)     1,851    
Registration fees     9,752    
Miscellaneous     2,116    
Total expenses     900,566    
Fees and expenses reimbursed by Manager (Note 3)     (100,832 )  
Net expenses     799,734    
Net investment income (loss)     1,242,677    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     10,953,324    
Closed futures contracts     30,306    
Net realized gain (loss)     10,983,630    
Change in net unrealized appreciation (depreciation) on:  
Investments     (1,738,475 )  
Open futures contracts     100,310    
Net unrealized gain (loss)     (1,638,165 )  
Net realized and unrealized gain (loss)     9,345,465    
Net increase (decrease) in net assets resulting from operations   $ 10,588,142    

 

See accompanying notes to the financial statements.


15


GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,242,677     $ 3,817,594    
Net realized gain (loss)     10,983,630       35,381,461    
Change in net unrealized appreciation (depreciation)     (1,638,165 )     (29,476,407 )  
Net increase (decrease) in net assets from operations     10,588,142       9,722,648    
Distributions to shareholders from:  
Net investment income  
Class III     (1,061,897 )     (2,359,398 )  
Class M     (191,770 )     (1,415,597 )  
Total distributions from net investment income     (1,253,667 )     (3,774,995 )  
Net realized gains  
Class III     (1,104,182 )     (13,846,929 )  
Class M     (429,318 )     (15,063,597 )  
Total distributions from net realized gains     (1,533,500 )     (28,910,526 )  
      (2,787,167 )     (32,685,521 )  
Net share transactions (Note 7):  
Class III     (38,471,981 )     (101,707,215 )  
Class M     (8,418,493 )     (160,597,536 )  
Increase (decrease) in net assets resulting from net share
transactions		     (46,890,474 )     (262,304,751 )  
Total increase (decrease) in net assets     (39,089,499 )     (285,267,624 )  
Net assets:  
Beginning of period     310,267,831       595,535,455    
End of period (including accumulated undistributed net investment
income of $347,681 and $358,671, respectively)		   $ 271,178,332     $ 310,267,831    

 

See accompanying notes to the financial statements.


16



GMO U.S. Growth Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 17.24     $ 18.17     $ 18.26     $ 19.03     $ 14.29     $ 18.23    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.08 †      0.15 †      0.15 †      0.16 †      0.10       0.10    
Net realized and unrealized
gain (loss)		     0.60       0.07       0.86       (0.02 )(a)      5.14       (3.94 )  
Total from investment operations     0.68       0.22       1.01       0.14       5.24       (3.84 )  
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.15 )     (0.16 )     (0.14 )     (0.14 )     (0.10 )  
From net realized gains     (0.09 )     (1.00 )     (0.94 )     (0.77 )     (0.36 )     —    
Total distributions     (0.18 )     (1.15 )     (1.10 )     (0.91 )     (0.50 )     (0.10 )  
Net asset value, end of period   $ 17.74     $ 17.24     $ 18.17     $ 18.26     $ 19.03     $ 14.29    
Total Return(b)      3.95 %**      1.24 %     5.64 %     0.94 %     36.93 %     (21.13 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 191,441     $ 224,554     $ 342,203     $ 357,499     $ 437,200     $ 302,051    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     0.93 %*      0.85 %     0.84 %     0.89 %     0.62 %     0.72 %  
Portfolio turnover rate     46 %**      111 %     94 %     136 %     97 %     72 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.07 %*      0.05 %     0.04 %     0.04 %     0.05 %     0.09 %  

 

(a)  The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


17


GMO U.S. Growth Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value, beginning
of period		   $ 17.16     $ 18.10     $ 18.19     $ 18.97     $ 14.25     $ 15.27    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.06 †      0.10 †      0.10 †      0.11 †      0.09       0.04    
Net realized and unrealized
gain (loss)		     0.59       0.06       0.85       (0.02 )(b)      5.09       (1.01 )  
Total from investment operations     0.65       0.16       0.95       0.09       5.18       (0.97 )  
Less distributions to shareholders:  
From net investment income     (0.04 )     (0.10 )     (0.10 )     (0.10 )     (0.10 )     (0.05 )  
From net realized gains     (0.09 )     (1.00 )     (0.94 )     (0.77 )     (0.36 )     —    
Total distributions     (0.13 )     (1.10 )     (1.04 )     (0.87 )     (0.46 )     (0.05 )  
Net asset value, end of period   $ 17.68     $ 17.16     $ 18.10     $ 18.19     $ 18.97     $ 14.25    
Total Return(c)      3.80 %**      0.91 %     5.33 %     0.65 %     36.58 %     (6.31 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 79,738     $ 85,714     $ 253,332     $ 269,227     $ 199,865     $ 20,306    
Net expenses to average daily
net assets		     0.76 %*      0.76 %     0.77 %     0.78 %     0.78 %     0.78 %*   
Net investment income to average
daily net assets		     0.63 %*      0.56 %     0.54 %     0.61 %     0.29 %     0.51 %*   
Portfolio turnover rate     46 %**      111 %     94 %     136 %     97 %     72 %***   
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.07 %*      0.05 %     0.04 %     0.04 %     0.05 %     0.09 %*   

 

(a)  Period from September 11, 2002 (commencement of operations) through February 28, 2003.

(b)  The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund.

(c)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2003.

See accompanying notes to the financial statements.


18



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks long-term capital growth. The Fund seeks to achieve its objective by outperforming the Russell 1000 Growth Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 1000 Index, and companies with similar market capitalizations.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class M. Class M shares bear an administration fee and a 12b-1 fee, while Class III shares bear a shareholder service fee (See Note 3). The principal economic difference between the classes of shares is the type and level of fees.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency


19


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to


20


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $16,079,721 collateralized by cash in the amount of $16,214,893, which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.


21


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $2,555,564, $9,328,913 and $782,016 expiring in 2010, 2011 and 2012, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 279,160,700     $ 17,415,544     $ (9,579,352 )   $ 7,836,192    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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


22


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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, 12b-1, and administration fees, which are directly attributable to a class of shares, are charged to that class's operations.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has deter mined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.31% 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 0.15% for Class III shares.

Class M shares of the Fund pay GMO an administration fee monthly at the annual rate of 0.20% of the average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets, for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund. The Trustees currently limit


23


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

payments on Class M shares to 0.25% of the Funds average daily net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.31% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $1,391 and $1,012, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $128,872,359 and $175,799,737 respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 87.55% of the outstanding shares of the Fund were held by five shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders may have a material effect on the Fund.


24


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, less than 0.01% of the Fund's shares were held by one related party comprised of a certain GMO employee account, and 0.02% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     110,660     $ 1,980,833       581,512     $ 10,177,303    
Shares issued to shareholders
in reinvestment of distributions		     119,607       2,165,400       931,773       16,163,150    
Shares repurchased     (2,463,550 )     (42,618,214 )     (7,324,024 )     (128,047,668 )  
Net increase (decrease)     (2,233,283 )   $ (38,471,981 )     (5,810,739 )   $ (101,707,215 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     133,264     $ 2,359,065       4,457,973     $ 77,513,557    
Shares issued to shareholders
in reinvestment of distributions		     34,169       621,088       949,423       16,479,194    
Shares repurchased     (651,821 )     (11,398,646 )     (14,412,085 )     (254,590,287 )  
Net increase (decrease)     (484,388 )   $ (8,418,493 )     (9,004,689 )   $ (160,597,536 )  

 


25



GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


26


GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual


27


GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


28


GMO U.S. Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,039.50     $ 2.36    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    
Class M  
1) Actual     0.76 %   $ 1,000.00     $ 1,038.00     $ 3.89    
2) Hypothetical     0.76 %   $ 1,000.00     $ 1,021.32     $ 3.86    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


29



GMO U.S. Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.5 %  
Short-Term Investments     16.1    
Other     (12.6 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financial     27.1 %  
Health Care     20.5    
Retail Stores     16.6    
Technology     10.1    
Oil & Gas     9.8    
Utility     4.7    
Consumer Goods     3.6    
Services     3.1    
Automotive     2.1    
Transportation     0.8    
Food & Beverage     0.7    
Construction     0.5    
Manufacturing     0.4    
      100.0 %  

 


1



GMO U.S. Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      COMMON STOCKS — 96.5%        
      Automotive — 2.1%        
  7,100     Harley-Davidson, Inc.     381,909    
  4,900     Paccar, Inc.     419,195    
    Total Automotive     801,104    
        Construction — 0.5%        
  7,800     Masco Corp.     202,956    
      Consumer Goods — 3.5%        
  6,800     Altria Group, Inc.     471,988    
  6,300     Coach, Inc. *      280,539    
  6,000     Liz Claiborne, Inc.     205,020    
  4,000     Nike, Inc.     225,360    
  2,200     VF Corp.     175,670    
    Total Consumer Goods     1,358,577    
        Financial — 26.1%        
  3,100     ACE Ltd.     179,056    
  5,800     Aflac, Inc.     309,198    
  13,600     Allstate Corp. (The)     744,600    
  3,500     AMBAC Financial Group, Inc. (a)      219,870    
  16,500     American International Group, Inc.     1,089,000    
  24,431     Bank of America Corp.     1,238,163    
  8,200     BB&T Corp.     325,786    
  38,500     Citigroup, Inc.     1,804,880    
  5,500     Comerica, Inc. (a)      306,790    
  7,500     Countrywide Financial Corp. (a)      148,875    
  13,200     Fannie Mae     866,052    
  6,300     Fifth Third Bancorp (a)      224,847    
  990     International Bancshares Corp.     22,790    
  4,100     MBIA, Inc. (a)      246,000    
  15,700     National City Corp.     422,487    
  8,575     Old Republic International Corp.     155,979    

 

See accompanying notes to the financial statements.


2


GMO U.S. Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued        
  1,300     PMI Group (The), Inc. (a)      41,184    
  10,800     Progressive Corp. (The)     219,672    
  3,600     Torchmark Corp.     221,616    
  8,300     Travelers Cos. (The), Inc.     419,482    
  7,900     Unum Group     193,313    
  16,400     US Bancorp (a)      530,540    
  7,985     Washington Mutual, Inc. (a)      293,209    
    Total Financial     10,223,389    
        Food & Beverage — 0.7%        
  7,952     Kraft Foods, Inc.     254,941    
        Health Care — 19.7%        
  8,700     AmerisourceBergen Corp.     416,295    
  8,000     Cardinal Health, Inc.     547,040    
  7,700     Express Scripts, Inc. *      421,575    
  11,800     Forest Laboratories, Inc. *      444,034    
  9,000     McKesson Corp.     514,890    
  23,900     Merck & Co., Inc.     1,199,063    
  78,600     Pfizer, Inc.     1,952,424    
  4,400     Quest Diagnostics, Inc.     240,900    
  7,800     Stryker Corp.     521,040    
  14,700     UnitedHealth Group, Inc.     735,147    
  2,200     WellPoint, Inc. *      177,298    
  7,100     Zimmer Holdings, Inc. *      556,143    
    Total Health Care     7,725,849    
        Manufacturing — 0.4%        
  4,300     American Standard Cos., Inc.     158,369    
        Oil & Gas — 9.4%        
  1,700     Apache Corp.     131,546    
  13,600     Chevron Corp.     1,193,536    
  4,100     ConocoPhillips     335,749    

 

See accompanying notes to the financial statements.


3


GMO U.S. Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Oil & Gas — continued        
  21,800     Exxon Mobil Corp.     1,868,914    
  2,600     Occidental Petroleum Corp.     147,394    
    Total Oil & Gas     3,677,139    
        Retail Stores — 16.0%        
  2,000     Abercrombie & Fitch Co.-Class A     157,400    
  1,900     AutoZone, Inc. * (a)      230,451    
  7,400     Bed Bath & Beyond, Inc. * (a)      256,336    
  2,300     CDW Corp. *      197,961    
  33,900     Home Depot, Inc.     1,298,709    
  6,000     Kohls Corp. *      355,800    
  8,500     Kroger Co.     225,930    
  36,900     Lowe's Cos., Inc. (a)      1,146,114    
  4,400     Safeway, Inc.     139,612    
  10,400     Staples, Inc.     247,000    
  7,900     Target Corp. (a)      520,847    
  6,600     Walgreen Co. (a)      297,462    
  27,100     Wal-Mart Stores, Inc.     1,182,373    
    Total Retail Stores     6,255,995    
        Services — 3.0%        
  8,600     Gannett Co., Inc.     404,200    
  2,400     ITT Educational Services, Inc. *      263,520    
  3,700     McGraw-Hill, Inc.     186,702    
  2,500     Moody's Corp.     114,625    
  7,600     Starbucks Corp. *      209,380    
    Total Services     1,178,427    
        Technology — 9.8%        
  22,400     Cisco Systems, Inc. *      715,008    
  4,600     Danaher Corp.     357,236    
  33,800     Dell, Inc. *      954,850    
  1,400     Energizer Holdings, Inc. *      148,302    
  6,300     First Data Corp.     209,286    

 

See accompanying notes to the financial statements.


4


GMO U.S. Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Technology — continued        
  5,700     Fiserv, Inc. *      265,164    
  3,200     General Dynamics Corp.     251,392    
  3,700     Lexmark International, Inc. *      137,862    
  27,000     Microsoft Corp.     775,710    
    Total Technology     3,814,810    
        Transportation — 0.8%        
  2,900     FedEx Corp.     318,072    
        Utility — 4.5%        
  16,642     AT&T, Inc.     663,517    
  26,600     Verizon Communications, Inc. (a)      1,114,008    
    Total Utility     1,777,525    
    TOTAL COMMON STOCKS (COST $36,166,847)     37,747,153    
        SHORT-TERM INVESTMENTS — 16.1%        
        Money Market Funds — 1.4%        
  131,673     Barclays Global Investors Institutional Money Market Fund (b)      131,673    
  395,020     Reserve Primary Money Market Fund (b)      395,020    
    Total Money Market Funds     526,693    
        Other Short-Term Investments — 14.7%        
  131,674     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      131,674    
  1,322,485     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,323,110 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Bond with
a rate of 8.13% maturity date of 08/15/19, and a market value,
including interest, of $1,353,894.		     1,322,485    
  1,316,733     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07 due 09/04/07, with a maturity value of $1,317,530
and an effective yield of 5.45%, collateralized by various corporate
debt obligations with an interest rate range of 0.00% - 9.12%,
maturity date range of 04/01/09 - 05/29/37, and an aggregate
market value of $1,417,504. (b) 		     1,316,733    

 

See accompanying notes to the financial statements.


5


GMO U.S. Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — continued        
  230,428     Lehman Brothers Inc. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $230,567
and an effective yield of 5.44%, collateralized by a corporate debt
obligation with a rate of 5.38%, maturity date of 07/22/15,
and a market value of $235,062. (b) 		     230,428    
  1,316,733     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,317,517 and an effective
yield of 5.36%, collateralized by a U.S. Treasury Bond
with a rate of 4.50%, maturity date of 11/30/11, and a
market value of $1,343,083. (b) 		     1,316,733    
  1,316,733     Morgan Stanley & Co. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $1,317,530
and an effective yield of 5.45%, collateralized by various corporate
debt obligations with an interest rate range of 0.00% - 8.50%,
maturity date range of 11/16/07 - 06/15/37, and an aggregate
market value of $1,348,813. (b) 		     1,316,733    
  129,919     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (b) 		     129,919    
    Total Other Short-Term Investments     5,764,705    
    TOTAL SHORT-TERM INVESTMENTS (COST $6,291,398)     6,291,398    
    TOTAL INVESTMENTS — 112.6%
(Cost $42,458,245)		     44,038,551    
        Other Assets and Liabilities (net) — (12.6%)     (4,914,076 )  
    TOTAL NET ASSETS — 100.0%   $ 39,124,475    

 

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


6



GMO U.S. Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $4,907,601 (cost $36,955,133) (Note 2)   $ 38,535,439    
Investments in repurchase agreements, at value (cost $5,503,112) (Note 2)     5,503,112    
Cash     151    
Receivable for Fund shares sold     48,878    
Dividends and interest receivable     94,433    
Receivable for expenses reimbursed by Manager (Note 3)     6,975    
Total assets     44,188,988    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     4,968,913    
Payable for Fund shares repurchased     7,120    
Payable to affiliate for (Note 3):  
Management fee     14,372    
Shareholder service fee     3,436    
Administration fee – Class M     1,952    
Trustees and Chief Compliance Officer of GMO Trust fees     116    
Payable for 12b-1 fee – Class M     5,035    
Accrued expenses     63,569    
Total liabilities     5,064,513    
Net assets   $ 39,124,475    
Net assets consist of:  
Paid-in capital   $ 44,467,718    
Accumulated undistributed net investment income     126,846    
Accumulated net realized loss     (7,050,395 )  
Net unrealized appreciation     1,580,306    
    $ 39,124,475    
Net assets attributable to:  
Class III shares   $ 27,312,924    
Class M shares   $ 11,811,551    
Shares outstanding:  
Class III     2,597,568    
Class M     1,128,419    
Net asset value per share:  
Class III   $ 10.51    
Class M   $ 10.47    

 

See accompanying notes to the financial statements.


7


GMO U.S. Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 446,295    
Interest     30,659    
Securities lending income     1,254    
Total investment income     478,208    
Expenses:  
Management fee (Note 3)     92,424    
Shareholder service fee – Class III (Note 3)     22,414    
12b-1 fee – Class M (Note 3)     15,157    
Administration fee – Class M (Note 3)     12,125    
Custodian, fund accounting agent and transfer agent fees     16,652    
Audit and tax fees     26,036    
Legal fees     552    
Trustees fees and related expenses (Note 3)     212    
Registration fees     5,428    
Miscellaneous     368    
Total expenses     191,368    
Fees and expenses reimbursed by Manager (Note 3)     (48,852 )  
Net expenses     142,516    
Net investment income (loss)     335,692    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,291,757    
Closed futures contracts     2,752    
Net realized gain (loss)     1,294,509    
Change in net unrealized appreciation (depreciation) on investments     (1,110,919 )  
Net realized and unrealized gain (loss)     183,590    
Net increase (decrease) in net assets resulting from operations   $ 519,282    

 

See accompanying notes to the financial statements.


8


GMO U.S. Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 335,692     $ 738,653    
Net realized gain (loss)     1,294,509       3,321,215    
Change in net unrealized appreciation (depreciation)     (1,110,919 )     (342,961 )  
Net increase (decrease) in net assets from operations     519,282       3,716,907    
Distributions to shareholders from:  
Net investment income  
Class III     (167,961 )     (482,272 )  
Class M     (50,105 )     (247,161 )  
Total distributions from net investment income     (218,066 )     (729,433 )  
Net realized gains  
Class III     (921,128 )     (315,194 )  
Class M     (373,824 )     (193,021 )  
Total distributions from net realized gains     (1,294,952 )     (508,215 )  
      (1,513,018 )     (1,237,648 )  
Net share transactions (Note 7):  
Class III     (1,775,338 )     (2,641,814 )  
Class M     503,444       (8,656,538 )  
Increase (decrease) in net assets resulting from net share
transactions		     (1,271,894 )     (11,298,352 )  
Total increase (decrease) in net assets     (2,265,630 )     (8,819,093 )  
Net assets:  
Beginning of period     41,390,105       50,209,198    
End of period (including accumulated undistributed net investment
income of $126,846 and $9,220, respectively)		   $ 39,124,475     $ 41,390,105    

 

See accompanying notes to the financial statements.


9



GMO U.S. Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 10.78     $ 10.25     $ 9.89     $ 9.28     $ 6.73     $ 8.82    
Income (loss) from investment operations:  
Net investment income (loss)     0.09 †      0.17 †      0.14 †      0.16 †      0.13       0.14    
Net realized and unrealized gain (loss)     0.04       0.64       0.38       0.62       2.59       (2.10 )  
Total from investment operations     0.13       0.81       0.52       0.78       2.72       (1.96 )  
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.17 )     (0.16 )     (0.17 )     (0.17 )     (0.13 )  
From net realized gains     (0.34 )     (0.11 )     —       —       —       —    
Total distributions     (0.40 )     (0.28 )     (0.16 )     (0.17 )     (0.17 )     (0.13 )  
Net asset value, end of period   $ 10.51     $ 10.78     $ 10.25     $ 9.89     $ 9.28     $ 6.73    
Total Return(a)      1.06 %**      8.00 %     5.36 %     8.46 %     40.69 %     (22.29 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 27,313     $ 29,759     $ 30,961     $ 41,306     $ 46,904     $ 163,463    
Net expenses to average
daily net assets		     0.59 %*      0.59 %     0.61 %     0.61 %     0.61 %     0.61 %  
Net investment income to
average daily net assets		     1.68 %*      1.66 %     1.43 %     1.71 %     1.74 %     1.79 %  
Portfolio turnover rate     18 %**      79 %     103 %     110 %     127 %     100 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.23 %*      0.28 %     0.31 %     0.18 %     0.20 %     0.07 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10


GMO U.S. Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class M share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 10.75     $ 10.21     $ 9.87     $ 9.26     $ 6.72     $ 8.82    
Income (loss) from investment operations:  
Net investment income (loss)     0.08 †      0.14 †      0.10 †      0.13 †      0.11       0.12    
Net realized and unrealized gain (loss)     0.03       0.65       0.38       0.62       2.57       (2.10 )  
Total from investment operations     0.11       0.79       0.48       0.75       2.68       (1.98 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.14 )     (0.14 )     (0.14 )     (0.14 )     (0.12 )  
From net realized gains     (0.34 )     (0.11 )     —       —       —       —    
Total distributions     (0.39 )     (0.25 )     (0.14 )     (0.14 )     (0.14 )     (0.12 )  
Net asset value, end of period   $ 10.47     $ 10.75     $ 10.21     $ 9.87     $ 9.26     $ 6.72    
Total Return(a)      0.82 %**      7.80 %     4.95 %     8.21 %     40.23 %     (22.56 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 11,812     $ 11,631     $ 19,248     $ 16,779     $ 10,916     $ 6,444    
Net expenses to average daily net assets     0.89 %*      0.89 %     0.90 %     0.91 %     0.91 %     0.92 %  
Net investment income to average
daily net assets		     1.39 %*      1.35 %     1.04 %     1.42 %     1.42 %     1.46 %  
Portfolio turnover rate     18 %**      79 %     103 %     110 %     127 %     100 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.23 %*      0.28 %     0.31 %     0.18 %     0.20 %     0.07 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


11



GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks long-term capital growth. The Fund seeks to achieve its objective by outperforming the Russell 1000 Value Index. The Fund typically makes equity investments in companies that issue stocks included in the Russell 1000 Index, and companies with similar market capitalizations. The Fund typically holds fewer than 100 stocks.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class M. Class M shares bear an administration fee and a 12b-1 fee, while Class III shares bear a shareholder service fee (See Note 3). The principal economic difference between the classes of shares is the type and level of fees.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.


12


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values


13


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $4,907,601 collateralized by cash in the amount of $4,968,913 which was invested in short-term investments.

Taxes and distributions

The Fund intends to qualify each tax 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.


14


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $6,560,688 and $1,640,172, expiring in 2011 and 2012, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 42,574,141     $ 3,052,346     $ (1,587,936 )   $ 1,464,410    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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


15


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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, 12b-1, and administration fees, which are directly attributable to a class of shares, are charged to that class's operations.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.44% 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 0.15% for Class III shares.

Class M shares of the Fund pay GMO an administration fee monthly at the annual rate of 0.20% of the average daily Class M net assets for support services provided to Class M shareholders.

Pursuant to a Rule 12b-1 distribution plan adopted by the Fund, Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily Class M net assets for any activities or expenses primarily intended to result in the sale of Class M shares of the Fund and/or the provision of certain other


16


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

services incidental thereto. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily net asset value attributable to its Class M shares. This fee may be spent on personal services rendered to Class M shareholders of the Fund and/or maintenance of Class M shareholder accounts.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.44% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $212 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $7,278,041 and $9,748,470, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 88.57% 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 may have a material effect on the Fund.


17


GMO U.S. Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, 0.04% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts, and 4.56% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     379     $ 4,197       10,260     $ 109,906    
Shares issued to shareholders
in reinvestment of distributions		     16,947       187,533       13,308       136,774    
Shares repurchased     (179,754 )     (1,967,068 )     (285,308 )     (2,888,494 )  
Net increase (decrease)     (162,428 )   $ (1,775,338 )     (261,740 )   $ (2,641,814 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     161,709     $ 1,763,358       310,807     $ 3,208,280    
Shares issued to shareholders
in reinvestment of distributions		     38,444       423,929       42,850       440,182    
Shares repurchased     (154,030 )     (1,683,843 )     (1,156,614 )     (12,305,000 )  
Net increase (decrease)     46,123     $ 503,444       (802,957 )   $ (8,656,538 )  

 

8.  Subsequent Event

Subsequent to August 31, 2007, the Fund received redemption requests in the amount of $22,431,726.

On September 25, 2007, the Trustees approved the liquidation of the Fund. It is anticipated that the Fund will be liquidated prior to the second calendar quarter of 2008.


18



GMO U.S. Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


19


GMO U.S. Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


20


GMO U.S. Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


21


GMO U.S. Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, shareholder service fees, distribution (12b-1) and/or administration fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
  1 ) Actual     0.59 %   $ 1,000.00     $ 1,010.60     $ 2.98    
  2 ) Hypothetical     0.59 %   $ 1,000.00     $ 1,022.17     $ 3.00    
Class M      
  1 ) Actual     0.89 %   $ 1,000.00     $ 1,008.20     $ 4.49    
  2 ) Hypothetical     0.89 %   $ 1,000.00     $ 1,020.66     $ 4.52    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


22



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.0 %  
Short-Term Investments     19.9    
Futures     (0.0 )  
Other     (16.9 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Technology     19.2 %  
Retail Stores     15.9    
Consumer Goods     10.4    
Services     10.0    
Health Care     8.9    
Financial     8.7    
Primary Process Industry     5.8    
Construction     5.2    
Manufacturing     3.9    
Machinery     2.6    
Food & Beverage     2.4    
Oil & Gas     1.6    
Transportation     1.6    
Automotive     1.5    
Utility     1.4    
Metals & Mining     0.9    
      100.0 %  

 


1



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.0%        
        Automotive — 1.5%        
  2,800     Gentex Corp.     56,112    
  9,500     Goodyear Tire & Rubber Co. (The) *      262,770    
  1,900     Spartan Motors, Inc. (a)      28,120    
    Total Automotive     347,002    
        Construction — 5.0%        
  900     American Woodmark Corp.     27,153    
  300     Amrep Corp. (a)      10,080    
  500     Apogee Enterprises, Inc.     12,585    
  1,600     Beazer Homes USA, Inc.     16,912    
  900     Crane Co.     40,311    
  600     Home Properties, Inc. (a)      30,492    
  100     Hovnanian Enterprises, Inc.-Class A * (a)      1,187    
  1,300     iStar Financial, Inc. REIT     47,580    
  1,900     Jacobs Engineering Group, Inc. *      125,571    
  1,200     KB Home (a)      36,408    
  1,300     Lennox International, Inc.     46,761    
  1,600     Martin Marietta Materials, Inc.     216,000    
  1,167     MDC Holdings, Inc.     51,920    
  300     NVR, Inc. * (a)      167,850    
  800     Perini Corp. *      45,280    
  1,700     Quanta Services, Inc. * (a)      48,059    
  900     Ryland Group, Inc. (a)      25,776    
  1,200     Simpson Manufacturing Co., Inc. (a)      39,600    
  800     Standard-Pacific Corp. (a)      8,024    
  2,400     Thor Industries, Inc.     105,576    
  3,400     Toll Brothers, Inc. *      72,624    
    Total Construction     1,175,749    
        Consumer Goods — 10.1%        
  1,600     Alberto-Culver Co.     37,072    
  2,500     Alliance One International, Inc. * (a)      19,250    

 

See accompanying notes to the financial statements.


2


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued        
  400     Bare Escentuals, Inc. * (a)      9,840    
  4,200     Bebe Stores, Inc.     58,590    
  1,600     Blyth, Inc.     35,776    
  1,200     Brunswick Corp.     30,180    
  1,999     Charles & Colvard Ltd. (a)      8,276    
  1,800     Chattem, Inc. * (a)      111,078    
  1,800     Church & Dwight Co., Inc.     80,874    
  600     Columbia Sportswear Co.     35,952    
  2,100     Crocs, Inc. * (a)      123,984    
  800     Deckers Outdoor Corp. *      75,352    
  900     Estee Lauder Cos. (The), Inc.-Class A     37,431    
  1,000     Ethan Allen Interiors, Inc.     33,600    
  3,450     Fossil, Inc. *      115,609    
  300     Genlyte Group, Inc. *      21,771    
  2,700     Guess?, Inc.     143,100    
  7,200     Hasbro, Inc.     203,112    
  2,300     Herman Miller, Inc.     66,746    
  600     J Crew Group, Inc. *      29,886    
  700     Kenneth Cole Productions, Inc.-Class A     14,476    
  1,300     K-Swiss, Inc.-Class A     31,356    
  1,600     Leggett & Platt, Inc.     32,640    
  700     Liz Claiborne, Inc.     23,919    
  700     Maidenform Brands, Inc. *      11,928    
  3,800     Marvel Entertainment, Inc. * (a)      85,880    
  1,100     Matthews International Corp.-Class A     47,454    
  1,200     Middleby Corp. * (a)      88,248    
  1,100     Oakley, Inc.     31,647    
  2,200     Phillips-Van Heusen Corp.     128,106    
  500     Plantronics, Inc.     14,200    
  1,000     Polaris Industries, Inc. (a)      47,750    
  1,200     Polo Ralph Lauren Corp.     90,648    
  1,500     Select Comfort Corp. * (a)      25,725    
  400     Snap-On, Inc.     19,592    
  1,250     Steven Madden Ltd.     30,775    
  6,100     Tempur-Pedic International, Inc.     176,290    

 

See accompanying notes to the financial statements.


3


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued        
  1,200     Timberland Co.-Class A *      24,108    
  1,600     Tupperware Corp.     49,264    
  300     Volcom, Inc. * (a)      11,709    
  1,400     Warnaco Group (The), Inc. *      48,860    
  1,800     Wolverine World Wide, Inc.     47,322    
    Total Consumer Goods     2,359,376    
        Financial — 8.4%        
  300     Advance America Cash Advance Centers, Inc.     3,765    
  300     Affiliated Managers Group, Inc. * (a)      33,975    
  1,000     AG Edwards, Inc.     83,580    
  1,700     American Capital Strategies Ltd.     70,193    
  1,000     AmeriCredit Corp. * (a)      17,310    
  2,900     AMERIGROUP Corp. *      91,843    
  3,500     Brown & Brown, Inc. (a)      94,220    
  900     Cash America International, Inc.     32,454    
  500     Cohen & Steers, Inc.     16,615    
  800     Downey Financial Corp. (a)      45,272    
  2,000     Eaton Vance Corp.     76,780    
  1,000     Equifax, Inc.     38,520    
  3,700     EZCORP, Inc.-Class A *      45,029    
  1,400     First Cash Financial Services, Inc. *      29,988    
  5,200     First Marblehead Corp. (The) (a)      174,148    
  600     FirstFed Financial Corp. * (a)      30,150    
  1,700     Fremont General Corp. (a)      7,650    
  700     Hancock Holding Co.     28,000    
  400     HCC Insurance Holdings, Inc.     11,044    
  500     IndyMac Bancorp, Inc. (a)      12,100    
  1,000     IntercontinentalExchange, Inc. *      145,870    
  1,000     Janus Capital Group, Inc. (a)      26,590    
  100     Jones Lang LaSalle, Inc.     11,168    
  700     Knight Capital Group, Inc.-Class A *      9,618    
  800     MoneyGram International, Inc.     17,016    
  900     Nara Bancorp, Inc.     14,256    

 

See accompanying notes to the financial statements.


4


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued        
  1,100     Odyssey Re Holdings Corp.     39,842    
  4,960     Peoples United Financial     87,693    
  1,800     Philadelphia Consolidated Holding Corp. *      72,036    
  900     PMI Group (The), Inc. (a)      28,512    
  1,400     Pre-Paid Legal Services, Inc. * (a)      77,266    
  400     Radian Group, Inc.     7,056    
  1,100     Reinsurance Group of America, Inc.     59,741    
  10,000     SEI Investment Co.     253,700    
  1,100     Sterling Bancshares, Inc.     12,573    
  200     Student Loan Corp.     39,450    
  2,500     TCF Financial Corp.     63,175    
  1,000     Triad Guaranty, Inc. *      16,730    
  1,200     World Acceptance Corp. *      37,212    
    Total Financial     1,962,140    
        Food & Beverage — 2.3%        
  700     Corn Products International, Inc.     31,640    
  600     M&F Worldwide Corp. *      33,840    
  900     Mannatech, Inc. (a)      7,416    
  2,400     McCormick & Co., Inc. (Non Voting)     86,016    
  500     MGP Ingredients, Inc. (a)      7,230    
  4,900     NBTY, Inc. *      179,830    
  1,800     Ralcorp Holdings, Inc. *      111,222    
  700     Sanderson Farms, Inc.     29,358    
  1,500     USANA Health Sciences, Inc. * (a)      57,120    
    Total Food & Beverage     543,672    
        Health Care — 8.6%        
  600     Abaxis, Inc. *      11,664    
  2,400     American Oriental Bioengineering, Inc. * (a)      22,320    
  5,500     Apria Healthcare Group *      146,465    
  1,300     Candela Corp. *      9,386    
  600     Chemed Corp.     37,224    
  900     Covance, Inc. *      65,988    
  1,500     Cytyc Corp. *      64,110    

 

See accompanying notes to the financial statements.


5


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued        
  400     Dade Behring Holdings, Inc.     30,204    
  600     DENTSPLY International, Inc.     23,628    
  500     Endo Pharmaceuticals Holdings, Inc. *      15,940    
  600     Healthcare Services Group, Inc.     12,852    
  100     Hillenbrand Industries, Inc.     5,755    
  500     HMS Holdings Corp. *      11,775    
  800     Idexx Laboratories, Inc. *      89,400    
  5,400     Immucor, Inc. *      180,090    
  1,900     Kinetic Concepts, Inc. *      114,209    
  1,500     King Pharmaceuticals, Inc. *      22,545    
  500     LHC Group, Inc. *      10,015    
  1,500     LifePoint Hospitals, Inc. *      42,150    
  1,400     Lincare Holdings, Inc. *      50,386    
  900     Manor Care, Inc.     57,501    
  800     Medcath Corp. *      23,480    
  1,800     Medicis Pharmaceutical Corp.-Class A (a)      54,972    
  1,600     Molina Healthcare, Inc. *      54,480    
  800     Odyssey HealthCare, Inc. *      7,824    
  3,900     OraSure Technologies, Inc. *      35,880    
  900     Owens & Minor, Inc.     35,910    
  1,000     Par Pharmaceutical Cos., Inc. *      22,390    
  200     PAREXEL International Corp. *      8,602    
  4,800     Patterson Cos., Inc. *      176,544    
  800     Pediatrix Medical Group, Inc. *      47,720    
  1,300     Pharmaceutical Product Development, Inc.     45,539    
  1,400     RehabCare Group, Inc. *      22,778    
  1,600     Respironics, Inc. *      75,888    
  2,000     Savient Pharmaceuticals, Inc. *      26,360    
  600     Techne Corp. *      37,806    
  600     Universal Health Services, Inc.-Class B     31,680    
  400     VCA Antech, Inc. *      16,356    
  1,800     WellCare Health Plans, Inc. *      177,660    
  1,000     West Pharmaceutical Services, Inc.     40,050    
  1,500     Zoll Medical Corp. *      34,665    
    Total Health Care     2,000,191    

 

See accompanying notes to the financial statements.


6


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Machinery — 2.5%        
  2,000     AGCO Corp. * (a)      86,400    
  400     Cascade Corp.     29,444    
  500     Dresser-Rand Group, Inc. *      18,435    
  700     Graco, Inc.     28,287    
  300     Gulfmark Offshore, Inc. *      13,755    
  300     Kaydon Corp.     15,840    
  400     Lincoln Electric Holdings, Inc.     28,776    
  1,200     Manitowoc Co. (The), Inc.     95,388    
  800     Nordson Corp.     40,168    
  200     Rofin-Sinar Technologies, Inc. *      13,934    
  300     Stanley Works (The)     17,022    
  1,700     Terex Corp. *      135,796    
  900     Tidewater, Inc.     58,905    
    Total Machinery     582,150    
        Manufacturing — 3.8%        
  400     AptarGroup, Inc.     14,532    
  200     Ball Corp.     10,476    
  900     Carlisle Cos., Inc.     44,307    
  1,400     Crown Holdings, Inc. *      33,628    
  1,500     Greif, Inc.-Class A     87,330    
  700     Harsco Corp.     38,955    
  400     Jarden Corp. *      13,116    
  600     Mueller Industries, Inc.     20,784    
  4,300     Owens-IIlinois, Inc. *      172,946    
  3,500     Pactiv Corp. *      102,375    
  3,100     Pall Corp.     118,203    
  1,600     Reliance Steel & Aluminum Co.     84,752    
  1,500     Rock-Tenn Co.-Class A     43,485    
  2,400     Sealed Air Corp.     63,480    
  200     Silgan Holdings, Inc.     10,218    
  500     Sonoco Products Co.     18,010    
    Total Manufacturing     876,597    

 

See accompanying notes to the financial statements.


7


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Metals & Mining — 0.9%        
  200     Amcol International Corp.     6,442    
  600     Brush Engineered Materials, Inc. *      28,980    
  2,300     Cleveland-Cliffs, Inc. (a)      175,421    
    Total Metals & Mining     210,843    
        Oil & Gas — 1.6%        
  3,100     Abraxas Petroleum Corp. *      11,098    
  900     Cabot Oil & Gas Corp.     30,006    
  900     Complete Production Services, Inc. *      19,980    
  1,200     Frontier Oil Corp.     49,236    
  1,700     Holly Corp.     113,305    
  1,900     Tesoro Corp.     93,727    
  400     Unit Corp. *      19,624    
  3,300     Vaalco Energy, Inc. *      12,936    
  400     Western Refining, Inc. (a)      20,736    
    Total Oil & Gas     370,648    
        Primary Process Industry — 5.6%        
  500     Airgas, Inc.     23,110    
  3,600     AK Steel Holding Corp. *      144,000    
  5,500     Albemarle Corp.     222,585    
  1,200     Cabot Corp.     48,408    
  2,500     Celanese Corp.-Class A     89,800    
  1,100     CF Industries Holdings, Inc.     69,663    
  700     Chaparral Steel Co.     59,850    
  1,000     Eastman Chemical Co.     66,760    
  4,600     Hercules, Inc. *      95,772    
  2,600     International Flavors & Fragrances, Inc.     130,598    
  500     Lubrizol Corp.     31,790    
  900     NewMarket Corp.     42,039    
  1,300     PolyOne Corp. *      10,439    
  400     Quanex Corp.     17,324    
  2,100     Steel Dynamics, Inc.     91,098    
  3,000     Terra Industries, Inc. *      77,910    
  3,700     W.R. Grace & Co. * (a)      82,658    
    Total Primary Process Industry     1,303,804    

 

See accompanying notes to the financial statements.


8


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — 15.5%        
  3,200     Advance Auto Parts, Inc.     113,792    
  5,100     Aeropostale, Inc. *      105,570    
  15,000     American Eagle Outfitters, Inc.     387,450    
  2,100     AutoNation, Inc. * (a)      39,858    
  4,500     Big Lots, Inc. * (a)      133,965    
  500     BJ's Wholesale Club, Inc. *      17,500    
  1,100     Bon-Ton Stores (The), Inc. (a)      31,702    
  300     Buckle, Inc.     11,223    
  1,200     Cabela's, Inc.-Class A *      28,356    
  10,500     CarMax, Inc. * (a)      237,930    
  4,100     CDW Corp. *      352,887    
  500     Charlotte Russe Holding, Inc. *      8,735    
  2,600     Chico's FAS, Inc. *      41,548    
  500     Children's Place Retail Stores, Inc. *      14,380    
  2,500     Christopher & Banks Corp.     30,200    
  1,100     Conn's, Inc. * (a)      24,200    
  600     CSK Auto Corp. *      7,932    
  600     Dick's Sporting Goods, Inc. *      38,940    
  4,000     Dollar Tree Stores, Inc. *      173,800    
  3,000     Family Dollar Stores, Inc.     87,840    
  300     Fastenal Co. (a)      13,683    
  600     Gamestop Corp.-Class A *      30,084    
  900     Group 1 Automotive, Inc.     31,554    
  1,100     Gymboree Corp. (The) *      44,099    
  500     Jos. A. Bank Clothiers, Inc. * (a)      15,075    
  2,200     Men's Wearhouse, Inc.     111,496    
  300     OfficeMax, Inc.     10,656    
  2,700     O'Reilly Automotive, Inc. *      95,958    
  2,425     Pacific Sunwear of California, Inc. *      33,974    
  3,100     PetMed Express, Inc. *      46,469    
  3,400     PetSmart, Inc.     117,980    
  2,800     Priceline.com, Inc. * (a)      232,344    
  7,400     RadioShack Corp. (a)      175,898    
  2,950     Rent-A-Center, Inc. * (a)      56,699    

 

See accompanying notes to the financial statements.


9


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued        
  9,300     Rite Aid Corp. * (a)      47,151    
  3,000     Ross Stores, Inc.     83,490    
  2,100     Saks, Inc. (a)      33,957    
  1,600     Spartan Stores, Inc.     40,704    
  1,400     Supervalu, Inc.     59,010    
  4,200     Tiffany & Co.     215,586    
  1,400     Tween Brands, Inc. *      41,300    
  6,000     Urban Outfitters, Inc. *      137,400    
  1,200     Williams-Sonoma, Inc. (a)      39,996    
    Total Retail Stores     3,602,371    
        Services — 9.7%        
  700     Ameristar Casinos, Inc.     20,237    
  1,375     Applebee's International, Inc.     34,114    
  2,900     Brinker International, Inc.     83,636    
  1,200     Buffalo Wild Wings, Inc. * (a)      41,724    
  4,700     Career Education Corp. *      139,590    
  400     CBRL Group, Inc.     14,968    
  2,000     CEC Entertainment, Inc. *      61,400    
  400     Chipotle Mexican Grill, Inc.-Class A * (a)      41,596    
  500     Choice Hotels International, Inc.     18,740    
  100     CKE Restaurants, Inc.     1,695    
  400     Consolidated Graphics, Inc. *      26,512    
  2,900     Copart, Inc. *      85,086    
  2,600     Corinthian Colleges, Inc. *      36,556    
  3,400     Corrections Corporation of America *      87,244    
  1,000     CRA International, Inc. *      49,660    
  300     DeVry, Inc.     10,359    
  2,500     Discovery Holding Co.-Class A *      62,800    
  300     Dun & Bradstreet Corp.     29,265    
  3,250     Factset Research Systems, Inc.     194,772    
  1,800     Geo Group (The), Inc. *      53,586    
  300     Huron Consulting Group, Inc. *      19,815    
  900     Interactive Data Corp.     24,606    

 

See accompanying notes to the financial statements.


10


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued        
  7,700     Interpublic Group of Cos., Inc. *      84,315    
  2,400     ITT Educational Services, Inc. *      263,520    
  2,600     Jack in the Box, Inc. *      161,772    
  1,400     Krispy Kreme Doughnuts, Inc. * (a)      9,296    
  400     Manpower, Inc.     28,104    
  2,700     Nalco Holding Co.     67,500    
  100     Papa John's International, Inc. *      2,536    
  900     PeopleSupport, Inc. *      11,322    
  500     Regis Corp.     16,505    
  2,200     Resources Connection, Inc.     66,000    
  1,500     Ruby Tuesday, Inc.     33,225    
  2,000     Service Corporation International     24,440    
  2,700     Sinclair Broadcast Group-Class A     33,642    
  800     Sonic Corp. *      17,456    
  4,500     TeleTech Holdings, Inc. *      131,625    
  2,300     Valassis Communications, Inc. *      20,976    
  2,100     Volt Information Sciences, Inc. *      31,605    
  1,000     Watson Wyatt Worldwide, Inc.     47,310    
  1,800     WMS Industries, Inc. * (a)      52,992    
  500     World Fuel Services Corp.     19,275    
    Total Services     2,261,377    
        Technology — 18.6%        
  1,600     Activision, Inc. *      31,184    
  1,200     Acuity Brands, Inc.     63,048    
  1,800     ADC Telecommunications, Inc. *      32,940    
  1,300     Alliance Data Systems Corp. *      101,985    
  800     Alliant Techsystems, Inc. * (a)      84,248    
  4,700     Amkor Technology, Inc. * (a)      54,144    
  700     Anixter International, Inc. * (a)      53,739    
  6,500     Avnet, Inc. *      255,515    
  400     Avocent Corp. *      11,808    
  100     AVX Corp. (a)      1,572    
  700     AZZ, Inc. *      19,880    

 

See accompanying notes to the financial statements.


11


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued        
  6,500     BMC Software, Inc. *      199,030    
  800     Ceradyne, Inc. *      57,824    
  800     Ceridian Corp. *      27,400    
  900     Citrix Systems, Inc. *      32,715    
  700     CommScope, Inc. *      39,620    
  700     Computer Programs & Systems, Inc.     18,599    
  7,300     Compuware Corp. *      59,203    
  900     Comtech Telecommunications Corp. *      38,304    
  1,200     Deluxe Corp.     45,624    
  2,900     Distributed Energy Systems Corp. *      2,842    
  300     Encore Wire Corp. (a)      7,800    
  3,900     Energizer Holdings, Inc. *      413,127    
  300     First Solar, Inc. *      31,122    
  2,900     FLIR Systems, Inc. * (a)      142,796    
  1,400     Foundry Networks, Inc. *      25,886    
  400     General Cable Corp. *      23,272    
  1,900     GrafTech International Ltd *      31,901    
  600     i2 Technologies, Inc. * (a)      9,528    
  900     II-VI, Inc. *      28,080    
  3,900     Ingram Micro, Inc.-Class A *      76,596    
  1,250     Innovative Solutions & Support, Inc. * (a)      22,575    
  2,000     Kopin Corp. *      7,340    
  300     Lexmark International, Inc. *      11,178    
  500     Littelfuse, Inc. *      16,700    
  900     Macrovision Corp. *      21,357    
  1,300     Manhattan Associates, Inc. *      37,544    
  8,600     McAfee, Inc. *      307,450    
  2,300     Mentor Graphics Corp. *      32,108    
  500     Mettler-Toledo International, Inc. *      47,155    
  200     Micros Systems, Inc. *      12,068    
  800     Molex, Inc.     20,920    
  2,100     Multi-Fineline Electronix, Inc. *      26,649    
  1,800     Neoware, Inc. *      28,872    
  700     Netgear, Inc. *      19,642    

 

See accompanying notes to the financial statements.


12


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued        
  3,100     Novellus System, Inc. * (a)      84,847    
  1,900     ON Semiconductor Corp. * (a)      22,268    
  2,000     Parametric Technology Corp. *      35,220    
  5,100     Polycom, Inc. *      154,581    
  1,100     Rogers Corp. *      45,309    
  500     SAVVIS, Inc. *      19,865    
  800     ScanSource, Inc. *      22,160    
  6,100     Skyworks Solutions, Inc. *      48,129    
  700     SonicWALL, Inc. *      6,006    
  6,200     Sonus Networks, Inc. * (a)      35,836    
  300     STEC, Inc. *      2,259    
  300     Sunpower Corp.-Class A * (a)      20,499    
  100     Superior Essex, Inc. *      3,530    
  1,900     Sybase, Inc. *      43,795    
  700     Synaptics, Inc. *      30,310    
  300     Synchronoss Technologies, Inc. * (a)      10,422    
  3,400     Synopsys, Inc. *      92,888    
  2,400     Syntel, Inc.     82,968    
  800     Take-Two Interactive Software, Inc. * (a)      12,784    
  1,200     Teledyne Technologies, Inc. *      59,892    
  300     Tessera Technologies, Inc. *      10,989    
  2,000     Total System Services, Inc. (a)      55,480    
  2,400     Travelzoo, Inc. * (a)      46,248    
  2,500     Trimble Navigation Ltd. *      88,275    
  1,400     TTM Technologies, Inc. *      16,352    
  100     United Industrial Corp.     6,913    
  400     United Stationers, Inc. *      23,608    
  1,400     Utstarcom, Inc. * (a)      4,256    
  1,100     Valueclick, Inc. *      22,044    
  4,050     Varian Semiconductor Equipment Associates, Inc. *      225,302    
  100     Varian, Inc. *      6,002    
  4,800     Waters Corp. *      295,536    
  2,100     Western Digital Corp. *      49,056    
  200     Woodward Governor Co.     11,746    
    Total Technology     4,328,265    

 

See accompanying notes to the financial statements.


13


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Transportation — 1.6%        
  1,000     Arkansas Best Corp.     35,900    
  1,500     Celadon Group, Inc. *      23,400    
  2,700     Continental Airlines, Inc.-Class B * (a)      89,802    
  600     Forward Air Corp.     21,024    
  700     Horizon Lines, Inc.-Class A     19,747    
  600     JB Hunt Transport Services, Inc.     17,262    
  600     Old Dominion Freight Line, Inc. *      17,280    
  700     Overseas Shipholding Group, Inc.     49,980    
  400     Saia, Inc. *      7,516    
  1,500     UAL Corp. * (a)      71,205    
  500     YRC Worldwide, Inc. * (a)      15,405    
    Total Transportation     368,521    
        Utility — 1.3%        
  2,100     Centerpoint Energy, Inc.     34,062    
  1,400     Energen Corp.     75,180    
  500     Equitable Resources, Inc.     24,595    
  800     Golden Telecom, Inc.     54,888    
  800     j2 Global Communications, Inc. *      27,200    
  1,300     Telephone & Data Systems, Inc.     84,175    
  500     UGI Corp.     12,775    
    Total Utility     312,875    
    TOTAL COMMON STOCKS (COST $21,827,735)     22,605,581    
        SHORT-TERM INVESTMENTS — 19.9%        
        Money Market Funds — 1.8%        
  102,952     Barclays Global Investors Institutional Money Market Fund (b)      102,952    
  308,857     Reserve Primary Money Market Fund (b)      308,857    
    Total Money Market Funds     411,809    

 

See accompanying notes to the financial statements.


14


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — 18.1%        
  102,952     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      102,952    
  761,431     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $761,791 and an effective yield of 4.25%,
collateralized by a U.S. Treasury Bond with a rate of 8.13%, maturity
date of 08/15/19 and market value, including accrued interest, of $778,916.		     761,431    
  1,029,526     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $1,030,148 and an
effective yield of 5.45%, collateralized by various corporate debt obligations
with an interest rate range of 0.00% - 9.12%, maturity date range of
04/01/09 - 05/29/37, and an aggregate market value of $1,108,315. (b) 		     1,029,526    
  180,167     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $180,276 and an effective yield of
5.44%, collateralized by a corporate debt obligation with a rate of 5.38%,
maturity date of 07/22/15, and a market value of $183,790. (b) 		     180,167    
  1,029,525     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,030,138 and an effective yield of
5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%, maturity
date of 11/30/11, and a market value of $1,050,127. (b) 		     1,029,525    
  1,029,525     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,030,148 and an effective yield of
5.45%, collateralized by various corporate debt obligations with an interest
rate range of 0.00% - 8.50%, maturity date range of 11/16/07 - 06/15/37,
and an aggregate market value of $1,054,607. (b) 		     1,029,525    
  101,580     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (b) 		     101,580    
    Total Other Short-Term Investments     4,234,706    
    TOTAL SHORT-TERM INVESTMENTS (COST $4,646,515)     4,646,515    
    TOTAL INVESTMENTS — 116.9%
(Cost $26,474,250)		     27,252,096    
        Other Assets and Liabilities (net) — (16.9%)     (3,938,486 )  
    TOTAL NET ASSETS — 100.0%   $ 23,313,610    

 

See accompanying notes to the financial statements.


15


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
  2     Russell Mini   September 2007   $ 158,960     $ (4,459 )  
  3     S&P 400 Mini   September 2007     259,559       (4,259 )  
                $ (8,718 )  

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


16



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $3,831,652 (cost $22,444,076) (Note 2)   $ 23,221,922    
Investments in repurchase agreements, at value (cost $4,030,174) (Note 2)     4,030,174    
Cash     2,022    
Dividends and interest receivable     9,150    
Receivable for collateral on open futures contracts (Note 2)     16,400    
Receivable for variation margin on open futures contracts (Note 2)     5,821    
Receivable for expenses reimbursed by Manager (Note 3)     4,557    
Total assets     27,290,046    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     3,885,084    
Payable for Fund shares repurchased     20,000    
Payable to affiliate for (Note 3):  
Management fee     5,982    
Shareholder service fee     2,894    
Trustees and Chief Compliance Officer of GMO Trust fees     79    
Accrued expenses     62,397    
Total liabilities     3,976,436    
Net assets   $ 23,313,610    
Net assets consist of:  
Paid-in capital   $ 21,050,607    
Accumulated undistributed net investment income     9,206    
Accumulated net realized gain     1,484,669    
Net unrealized appreciation     769,128    
    $ 23,313,610    
Net assets attributable to:  
Class III shares   $ 23,313,610    
Shares outstanding:  
Class III     1,255,867    
Net asset value per share:  
Class III   $ 18.56    

 

See accompanying notes to the financial statements.


17


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 68,394    
Interest     14,957    
Securities lending income     11,242    
Total investment income     94,593    
Expenses:  
Management fee (Note 3)     38,804    
Shareholder service fee – Class III (Note 3)     18,776    
Custodian, fund accounting agent and transfer agent fees     24,104    
Audit and tax fees     26,036    
Legal fees     276    
Trustees fees and related expenses (Note 3)     109    
Registration fees     552    
Miscellaneous     184    
Total expenses     108,841    
Fees and expenses reimbursed by Manager (Note 3)     (51,060 )  
Net expenses     57,781    
Net investment income (loss)     36,812    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,574,446    
Closed futures contracts     (16,040 )  
Net realized gain (loss)     1,558,406    
Change in net unrealized appreciation (depreciation) on:  
Investments     (1,193,941 )  
Open futures contracts     (8,869 )  
Net unrealized gain (loss)     (1,202,810 )  
Net realized and unrealized gain (loss)     355,596    
Net increase (decrease) in net assets resulting from operations   $ 392,408    

 

See accompanying notes to the financial statements.


18


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 36,812     $ 102,256    
Net realized gain (loss)     1,558,406       2,917,966    
Change in net unrealized appreciation (depreciation)     (1,202,810 )     (2,052,599 )  
Net increase (decrease) in net assets from operations     392,408       967,623    
Distributions to shareholders from:  
Net investment income  
Class III     (27,606 )     (120,249 )  
Net realized gains  
Class III     (789,542 )     (2,054,581 )  
      (817,148 )     (2,174,830 )  
Net share transactions (Note 7):  
Class III     (1,587,806 )     (3,319,666 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     12,026       37,463    
Total increase (decrease) in net assets resulting from net
share transactions, purchase premiums and redemption fees		     (1,575,780 )     (3,282,203 )  
Total increase (decrease) in net assets     (2,000,520 )     (4,489,410 )  
Net assets:  
Beginning of period     25,314,130       29,803,540    
End of period (including accumulated undistributed net
investment income of $9,206 and $0, respectively)		   $ 23,313,610     $ 25,314,130    

 

See accompanying notes to the financial statements.


19



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 18.93     $ 19.67     $ 21.96     $ 21.78     $ 13.52     $ 16.48    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.03       0.07       0.06       0.03       — (a)      (0.01 )  
Net realized and unrealized
gain (loss)		     0.26       0.79       2.93       1.96       8.28       (2.95 )  
Total from investment operations     0.29       0.86       2.99       1.99       8.28       (2.96 )  
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.09 )     (0.07 )     (0.01 )     (0.02 )     —    
From net realized gains     (0.64 )     (1.51 )     (5.21 )     (1.80 )     —       —    
Total distributions     (0.66 )     (1.60 )     (5.28 )     (1.81 )     (0.02 )     —    
Net asset value, end of period   $ 18.56     $ 18.93     $ 19.67     $ 21.96     $ 21.78     $ 13.52    
Total Return(b)      1.32 %**      4.86 %     14.63 %     10.50 %     61.22 %     (17.96 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 23,314     $ 25,314     $ 29,804     $ 38,801     $ 41,662     $ 17,669    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.48 %     0.48 %     0.48 %     0.49 %  
Net investment income to average
daily net assets		     0.29 %*      0.38 %     0.30 %     0.16 %     0.02 %     (0.06 )%  
Portfolio turnover rate     49 %**      109 %     87 %     110 %     97 %     116 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.41 %*      0.60 %     0.35 %     0.26 %     0.24 %     0.37 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.01     $ 0.03     $ 0.08     $ 0.04     $ 0.06     $ 0.03    

 

(a)  Net investment income was less than $0.01 per share.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholders.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. Small/Mid 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks long-term capital growth. The Fund seeks to achieve its objective by outperforming the Russell 2500 Growth Index. The Fund typically makes equity investments in companies that issue stocks included in the Russell 2500 Index, and companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is


21


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established eac h day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there


22


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $3,831,652 collateralized by cash in the amount of $3,885,084 which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


23


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 26,527,933     $ 2,493,232     $ (1,769,069 )   $ 724,163    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.50% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in the amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period


24


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

ended August 31, 2007 and the year ended February 28, 2007, the Fund received $40 and $5,252 in purchase premiums and $11,986 and $32,211 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.31% of the Fund's 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 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expense (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the


25


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.31% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $109 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $11,809,178 and $14,093,076, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 60.79% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is another fund of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 69.70% of the Fund's shares were held by accounts for which the Manager has investment discretion.


26


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     436     $ 8,083       58,808     $ 1,047,837    
Shares issued to shareholders
in reinvestment of distributions		     40,237       801,368       115,018       2,091,121    
Shares repurchased     (121,881 )     (2,397,257 )     (351,770 )     (6,458,624 )  
Purchase premiums and
redemption fees		     —       12,026       —       37,463    
Net increase (decrease)     (81,208 )   $ (1,575,780 )     (177,944 )   $ (3,282,203 )  

 


27



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


28


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among


29


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


30


GMO U.S Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,013.20     $ 2.33    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


31



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.0 %  
Short-Term Investments     7.1    
Preferred Stocks     0.6    
Other     (1.7 )  
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     20.7 %  
Germany     13.9    
Japan     11.9    
France     6.1    
Italy     5.9    
Switzerland     5.0    
Canada     4.5    
Finland     4.5    
Brazil     3.2    
South Korea     3.1    
Spain     2.7    
Taiwan     2.6    
Australia     2.5    
Norway     2.1    
Ireland     1.8    
Hong Kong     1.6    
Netherlands     1.2    
Singapore     1.1    
Belgium     0.9    
China     0.7    
Austria     0.7    
India     0.6    
Mexico     0.5    
Sweden     0.5    
Philippines     0.5    
Malaysia     0.5    
Thailand     0.3    
Egypt     0.2    
Greece     0.1    
New Zealand     0.1    
      100.0 %  

 


1


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Consumer Discretionary     23.6 %  
Industrials     21.4    
Financials     20.6    
Consumer Staples     8.2    
Materials     7.5    
Information Technology     6.9    
Energy     5.6    
Utilities     3.1    
Health Care     2.1    
Telecommunication Services     1.0    
      100.0 %  

 


2



GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 94.0%  
        Australia — 2.4%  
    1,161,674     Commander Communications Ltd (a)      647,381    
    421,897     Consolidated Rutile Ltd     207,285    
    915,663     Funtastic Ltd     1,122,338    
    1,728,322     Futuris Corp Ltd     3,458,280    
    671,851     Gunns Ltd     1,787,703    
    500,000     Macquarie Communications Group     2,365,402    
    500,000     Marquarie Airports     1,778,942    
    807,869     McGuigan Simeon Wines Ltd *      1,227,056    
    350,000     Metcash Ltd     1,361,733    
    286,000     Multiplex Group     1,169,213    
    723,965     Pacific Brands Ltd     1,997,653    
    850,000     PaperlinX Ltd     2,351,198    
    438,800     PMP Ltd *      561,329    
    514,716     Santos Ltd     5,606,252    
    1,500,000     SP AusNet (a)      1,636,368    
    Total Australia     27,278,133    
        Austria — 0.7%  
    11,900     Agrana Beteiligungs AG     1,213,315    
    15,400     EVN AG     1,812,602    
    20,677     Flughafen Wien AG     2,069,749    
    35,000     Wienerberger AG     2,498,614    
    Total Austria     7,594,280    
        Belgium — 0.8%  
    102,000     AGFA-Gevaert NV     2,132,097    
    33,278     Bekaert NV     4,384,495    
    26,964     Omega Pharma SA     2,376,251    
    5,006     Unibra SA     769,286    
    Total Belgium     9,662,129    

 

See accompanying notes to the financial statements.


3


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Brazil — 3.0%  
    682,300     Banco Sofisa SA *      5,042,482    
      165,000     Bematech Industria E Comercio *      1,195,872    
      750,000     Cia Hering *      3,669,725    
    330,000     Fertilizantes Heringer *      4,019,878    
    758,500     Industrias Romi SA     7,152,013    
    586,000     JHSF Participacoes SA *      2,867,278    
    300,000     Porto Seguro SA     10,168,196    
    63,000     Terna Participacoes SA     994,771    
    Total Brazil     35,110,215    
        Canada — 4.3%  
    2,281,300     Bayou Bend Petroleum Ltd *      2,527,577    
    2,752,300     Breakwater Resources Ltd *      7,219,575    
    299,300     CHC Helicopter Corp Class A     7,227,415    
    90,600     KAP Resources Ltd * (b) (c)      858    
    333,500     Linamar Corp     8,103,797    
    1,086,800     Pearl Exploration and Production Ltd *      3,807,917    
    271,400     Quebecor World Inc *      2,421,011    
    316,200     RONA Inc *      6,440,778    
    901,400     SXR Uranium One Inc *      9,799,311    
    949,300     Western Canadian Coal Corp *      1,806,906    
    Total Canada     49,355,145    
        China — 0.7%  
    2,372,000     Anhui Expressway Co Ltd     2,010,754    
    5,000,000     Franshion Properties China Ltd *      1,859,535    
    5,017,000     New World Department Store China *      3,918,300    
    Total China     7,788,589    
        Egypt — 0.1%  
    31,578     Lecico Egypt SAE GDR *      394,725    
    100,000     Lecico Egypt SAE GDR 144A *      1,250,000    
    Total Egypt     1,644,725    

 

See accompanying notes to the financial statements.


4


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Finland — 4.2%  
    243,000     Hk-Ruokatalo Oyj Class A     5,897,970    
    382,200     Marimekko Oyj     7,768,544    
    511,979     Nokian Renkaat Oyj (a)      18,065,179    
    224,200     Poyry Oyj     5,063,224    
    184,400     Ramirent Oyj     4,389,399    
    157,600     SRV Group Plc *      1,743,288    
    157,800     Uponor Oyj     6,060,389    
    Total Finland     48,987,993    
        France — 5.7%  
    142,100     Boursorama * (a)      1,929,873    
    3,700     Casino Guichard-Perrachon SA     376,824    
    51,420     Clarins (a)      4,079,930    
    7,250     Damart SA     2,222,472    
    6,450     Damartex SA     210,962    
    77,200     Essilor International SA     4,675,983    
    43,962     Eurazeo     5,824,986    
    6,300     Gaumont SA (a)      524,776    
    9,000     Guyenne et Gascogne SA     1,551,516    
    17,700     Klepierre     2,774,808    
    48,200     Lisi (a)      5,611,296    
    75,000     M6-Metropole Television     2,258,461    
    53,500     Michelin SA Class B     6,715,016    
    94,070     Natixis     1,993,696    
    51,900     Peugeot SA     4,402,622    
    45,000     Publicis Groupe     1,945,395    
    1,351     SAGA     170,219    
    20,350     Seb SA     3,571,007    
    12,881     Sequana Capital     424,785    
    23,271     Sperian Protection (a)      3,184,944    
    21,000     Thales SA     1,188,010    
    45,472     Virbac SA     3,866,609    
    87,141     Zodiac SA     6,289,437    
    Total France     65,793,627    

 

See accompanying notes to the financial statements.


5


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — 12.6%  
    116,080     Aareal Bank AG     5,563,013    
    170,464     Adidas AG     10,042,329    
    94,828     AWD Holding AG     3,213,985    
    15,200     Axel Springer AG     2,610,242    
    55,800     Beiresdorf AG (Bearer)     3,757,335    
    226,955     Cat Oil AG * (a)      6,484,984    
    113,700     Commerzbank AG     4,674,515    
    15,900     Continental AG     2,076,102    
    50,000     Demag Cranes AG     2,339,528    
    74,500     Depfa Bank Plc     1,412,708    
    98,000     DIC Asset AG     3,240,858    
    162,216     Eurocastle Investment (a)      5,682,137    
    200,000     Francotyp-Postalia Holdings AG *      2,907,968    
    150,000     Freenet AG     3,516,894    
    127,500     Gagfah SA (a)      2,540,362    
    80,000     Gerresheimer AG *      4,217,526    
    79,367     Grenkeleasing AG (a)      3,061,893    
    60,000     Hannover Rueckversicherungs AG (Registered)     2,787,163    
    87,220     Heidelberger Druckmaschinen     3,945,623    
    60,300     Hypo Real Estate Holding AG     3,318,604    
    45,000     IVG Immobilien AG     1,602,415    
    73,500     Kuka AG * (a)      2,988,702    
    75,090     Leonische Drahtwerke AG     3,937,419    
    76,620     Medion AG *      1,454,610    
    99,000     Metro AG     8,533,157    
    129,780     MTU Aero Engines Holding     8,254,491    
    65,146     Nemetschek AG     2,343,661    
    368,600     Patrizia Immobilien AG (a)      5,732,112    
    195,684     Praktiker Bau-Und Heim     8,252,704    
    60,000     Premiere AG * (a)      1,317,993    
    9,788     Puma AG Rudolf Dassler Sport (a)      3,940,385    
    68,300     SGL Carbon AG *      3,297,797    
    375,000     Symrise AG *      9,813,257    
    41,800     Tognum AG *      1,252,156    

 

See accompanying notes to the financial statements.


6


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    65,915     Versatel AG *      1,148,449    
    100,000     Wacker Construction Equipment AG *      3,024,195    
    10,000     Wacker-Chemie AG     2,186,906    
    Total Germany     146,474,178    
        Greece — 0.1%  
    29,718     Folli-Follie Abee     1,208,788    
        Hong Kong — 1.6%  
    674,582     Chinese Estates Holdings Ltd     989,685    
    3,541,690     Hong Kong & Shanghai Hotels     5,547,504    
    2,575,000     Industrial & Commercial Bank of China     6,172,583    
    527,900     Wing Lung Bank     5,275,940    
    Total Hong Kong     17,985,712    
        India — 0.6%  
    905,785     Sakthi Sugars Ltd     1,663,331    
    900,000     Welspun Gujarat Stahl Ltd     5,446,276    
    Total India     7,109,607    
        Ireland — 1.7%  
    196,346     Anglo Irish Bank Corp     3,664,852    
    507,600     Blackrock International *      303,006    
    66,590     CRH Plc     2,878,725    
    55,000     FBD Holdings Plc     1,907,843    
    46,000     Grafton Group Plc *      614,096    
    379,440     IFG Group Plc     1,006,803    
    124,000     Irish Continental Group Plc *      4,216,843    
    209,500     Irish Life & Permanent Plc     5,196,349    
    Total Ireland     19,788,517    
        Italy — 5.6%  
    355,000     Arnoldo Mondadori Editore SPA (a)      3,348,148    
    187,500     Banche Popolari Unite Scrl     4,801,395    
    107,000     Banco Popolare Scarl (a)      2,676,167    

 

See accompanying notes to the financial statements.


7


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    157,000     Brembo SPA (a)      2,170,407    
    179,200     Buzzi Unicem SPA     5,155,835    
    436,100     Campari     4,752,677    
    232,700     Finmeccanica SPA     6,838,546    
    307,716     Grouppo Editoriale L'Espresso (a)      1,586,997    
    1,228,700     IFIL SPA     12,020,203    
    300,300     Indesit Company SPA     6,224,413    
    621,425     Intesa San Paolo     4,696,329    
    100,000     Italcementi SPA (a)      2,479,690    
    100,000     Mediobanca SPA (a)      2,157,872    
    30,000     Pagnossin SPA * (c)      409    
    600,000     Snam Rete Gas SPA (a)      3,539,616    
    909,364     Telecom Italia SPA-Di RISP     2,041,883    
    Total Italy     64,490,587    
        Japan — 11.2%  
    352,000     Akebono Brake Industry Co     2,157,920    
    240,000     Asahi Soft Drinks Co Ltd (a)      3,452,542    
    500,000     Asics Corp     6,466,075    
    600,000     Capcom (a)      12,877,724    
    180,000     Daimaru Inc (The)     1,958,718    
    200,000     Daito Trust Construction Co Ltd     9,426,044    
    90,000     Densei-Lambda KK (a)      1,007,801    
    120,000     Diamond Lease Co Ltd     4,734,393    
    360,000     Hitachi High Technologies Corp     8,420,571    
    600     Japan Retail Fund Investment Corp     4,902,829    
    500,000     Kaneka Corp     4,049,535    
    350,000     Katokichi Co Ltd     1,642,941    
    160,000     Keihin Corp     2,995,718    
    420,000     Keiyo Bank Ltd (The)     2,390,125    
    90,000     Micronics Japan Co Ltd     2,719,181    
    550,000     Nabtesco Corp     7,619,567    
    600,000     NHK Spring Co Ltd     5,375,876    
    130,000     Ohara Inc     2,261,585    
    450,000     Sanwa Shutter Corp     2,627,765    

 

See accompanying notes to the financial statements.


8


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    625,000     Shimadzu Corp     6,441,613    
    1,600,000     Showa Denko     5,826,577    
    130,000     Sumitomo Rubber Industries     1,438,167    
    20,100     Tachihi Enterprise Co Ltd     1,207,448    
    1,506,000     Tokyu Land Corp     13,870,291    
    325,000     Toyo Suisan Kaisha Ltd     5,689,004    
    1,254     USJ Co Ltd * (a)      776,498    
    300,000     Yamaha Motor Co Ltd     7,894,354    
    Total Japan     130,230,862    
        Malaysia — 0.4%  
    3,000,000     E&O Property Development *      3,255,062    
    480,900     Eastern & Oriental Berhad     415,169    
    700,000     IJM Corp Berhad     1,472,089    
    Total Malaysia     5,142,320    
        Mexico — 0.5%  
    1,000,000     Controladora Comercial Mexicana SA de CV     2,782,561    
    1,700,000     Sare Holding SA de CV *      2,850,539    
    Total Mexico     5,633,100    
        Netherlands — 1.2%  
    136,097     Corporate Express (a)      1,525,419    
    96,300     Fortis NV     3,529,642    
    463,139     Hagemeyer NV     1,965,540    
    43,700     Imtech NV     3,851,439    
    170,000     Koninklijke Wessanen NV     2,569,223    
    Total Netherlands     13,441,263    
        New Zealand — 0.1%  
    485,400     Air New Zealand     704,077    
        Norway — 2.0%  
    1,442,334     Ability Drilling ASA *      8,164,085    

 

See accompanying notes to the financial statements.


9


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Norway — continued  
    345,600     Block Watne Gruppen ASA (a)      2,371,750    
    299,890     Ekornes ASA     6,079,377    
    397,385     Prosafe ASA     5,984,219    
    Total Norway     22,599,431    
        Philippines — 0.5%  
    17,000,000     Aboitiz Power Corp *      1,972,497    
    5,100,000     Alliance Global Group Inc *      618,016    
    37,838,000     Filinvest Land Inc *      1,287,094    
    1,147,500     First Gen Corp *      1,589,736    
    Total Philippines     5,467,343    
        Singapore — 1.0%  
    17,296,000     Anwell Technologies Ltd *      1,133,513    
    575,000     Banyan Tree Holdings Inc     758,041    
    1,750,000     First Ship Lease Trust     1,522,500    
    6,278,000     Huan Hsin Holdings Ltd     2,183,616    
    2,962,000     LMA International NV *      1,067,552    
    1,097,000     People's Food Holdings Ltd     961,957    
    2,000,000     Petra Foods Ltd     1,994,817    
    1,585,937     Unisteel Technology Ltd     2,061,453    
    Total Singapore     11,683,449    
        South Korea — 2.9%  
    38,980     Asia Cement Co Ltd     3,321,200    
    40,000     Cheil Industries Inc     2,189,438    
    378,290     Handsome Corp     5,701,108    
    144,000     Kooksoondang Co Ltd     1,019,297    
    81,100     Korea Electric Terminal Co     2,156,185    
    320,963     Kortek Corp     3,153,924    
    177,750     Kumho Tire Co Inc     3,007,518    
    61,000     Pulmuone Co Ltd     2,916,250    
    134,800     Pusan Bank     2,511,966    
    49,800     Samsung SDI Co Ltd     3,273,497    

 

See accompanying notes to the financial statements.


10


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    43,900     Samsung SDI Co Ltd GDR 144A (c)      721,685    
    40,000     Samsung Techwin Co Ltd     2,887,429    
    25,000     Samwhan Corp     885,877    
    Total South Korea     33,745,374    
        Spain — 2.6%  
    32,000     ACS Actividades de Construccion y Servicios SA     1,761,234    
    63,690     Aguas de Barcelona SA Class A     2,318,090    
    14,400     Altadis SA     955,982    
    53,245     Bankinter SA     818,716    
    38,296     Cia de Distribucion Integral Logista SA     2,765,339    
    65,000     Corp Dermoestetica *      775,284    
    30,000     Fomento de Construcciones y Contratas SA     2,617,404    
    15,597     Gas Natural SDG SA     831,538    
    35,000     Generale de Alquiler *      1,262,776    
    109,000     Mapfre SA     481,270    
    30,000     Red Electrica de Espana     1,351,186    
    30,000     Sogecable SA *      1,137,473    
    100,000     Tecnicas Reunidas SA     6,540,789    
    43,864     Union Fenosa SA     2,400,445    
    428,157     Uralita SA     3,845,296    
    Total Spain     29,862,822    
        Sweden — 0.5%  
    123,900     Lindab International AB     3,428,024    
    136,200     Tanganyika Oil Co SDR * (a)      2,171,079    
    Total Sweden     5,599,103    
        Switzerland — 4.7%  
    2,131     Bank Sarasin & Cie AG Class B (Registered)     8,655,569    
    14,450     Bobst Group AG (Registered)     998,294    
    86,286     Charles Voegele Holding AG *      8,058,537    
    700     Eichhof Holding AG     1,216,259    
    2,389     Forbo Holdings AG (Registered) *      1,388,403    

 

See accompanying notes to the financial statements.


11


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued  
    18,940     Geberit AG (Registered)     2,796,474    
    17,510     Helvetia Patria Holding (Registered)     6,147,316    
    1,000     Jelmoli Holding AG (Bearer)     2,974,128    
    3,250     Jelmoli Holding AG (Registered)     1,967,325    
    200,309     Kardex AG *      9,783,460    
    552     SGS SA (Registered)     661,563    
    18,700     Swatch Group AG     5,617,117    
    17,908     Valiant Holding (Registered) *      2,609,552    
    9,350     Valora Holding AG     1,782,908    
    Total Switzerland     54,656,905    
        Taiwan — 2.4%  
    160,000     104 Corp     663,578    
    4,319,000     Arima Computer Corp *      1,054,412    
    2,975,500     Benq Corp *      1,395,293    
    203,000     Catcher Technology Co     1,623,303    
    3,128,000     China Life Insurance Co Ltd *      1,758,799    
    2,040,150     China Motor Corp Ltd     1,809,205    
    1,000,000     Continental Engineering Corp     579,552    
    427,380     E.Sun Financial Holdings Co Ltd *      225,631    
    826,000     Fubon Financial Holding Co Ltd     712,177    
    29,000     Fubon Financial Holding Co Ltd GDR (Registered)     247,080    
    4,416,000     Gold Circuit Electronics Ltd     4,001,592    
    418,000     Kinsus Interconnect Technology Corp     1,442,396    
    102,000     Largan Precision Co Ltd     828,363    
    1,507,434     Phoenix Precision Technology Corp     1,745,869    
    1,641,000     Phoenixtec Power Co Ltd     1,586,255    
    1,100,875     Sunplus Technology Co Ltd     1,962,483    
    2,417,940     Tsann Kuen Enterprises Co Ltd *      3,241,373    
    3,400,000     Yuanta Financial Holding Co Ltd *      1,938,907    
    1,319,356     Yulon Motor Co Ltd     1,442,716    
    Total Taiwan     28,258,984    

 

See accompanying notes to the financial statements.


12


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Thailand — 0.3%  
    13,500,000     Asian Property Development Pcl (Foreign Registered) (c)      2,276,743    
    9,000,000     Home Product Center Pcl (Foreign Registered) (c)      1,310,679    
    Total Thailand     3,587,422    
        United Kingdom — 19.6%  
    145,000     Alliance & Leicester Plc     3,087,984    
    582,342     Balfour Beatty Plc     5,594,341    
    357,000     BBA Aviation Plc     1,742,423    
    303,633     Biffa Plc     1,548,438    
    687,250     Bodycote International Plc     3,693,220    
    533,333     Brit Insurance Holdings Plc     3,812,269    
    438,800     British Airways Plc *      3,768,067    
    125,000     British Energy Group Plc     1,172,601    
    514,100     Carphone Warehouse Group Plc (a)      3,557,246    
    573,403     Cattle's Plc     4,234,766    
    500,000     Centrica Plc     3,896,907    
    144,888     Chemring Group     5,877,314    
    550,000     Cobham Plc     2,235,174    
    742,000     Compass Group Plc     4,876,250    
    106,951     Computacenter Plc     388,928    
    200,000     Davis Service Group (Ordinary)     2,387,966    
    1,500,000     Dawnay Day Treveria Plc     2,121,432    
    37,333     De La Rue Plc     562,053    
    3,300,000     Dimension Data Holdings Plc     3,744,660    
    106,250     Fiberweb Plc     284,257    
    95,200     Filtrona Plc     460,769    
    696,493     FKI Plc     1,488,422    
    307,600     Fyffes Plc (a)      339,125    
    353,000     Galliford Try Plc     1,041,697    
    50,000     Go-Ahead Group Plc     2,777,122    
    615,000     Group 4 Securicor Plc     2,469,076    
    171,747     Hays Plc     553,121    
    386,049     ICAP Plc     3,815,265    
    600,000     Inmarsat Plc     4,942,676    

 

See accompanying notes to the financial statements.


13


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    115,000     International Personal Finance *      451,564    
    300,000     ISOFT Group Plc *      415,247    
    175,000     ITV Plc     388,305    
    425,000     JJB Sports Plc     1,804,302    
    115,000     Johnson Matthey Plc     3,732,345    
    104,929     Kazakhmys Plc     2,696,752    
    257,692     Kelda Group Plc     4,542,666    
    360,000     Kesa Electricals Plc     2,253,764    
    192,587     Kier Group Plc     7,488,900    
    166,000     Lamprell Plc     1,291,798    
    146,000     Misys Plc     682,179    
    252,652     Mitie Group Plc     1,326,146    
    407,142     N Brown Group     2,310,259    
    100,000     Next Plc     3,908,622    
    250,300     Northern Rock Plc     3,725,757    
    1,100,000     Northgate Info Solutions Plc     1,614,169    
    497,357     Pennon Group     6,058,092    
    146,076     Petrofac Ltd     1,369,015    
    241,614     Photo-Me International Plc     316,066    
    305,555     Playtech Ltd     2,205,611    
    850,000     Premier Foods Plc     4,146,912    
    57,500     Provident Financial Plc     1,012,768    
    50,000     Punch Taverns Plc     1,111,911    
    600,000     Qinetiq Plc     2,162,791    
    556,254     Resolution Plc     6,948,097    
    375,736     Rexam Plc     3,972,889    
    750,000     RM Plc     2,921,697    
    1,071,893     Royal & Sun Alliance Insurance Group     3,065,452    
    1,000,000     Sage Group Plc     4,778,714    
    398,769     Segro Plc     4,411,566    
    366,056     Serco Group Plc     3,128,195    
    275,000     Shire Plc     7,204,878    
    755,160     Smith (David S.) Holdings Plc     3,465,570    
    165,600     Smith News Plc     489,885    

 

See accompanying notes to the financial statements.


14


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    100,000     Smurfit Kappa Plc *      2,199,789    
    100,000     Soco International Plc * (a)      4,030,585    
    55,000     Spice Plc     667,026    
    58,600     Tate & Lyle Plc     669,013    
    400,300     Tomkins Plc     1,931,160    
    700,000     Torex Retail Plc * (c)      14,114    
    307,600     Total Produce Plc *      280,454    
    62,181     Travis Perkins Plc     2,244,768    
    220,000     Trinity Mirror Plc     2,088,262    
    1,080,000     TT Group Plc     3,810,059    
    155,700     Ultra Electronics Holdings     3,699,761    
    16,179     Venture Production (Ordinary Shares) *      243,681    
    245,600     WH Smith Plc     2,040,435    
    270,366     William Hill Plc     3,364,732    
    1,036,882     William Morrison Supermarkets Plc     6,009,259    
    137,800     Wolseley Plc     2,895,807    
    850,000     Wood Group (John) Plc     6,207,086    
    140,588     Xstrata Plc     8,271,606    
    275,000     Yell Group Plc     2,508,805    
    Total United Kingdom     227,052,855    
    TOTAL COMMON STOCKS (COST $720,707,943)     1,087,937,535    
        PREFERRED STOCKS — 0.6%  
        France — 0.1%  
    6,800     Casino Guichard-Perrachon SA 3.01% (a)      669,659    
        Germany — 0.5%  
    64,500     Henkel KGaA 1.33%     3,338,268    
    17,500     Volkswagen AG 1.39%     2,176,685    
    Total Germany     5,514,953    
        Italy — 0.0%  
    10,000     IFI Istituto Finanziario Industries *      347,408    

 

See accompanying notes to the financial statements.


15


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        South Korea — 0.0%  
    5,600     Samsung SDI Co Ltd 1.75%     222,416    
    TOTAL PREFERRED STOCKS (COST $3,430,040)     6,754,436    
        SHORT-TERM INVESTMENTS — 7.1%  
    63,131,544     Bank of New York Institutional Cash Reserves Fund (d)      63,131,544    
    19,300,000     ING Bank Time Deposit, 5.32%, due 09/04/07     19,300,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $82,431,544)     82,431,544    
    TOTAL INVESTMENTS — 101.7%
(Cost $806,569,527)		     1,177,123,515    
            Other Assets and Liabilities (net) — (1.7%)     (19,148,604 )  
    TOTAL NET ASSETS — 100.0%   $ 1,157,974,911    

 

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.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

SDR - Swedish Depository Receipt

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Bankrupt issuer.

(c)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(d)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 80.98% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


16



GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $60,078,559
(cost $806,569,527) (Note 2)		   $ 1,177,123,515    
Cash     36,968    
Foreign currency, at value (cost $42,881,294) (Note 2)     42,854,630    
Receivable for investments sold     514,890    
Dividends and interest receivable     1,270,567    
Foreign taxes receivable     282,633    
Receivable for expenses reimbursed by Manager (Note 3)     79,267    
Total assets     1,222,162,470    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     63,131,544    
Payable for Fund shares repurchased     11,596    
Payable to affiliate for (Note 3):  
Management fee     677,438    
Shareholder service fee     111,440    
Trustees and Chief Compliance Officer of GMO Trust fees     2,360    
Accrued expenses     253,181    
Total liabilities     64,187,559    
Net assets   $ 1,157,974,911    
Net assets consist of:  
Paid-in capital   $ 699,481,174    
Accumulated undistributed net investment income     315,619    
Accumulated net realized gain     87,641,489    
Net unrealized appreciation     370,536,629    
    $ 1,157,974,911    
Net assets attributable to:  
Class III shares   $ 349,817,191    
Class IV shares   $ 808,157,720    
Shares outstanding:  
Class III     18,958,624    
Class IV     43,762,219    
Net asset value per share:  
Class III   $ 18.45    
Class IV   $ 18.47    

 

See accompanying notes to the financial statements.


17


GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,784,228)   $ 18,034,350    
Interest     923,556    
Securities lending income     883,559    
Total investment income     19,841,465    
Expenses:  
Management fee (Note 3)     4,188,616    
Shareholder service fee – Class III (Note 3)     311,626    
Shareholder service fee – Class IV (Note 3)     390,623    
Custodian and fund accounting agent fees     374,164    
Transfer agent fees     21,436    
Audit and tax fees     43,332    
Legal fees     13,708    
Trustees fees and related expenses (Note 3)     7,224    
Registration fees     920    
Miscellaneous     9,752    
Total expenses     5,361,401    
Fees and expenses reimbursed by Manager (Note 3)     (448,808 )  
Net expenses     4,912,593    
Net investment income (loss)     14,928,872    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     87,037,786    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $3,475) (Note 2)		     889,048    
Net realized gain (loss)     87,926,834    
Change in net unrealized appreciation (depreciation) on:  
Investments     (24,000,311 )  
Foreign currency, forward contracts and foreign currency related transactions     (358,227 )  
Net unrealized gain (loss)     (24,358,538 )  
Net realized and unrealized gain (loss)     63,568,296    
Net increase (decrease) in net assets resulting from operations   $ 78,497,168    

 

See accompanying notes to the financial statements.


18


GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 14,928,872     $ 15,757,304    
Net realized gain (loss)     87,926,834       188,024,465    
Change in net unrealized appreciation (depreciation)     (24,358,538 )     68,834,451    
Net increase (decrease) in net assets from operations     78,497,168       272,616,220    
Distributions to shareholders from:  
Net investment income  
Class III     (3,084,748 )     (8,607,715 )  
Class IV     (4,463,232 )     (15,899,492 )  
Total distributions from net investment income     (7,547,980 )     (24,507,207 )  
Net realized gains  
Class III     (28,297,846 )     (75,878,065 )  
Class IV     (40,751,397 )     (133,631,353 )  
Total distributions from net realized gains     (69,049,243 )     (209,509,418 )  
      (76,597,223 )     (234,016,625 )  
Net share transactions (Note 7):  
Class III     (21,704,271 )     (3,415,505 )  
Class IV     61,342,766       78,067,756    
Increase (decrease) in net assets resulting from net share transactions     39,638,495       74,652,251    
Total increase (decrease) in net assets     41,538,440       113,251,846    
Net assets:  
Beginning of period     1,116,436,471       1,003,184,625    
End of period (including accumulated undistributed net investment
income of $315,619 and distributions in excess of net
investment income of $7,065,273, respectively)		   $ 1,157,974,911     $ 1,116,436,471    

 

See accompanying notes to the financial statements.


19



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 18.38     $ 17.98     $ 17.19     $ 14.79     $ 9.13     $ 9.59    
Income (loss) from investment operations:  
Net investment income (loss)†      0.24       0.28       0.26       0.26       0.20       0.16    
Net realized and unrealized gain (loss)     1.13       4.51       3.19       3.76       5.77       (0.51 )(a)   
Total from investment operations     1.37       4.79       3.45       4.02       5.97       (0.35 )  
Less distributions to shareholders:  
From net investment income     (0.13 )     (0.44 )     (0.32 )     (0.38 )     (0.31 )     (0.11 )  
From net realized gains     (1.17 )     (3.95 )     (2.34 )     (1.24 )     —       —    
Total distributions     (1.30 )     (4.39 )     (2.66 )     (1.62 )     (0.31 )     (0.11 )  
Net asset value, end of period   $ 18.45     $ 18.38     $ 17.98     $ 17.19     $ 14.79     $ 9.13    
Total Return(b)      6.96 %**      29.94 %     22.32 %     28.40 %     65.76 %     (3.64 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 349,817     $ 375,565     $ 364,551     $ 426,758     $ 480,966     $ 275,739    
Net expenses to average daily net assets     0.85 %*      0.86 %     0.85 %     0.85 %     0.85 %     0.85 %  
Net investment income to average
daily net assets		     2.47 %*      1.53 %     1.52 %     1.71 %     1.71 %     1.59 %  
Portfolio turnover rate     17 %**      37 %     40 %     25 %     31 %     24 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.08 %*      0.09 %     0.09 %     0.09 %     0.11 %     0.15 %  

 

(a)  The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund.

(b)  Total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value, beginning of period   $ 18.39     $ 17.99     $ 17.20     $ 14.80     $ 9.13     $ 10.60    
Income (loss) from investment operations:  
Net investment income (loss)†      0.25       0.28       0.26       0.26       0.21       0.08    
Net realized and unrealized gain (loss)     1.13       4.52       3.20       3.76       5.77       (1.43 )  
Total from investment operations     1.38       4.80       3.46       4.02       5.98       (1.35 )  
Less distributions to shareholders:  
From net investment income     (0.13 )     (0.45 )     (0.33 )     (0.38 )     (0.31 )     (0.12 )  
From net realized gains     (1.17 )     (3.95 )     (2.34 )     (1.24 )     —       —    
Total distributions     (1.30 )     (4.40 )     (2.67 )     (1.62 )     (0.31 )     (0.12 )  
Net asset value, end of period   $ 18.47     $ 18.39     $ 17.99     $ 17.20     $ 14.80     $ 9.13    
Total Return(b)      7.01 %**      30.00 %     22.37 %     28.44 %     65.92 %     (12.76 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 808,158     $ 740,872     $ 638,634     $ 567,048     $ 333,731     $ 202,319    
Net expenses to average daily net assets     0.80 %*      0.81 %     0.80 %     0.81 %     0.80 %     0.80 %*   
Net investment income to average daily
net assets		     2.51 %*      1.54 %     1.55 %     1.69 %     1.78 %     1.13 %*   
Portfolio turnover rate     17 %**      37 %     40 %     25 %     31 %     24 %††   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.08 %*      0.09 %     0.09 %     0.09 %     0.11 %     0.14 %*   

 

(a)  Period from June 14, 2002 (commencement of operations) through February 28, 2003.

(b)  Total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2003.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


21



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Foreign Small Companies Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of its benchmark, the S&P/Citigroup Extended Market Index World ex-U.S. Index. The Fund typically makes equity investments in companies located or doing business outside of the U.S. that are in the smallest 30% of companies in a particular country as measured by total float-adjusted market capitalization. The Fund generally seeks to be fully invested and generally will not take temporary defensive positions, but may hold up to 10% of its total assets in cash and other high quality investments in order to manage cash inflows and outflows as a result of shareholder purchases and redemptions. The Fund may make investments in emerging countries, but these investments (excluding investments in companies from emerging countries included in the Fund's benchmark) generally will represent 10% or less of the Fund's total assets.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different level of shareholder servicing fees.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which


22


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.


23


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to


24


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. There were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their


25


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $60,078,559, collateralized by cash in the amount of $63,131,544, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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, 2007, the Fund incurred no capital gains taxes.


26


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. For the period ended August 31, 2007, the Fund incurred $3,475 in CPMF tax which is included in the net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 821,354,469     $ 392,501,873     $ (36,732,827 )   $ 355,769,046    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.


27


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.70% 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 average daily net assets of each class at the annual rate of 0.15% for Class III shares and 0.10% for Class IV shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and


28


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.70% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $5,568 and $3,588, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $188,219,575 and $224,441,890, respectively.

5.   Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.   Principal shareholders and related parties

As of August 31, 2007, 57.05% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.01% of the Fund's shares were held by five related parties comprised of certain GMO employee accounts.


29


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.   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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     5,051,067     $ 103,400,000       423,166     $ 8,100,000    
Shares issued to shareholders
in reinvestment of distributions		     1,533,771       30,353,315       4,723,975       81,261,068    
Shares repurchased     (8,058,270 )     (155,457,586 )     (4,994,827 )     (92,776,573 )  
Net increase (decrease)     (1,473,432 )   $ (21,704,271 )     152,314     $ (3,415,505 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     6,619,129     $ 126,292,990       —     $ —    
Shares issued to shareholders
in reinvestment of distributions		     2,274,092       45,049,776       8,605,233       148,279,756    
Shares repurchased     (5,412,505 )     (110,000,000 )     (3,829,731 )     (70,212,000 )  
Net increase (decrease)     3,480,716     $ 61,342,766       4,775,502     $ 78,067,756    

 


30



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subjec t. The Trustees


31


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, an d concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


32


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.85 %   $ 1,000.00     $ 1,069.60     $ 4.42    
2) Hypothetical     0.85 %   $ 1,000.00     $ 1,020.86     $ 4.32    
Class IV      
1) Actual     0.80 %   $ 1,000.00     $ 1,070.10     $ 4.16    
2) Hypothetical     0.80 %   $ 1,000.00     $ 1,021.11     $ 4.06    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


33



GMO International Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.6 %  
Short-Term Investments     4.0    
Preferred Stocks     0.7    
Rights and Warrants     0.0    
Foreign Currency Contracts     0.0    
Futures     (0.1 )  
Other     0.8    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     23.9 %  
Japan     22.0    
Germany     12.5    
France     11.2    
Switzerland     4.2    
Australia     4.1    
Netherlands     3.9    
Italy     3.8    
Canada     2.6    
Finland     2.2    
Sweden     2.2    
Spain     2.2    
Singapore     1.5    
Belgium     1.3    
Ireland     0.7    
Hong Kong     0.7    
Norway     0.4    
Greece     0.2    
Austria     0.2    
Portugal     0.2    
      100.0 %  

 


1


GMO International Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     22.7 %  
Consumer Discretionary     13.0    
Industrials     12.5    
Energy     10.4    
Health Care     9.2    
Materials     9.2    
Telecommunication Services     6.7    
Information Technology     6.3    
Consumer Staples     6.0    
Utilities     4.0    
      100.0 %  

 


2



GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 94.6%  
        Australia — 3.9%  
    141     Aristocrat Leisure Ltd     1,612    
    730,094     Australia and New Zealand Banking Group Ltd     17,350,090    
    480,851     BHP Billiton Ltd     15,097,658    
    1,401,205     BlueScope Steel Ltd     12,198,226    
    204,777     Commonwealth Bank of Australia     9,243,226    
    1,266,234     Foster's Group Ltd     6,542,887    
    295,209     Macquarie Bank Ltd     17,633,749    
    1,902,422     Mirvac Group Ltd     8,369,854    
    566,433     QBE Insurance Group Ltd     16,142,590    
    92,169     Rio Tinto Ltd     7,028,482    
    817,099     Santos Ltd     8,899,787    
    674,123     Stockland     4,732,570    
    1,355,180     Suncorp-Metway Ltd     22,301,398    
    527,673     TABCORP Holdings Ltd     6,606,722    
    4,262,769     Telstra Corp Ltd     15,295,526    
    959,997     Westpac Banking Corp     21,386,150    
    402,030     Woodside Petroleum Ltd     14,850,266    
    848,445     Woolworths Ltd     20,771,325    
    945,346     Zinifex Ltd     12,979,127    
    Total Australia     237,431,245    
        Austria — 0.2%  
    88,416     OMV AG     5,478,704    
    89,884     Voestalpine AG     7,352,803    
    Total Austria     12,831,507    
        Belgium — 1.2%  
    246,289     Belgacom SA     10,805,848    
    27,283     Colruyt SA     5,828,280    
    42,274     Delhaize Group     4,146,699    
    553,143     Dexia     15,254,089    
    890,954     Fortis     32,677,229    

 

See accompanying notes to the financial statements.


3


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Belgium — continued  
    67,002     UCB SA     3,774,870    
    Total Belgium     72,487,015    
        Canada — 2.5%  
    213,000     BCE Inc     8,146,847    
    276,200     Canadian Imperial Bank of Commerce     25,030,625    
    206,900     Canadian Natural Resources     14,144,045    
    435,600     EnCana Corp     25,529,625    
    93,400     Magna International Inc Class A     8,386,542    
    262,300     National Bank of Canada     13,641,587    
    236,200     Potash Corp of Saskatchewan Inc     20,931,436    
    411,600     Research In Motion Ltd *      35,161,398    
    Total Canada     150,972,105    
        Finland — 2.1%  
    165,119     Elisa Oyj     4,605,690    
    71,972     KCI Konecranes Oyj     2,746,218    
    106,900     Kesko Oyj Class B     6,298,887    
    254,148     Neste Oil Oyj     8,806,450    
    1,724,746     Nokia Oyj     56,819,281    
    263,213     Outokumpu Oyj     7,990,731    
    100,700     Outotec Oyj     5,791,638    
    178,784     Rautaruukki Oyj     9,775,745    
    444,368     Sampo Oyj Class A     12,774,799    
    563,791     Tietoenator Oyj     13,117,932    
    Total Finland     128,727,371    
        France — 10.7%  
    159,235     Accor SA     13,603,115    
    209,620     Air France     8,675,585    
    55,959     Alstom     10,064,712    
    564,675     Arcelor Mittal     37,035,045    
    443,616     BNP Paribas     46,568,220    
    207,475     Bouygues     16,273,998    

 

See accompanying notes to the financial statements.


4


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    78,841     Carrefour SA     5,495,792    
    108,966     Casino Guichard-Perrachon SA     11,097,577    
    101,330     Cie de Saint-Gobain     10,973,773    
    626,731     Credit Agricole SA     23,541,782    
    101,232     Electricite de France     10,200,196    
    362,165     France Telecom SA     10,909,259    
    162,012     Groupe Danone     12,301,733    
    100,590     Lafarge SA     15,573,562    
    199,043     Michelin SA Class B     24,982,745    
    65,360     Nexans SA     10,513,280    
    417,507     Peugeot SA     35,416,677    
    188,470     Renault SA     25,318,890    
    271,038     Rhodia SA *      11,038,542    
    1,248,773     Sanofi-Aventis     102,277,701    
    41,385     Societe Generale     6,645,456    
    2,259,838     Total SA     169,473,770    
    37,345     Union du Credit-Bail Immobilier     8,946,306    
    278,726     Vinci SA     19,762,263    
    Total France     646,689,979    
        Germany — 11.3%  
    94,101     Adidas AG     5,543,652    
    272,593     Allianz SE (Registered)     58,560,289    
    512,022     Altana AG     11,713,639    
    395,074     BASF AG     52,335,705    
    258,486     Bayerische Motoren Werke AG     15,794,035    
    138,959     Bilfinger & Berger AG     11,519,473    
    383,445     Commerzbank AG     15,764,461    
    541,495     DaimlerChrysler AG (Registered)     48,242,191    
      1,720,159     Depfa Bank Plc     32,618,549    
    459,457     Deutsche Bank AG (Registered)     57,081,651    
    180,366     Deutsche Boerse AG     19,958,502    
    527,424     Deutsche Lufthansa AG (Registered)     15,390,488    
    169,920     Deutsche Post AG (Registered)     4,935,363    

 

See accompanying notes to the financial statements.


5


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    489,056     Epcos AG     9,301,849    
    385,503     GEA Group AG *      12,558,997    
    109,393     Hochtief AG     10,996,619    
    884,554     Infineon Technologies AG *      13,800,076    
    140,128     Landesbank Berlin Holding AG     1,278,615    
    172,477     MAN AG     24,764,094    
    355,360     Muenchener Rueckversicherungs AG (Registered)     61,527,732    
    183,317     Premiere AG *      4,026,843    
    62,796     Rheinmetall AG     5,211,759    
    87,446     Salzgitter AG     17,318,231    
    160,782     SGL Carbon AG *      7,763,198    
    504,656     Siemens AG (Registered)     63,451,888    
    202,279     Stada Arzneimittel AG     13,000,913    
    393,294     Suedzucker AG     7,550,318    
    69,279     Techem AG     4,311,999    
    382,857     ThyssenKrupp AG     22,411,498    
    427,938     TUI AG * (a)      11,129,903    
    210,842     Volkswagen AG     43,659,980    
    Total Germany     683,522,510    
        Greece — 0.2%  
    228,251     National Bank of Greece SA     13,539,817    
        Hong Kong — 0.6%  
    2,485,200     Bank of East Asia Ltd     13,851,708    
    1,964,500     CLP Holdings Ltd     13,528,172    
    428,000     Hang Lung Group Ltd     2,043,295    
    1,410,000     Hong Kong Electric Holdings Ltd     7,069,484    
    1,073,500     Yue Yuen Industrial Holdings     3,238,941    
    Total Hong Kong     39,731,600    
        Ireland — 0.7%  
    627,039     Anglo Irish Bank Corp     11,703,857    
    406,373     C&C Group Plc     2,974,726    

 

See accompanying notes to the financial statements.


6


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Ireland — continued  
    430,752     CRH Plc     18,621,665    
    265,691     DCC Plc     7,026,185    
    Total Ireland     40,326,433    
        Italy — 3.6%  
    4,134,238     Enel SPA     42,718,828    
    4,202,500     ENI SPA     145,161,157    
    796,879     Fiat SPA     21,251,781    
    995,826     Impregilo SPA *      7,230,622    
    Total Italy     216,362,388    
        Japan — 21.0%  
    185,530     Acom Co Ltd     5,534,919    
    174,100     Aiful Corp     3,472,302    
    1,207,500     Alps Electric Co Ltd     14,166,454    
    201,100     Astellas Pharma Inc     9,321,642    
    618,550     Canon Inc     35,306,510    
    337,700     Chubu Electric Power Co Inc     9,001,533    
    726,200     Daiei Inc *      5,475,153    
    559,948     Daiichi Sankyo Co Ltd     15,277,154    
    1,862,000     Daikyo Inc     6,686,564    
    99,200     Eisai Co Ltd     4,132,031    
    190,000     Elpida Memory Inc *      7,339,420    
    1,197,000     Fuji Heavy Industries Ltd     5,017,376    
    362,100     Fuji Photo Film Co Ltd     15,597,419    
    3,318,000     Haseko Corp *      8,938,232    
    2,171,700     Honda Motor Co Ltd     71,379,343    
    264,600     Hoya Corp     9,174,288    
    2,444,000     Isuzu Motors Ltd     13,255,104    
    2,662,000     Itochu Corp     28,746,669    
    1,071     Japan Real Estate Investment Corp     11,887,673    
    568,000     Japan Steel Works Ltd (The)     8,378,939    
    2,961     Japan Tobacco Inc     16,443,929    
    312,600     JFE Holdings Inc     20,354,194    

 

See accompanying notes to the financial statements.


7


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    437,100     Kansai Electric Power Co Inc     10,211,917    
    242,000     Kao Corp     6,880,837    
    1,546,000     Kawasaki Heavy Industries Ltd     6,060,026    
    2,632,000     Kawasaki Kisen Kaisha Ltd     33,855,733    
    1,916     Kenedix Inc     2,799,487    
    7,080     KK DaVinci Advisors *      4,887,246    
    192,500     Konami Corp     4,856,353    
    275,000     Konica Minolta Holdings Inc     4,301,102    
    75,900     Kyocera Corp     6,948,312    
    164,700     Kyushu Electric Power Co Inc     4,395,149    
    3,497,000     Marubeni Corp     28,438,689    
    871,000     Meiji Dairies Corp     4,849,019    
    1,724,600     Mitsubishi Corp     48,406,792    
    594,500     Mitsubishi Estate Co Ltd     15,893,565    
    1,732,000     Mitsubishi Heavy Industries     10,580,578    
    1,504,000     Mitsui & Co     31,263,946    
    479,000     Mitsui Fudosan Co Ltd     12,531,197    
    1,806,000     Mitsui OSK Lines Ltd     26,529,572    
    2,503,600     Mitsui Trust Holding Inc     20,876,787    
    553,500     Mitsumi Electric Co Ltd     20,748,940    
    491,000     NGK Insulators Ltd     16,224,524    
    128,900     Nintendo Co Ltd     59,329,022    
    1,253     Nippon Building Fund Inc     16,058,723    
    2,863,000     Nippon Light Metal     6,267,460    
    2,925,000     Nippon Oil Corp     24,610,812    
    7,022,000     Nippon Steel Corp     49,068,631    
    1,147,000     Nippon Suisan Kaisha Ltd     5,230,935    
    3,843     Nippon Telegraph & Telephone Corp     17,691,897    
    1,025,000     Nippon Yakin Koguo Co Ltd     9,201,814    
    1,806,000     Nippon Yusen Kabushiki Kaisha     17,808,455    
    3,367,500     Nissan Motor Co     32,169,307    
    12,364     NTT Docomo Inc     18,847,504    
    60,100     Ono Pharmaceutical Co Ltd     3,106,984    
    6,052,000     Osaka Gas Co Ltd     22,477,993    

 

See accompanying notes to the financial statements.


8


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,201,000     Pacific Metals Co Ltd     16,587,416    
    226,000     Pioneer Corp     2,746,584    
    10,189     Resona Holdings Inc     21,436,611    
    709,000     Ricoh Company Ltd     15,605,757    
    7,304,000     Sanyo Electric Co Ltd *      11,347,315    
    783,900     Seven & I Holdings Co Ltd     20,901,589    
    476,200     Softbank Corp     9,140,361    
    4,865,400     Sojitz Corp     20,245,867    
    320,600     Sony Corp     15,348,863    
    199,700     SUMCO Corp     10,670,758    
    864,700     Sumitomo Corp     14,916,372    
    69,000     Sumitomo Titanium Corp     5,398,015    
    144,000     Taisho Pharmaceutical Co Ltd (a)      2,817,785    
    687,000     Taiyo Yuden Co Ltd     13,761,504    
    847,200     Takeda Pharmaceutical Co Ltd     57,964,257    
    190,080     Takefuji Corp     5,100,637    
    754,800     Tokyo Electric Power Co Inc     19,796,416    
    153,200     Tokyo Electron Ltd     10,966,487    
    1,276,000     Tokyo Gas Co Ltd     6,339,717    
    495,900     Tokyo Steel Manufacturing Co     6,556,898    
    354,000     TonenGeneral Sekiyu KK     3,506,484    
    895,100     Toyota Motor Corp     51,834,299    
    Total Japan     1,271,286,148    
        Netherlands — 3.7%  
    1,417,660     ABN Amro Holdings NV     65,886,035    
    1,027,384     Aegon NV     18,742,265    
    82,873     Akzo Nobel NV     6,531,942    
    273,576     Corporate Express     3,066,328    
    51,431     Heineken Holding NV     2,823,900    
    357,694     Heineken NV     22,674,998    
    1,469,341     ING Groep NV     59,135,960    
    677,824     Koninklijke Ahold NV *      9,083,980    
    206,017     Koninklijke DSM     10,536,205    

 

See accompanying notes to the financial statements.


9


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — continued  
    413,507     Koninklijke KPN NV     6,456,656    
    117,352     OCE NV     2,525,768    
    705,219     Reed Elsevier NV     12,722,250    
    63,789     Wereldhave NV     7,640,963    
    Total Netherlands     227,827,250    
        Norway — 0.4%  
    658,150     Statoil ASA     18,936,044    
    262,700     Tandberg ASA     5,728,235    
    Total Norway     24,664,279    
        Portugal — 0.2%  
    2,575,760     Banco Commercial Portugues SA     12,032,126    
        Singapore — 1.4%  
    943,000     City Developments Ltd     9,242,990    
    1,490,500     DBS Group Holdings Ltd     19,589,024    
    1,152,000     Keppel Corp Ltd     9,669,590    
    412,200     MobileOne Ltd     570,241    
    2,928,000     Oversea-Chinese Banking Corp     16,460,072    
    2,289,000     Singapore Exchange Ltd     14,664,706    
    1,121,000     United Overseas Bank Ltd     15,319,390    
    Total Singapore     85,516,013    
        Spain — 2.1%  
    259,218     Acerinox SA     6,525,299    
    130,273     ACS Actividades de Construccion y Servicios SA     7,170,041    
    937,748     Avanzit SA *      5,218,500    
    420,162     Banco Popular Espanol SA     7,669,929    
    668,930     Banco Santander Central Hispano SA     12,221,319    
    289,445     Iberdrola SA     16,054,923    
    784,070     Repsol YPF SA     28,253,471    
    1,719,093     Telefonica SA     42,749,954    
    Total Spain     125,863,436    

 

See accompanying notes to the financial statements.


10


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Sweden — 2.1%  
    606,600     Electrolux AB Series B     13,646,867    
    425,750     Hennes & Mauritz AB Class B     24,069,906    
    1,096,500     Sandvik AB     22,409,408    
    574,400     Scania AB Class B     13,403,152    
    320,800     Skandinaviska Enskilda Banken AB Class A     9,719,999    
    369,000     Swedbank AB     12,121,754    
    334,650     Tele2 AB Class B     6,130,524    
    1,539,400     Volvo AB Class B     26,696,777    
    Total Sweden     128,198,387    
        Switzerland — 4.0%  
    185,655     Actelion Ltd *      10,314,257    
    175,409     Credit Suisse Group     11,511,772    
    38,700     Geberit AG (Registered)     5,714,020    
    11,925     Nestle SA (Registered)     5,197,400    
    1,741,722     Novartis AG (Registered)     91,814,784    
    8,020     Sulzer AG (Registered)     10,657,905    
    37,798     Swatch Group AG     11,353,786    
    355,455     Swiss Reinsurance Co (Registered)     29,990,475    
    14,215     Unaxis Holding AG (Registered) *      4,597,134    
    214,914     Zurich Financial Services AG     61,723,375    
    Total Switzerland     242,874,908    
        United Kingdom — 22.7%  
    971,457     3i Group Plc     20,717,955    
    1,174,461     Aberdeen Asset Management     4,236,601    
    1,134,382     AMEC Plc     15,006,990    
    688,130     Arriva Plc     10,545,254    
    1,214,059     AstraZeneca Plc     59,832,956    
    2,346,529     Aviva Plc     33,614,625    
    704,818     Barratt Developments Plc     13,235,884    
    1,466,851     BBA Aviation Plc     7,159,313    
    119,657     Berkeley Group Holdings Plc *      3,889,399    
    1,427,592     BG Group Plc     22,845,721    

 

See accompanying notes to the financial statements.


11


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    854,600     BHP Billiton Plc     25,060,926    
    1,035,909     Britvic Plc     6,953,748    
    9,411,361     BT Group Plc     60,020,002    
    1,928,153     Cable & Wireless Plc     6,670,799    
    578,305     Capita Group Plc     8,773,623    
    2,810,271     Centrica Plc     21,902,731    
    722,212     Compass Group Plc     4,746,208    
    169,529     Cookson Group Plc     2,633,087    
    3,528,469     DSG International Plc     11,071,236    
    893,591     FirstGroup Plc     11,798,271    
    5,912,700     GlaxoSmithKline Plc     154,300,926    
    934,883     HBOS Plc     16,618,354    
    1,940,294     Home Retail Group     16,254,849    
    173,887     IMI Plc     1,987,129    
    927,328     Imperial Chemical Industries Plc     11,849,196    
    595,644     Imperial Tobacco Group Plc     26,953,788    
    206,414     Intermediate Capital Group Plc     6,209,938    
    1,729,766     J Sainsbury Plc     19,364,427    
    1,055,004     Kesa Electricals Plc     6,604,806    
    1,050,873     Kingfisher Plc     4,430,034    
    1,698,984     Ladbrokes Plc     14,971,140    
    773,035     Michael Page International Plc     7,500,760    
    1,803,753     National Grid Plc     27,031,733    
    418,646     Next Plc     16,363,288    
    2,278,533     Northern Foods Plc     4,722,727    
    4,364,005     Old Mutual Plc     14,093,238    
    234,773     Provident Financial Plc     4,135,140    
    366,479     Punch Taverns Plc     8,149,844    
    409,219     Reckitt Benckiser Plc     22,314,087    
    811,495     Rio Tinto Plc     56,053,617    
    3,980,360     Royal & Sun Alliance Insurance Group     11,383,229    
    8,680,993     Royal Bank of Scotland Group     100,875,341    
    785,414     Royal Dutch Shell Group Class A (Amsterdam)     30,422,717    
    1,370,789     Royal Dutch Shell Plc A Shares (London)     53,264,705    

 

See accompanying notes to the financial statements.


12


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    759,190     Royal Dutch Shell Plc B Shares (London)     29,604,829    
    585,410     Scottish & Southern Energy Plc     16,774,655    
    220,362     Smith News Plc     651,884    
    152,144     Spectris Plc     2,738,419    
    2,404,744     Stagecoach Group Plc     10,812,300    
    952,444     Tate & Lyle Plc     10,873,684    
    2,937,716     Taylor Woodrow Plc     20,649,355    
    3,635,625     Tesco Plc     31,255,789    
    694,916     Tomkins Plc     3,352,470    
    254,974     Travis Perkins Plc     9,204,702    
    954,876     Trinity Mirror Plc     9,063,780    
    950,710     Unilever Plc     30,044,430    
    305,281     United Utilities Plc     4,266,435    
    47,854,308     Vodafone Group Inc     154,648,159    
    388,457     Wetherspoon J D Plc     4,594,798    
    636,823     WH Smith Plc     5,290,699    
    237,829     Whitbread Plc     7,896,492    
    2,832,712     William Morrison Supermarkets Plc     16,417,008    
    408,953     Xstrata Plc     24,061,072    
    Total United Kingdom     1,378,771,302    
    TOTAL COMMON STOCKS (COST $5,259,363,013)     5,739,655,819    
        PREFERRED STOCKS — 0.7%  
        Germany — 0.6%  
    82,010     Fresenius Medical Care AG (Non Voting) 1.09%     6,046,654    
    8,684     Porsche AG (Non Voting) 0.46%     15,528,988    
    131,566     Volkswagen AG 1.39%     16,364,443    
    Total Germany     37,940,085    
        Italy — 0.1%  
    973,715     Compagnia Assicuratrice Unipol 3.37%     3,103,479    
    TOTAL PREFERRED STOCKS (COST $27,243,706)     41,043,564    

 

See accompanying notes to the financial statements.


13


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        RIGHTS AND WARRANTS — 0.0%  
        Italy — 0.0%  
    973,715     Unipol Gruppo Finanziario SPA Rights, Expires 07/03/07 * (b)      —    
        Spain — 0.0%  
    937,748     Avanzit SA Rights, Expires 09/13/07 *      319,362    
    TOTAL RIGHTS AND WARRANTS (COST $522,983)     319,362    
        SHORT-TERM INVESTMENTS — 4.0%  
    4,539,322     Bank of New York Institutional Cash Reserves Fund (c)      4,539,322    
      146,900,000     ING Bank Time Deposit, 5.32%, due 09/04/07     146,900,000    
      88,500,000     Societe Generale Time Deposit, 5.28%, due 09/04/07     88,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $239,939,322)     239,939,322    
    TOTAL INVESTMENTS — 99.3%
(Cost $5,527,069,024)		     6,020,958,067    
          Other Assets and Liabilities (net) — 0.7%     45,398,408    
    TOTAL NET ASSETS — 100.0%   $ 6,066,356,475    

 

See accompanying notes to the financial statements.


14


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
11/20/07   CHF     64,511,670     $ 53,709,686     $ (83,122 )  
11/20/07   CHF     64,511,670       53,709,686       (105,065 )  
11/20/07   CHF     64,511,670       53,709,686       (70,207 )  
11/20/07   CHF     64,511,670       53,709,685       (85,903 )  
11/20/07   CHF     64,511,670       53,709,685       (145,633 )  
11/20/07   CHF     64,511,670       53,709,685       (127,655 )  
11/20/07   CHF     64,511,670       53,709,685       (149,005 )  
11/20/07   EUR     34,929,000       47,718,393       501,720    
11/20/07   GBP     5,904,000       11,884,915       144,693    
11/20/07   HKD     11,827,867       1,519,263       2,714    
11/20/07   HKD     11,827,867       1,519,263       2,936    
11/20/07   HKD     11,827,867       1,519,262       2,830    
11/20/07   HKD     11,827,867       1,519,262       3,491    
11/20/07   HKD     11,827,867       1,519,262       3,063    
11/20/07   HKD     11,827,867       1,519,262       3,258    
11/20/07   HKD     11,827,867       1,519,262       3,452    
11/20/07   JPY     8,237,509,535       71,900,844       544,899    
11/20/07   JPY     2,639,716,535       23,040,684       (146,129 )  
11/20/07   JPY     2,639,716,535       23,040,683       (114,197 )  
11/20/07   JPY     2,639,716,535       23,040,683       (148,084 )  
11/20/07   JPY     2,639,716,535       23,040,683       (226,981 )  
11/20/07   JPY     2,639,716,535       23,040,683       (212,634 )  
11/20/07   JPY     2,639,716,535       23,040,683       (275,134 )  
11/20/07   NZD     4,117,286       2,871,440       20,910    
11/20/07   NZD     4,117,286       2,871,439       17,143    
11/20/07   NZD     4,117,286       2,871,439       23,595    
11/20/07   NZD     4,117,286       2,871,439       20,424    
11/20/07   NZD     4,117,286       2,871,439       30,047    
11/20/07   NZD     4,117,286       2,871,439       20,425    
11/20/07   NZD     54,914,286       38,297,809       (2,860,820 )  
11/20/07   SEK     125,794,356       18,304,337       66,586    

 

See accompanying notes to the financial statements.


15


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   SEK     125,794,356     $ 18,304,337     $ 59,730    
11/20/07   SEK     125,794,356       18,304,337       97,019    
11/20/07   SEK     125,794,356       18,304,337       75,384    
11/20/07   SEK     125,794,356       18,304,336       64,018    
11/20/07   SEK     125,794,356       18,304,336       99,698    
11/20/07   SEK     125,794,356       18,304,336       107,291    
    $ 840,007,685     $ (2,835,243 )  
Sales  
11/20/07   AUD     36,073,811     $ 29,454,712     $ 384,876    
11/20/07   AUD     29,650,811       24,210,253       (556,141 )  
11/20/07   AUD     18,204,811       14,864,453       (330,096 )  
11/20/07   AUD     18,204,811       14,864,453       (376,154 )  
11/20/07   AUD     18,204,811       14,864,453       (329,003 )  
11/20/07   AUD     18,204,811       14,864,452       (365,085 )  
11/20/07   AUD     18,204,811       14,864,452       (269,364 )  
11/20/07   CAD     840,037       796,586       (1,901 )  
11/20/07   CAD     840,037       796,586       (561 )  
11/20/07   CAD     840,037       796,586       (2,127 )  
11/20/07   CAD     840,037       796,586       (1,266 )  
11/20/07   CAD     840,037       796,585       (3,087 )  
11/20/07   CAD     840,037       796,585       (1,796 )  
11/20/07   CAD     840,037       796,585       (1,435 )  
11/20/07   EUR     70,410,716       96,191,881       515,486    
11/20/07   EUR     23,432,716       32,012,699       (335,908 )  
11/20/07   EUR     23,432,716       32,012,699       (340,688 )  
11/20/07   EUR     23,432,716       32,012,699       (378,532 )  
11/20/07   EUR     23,432,716       32,012,699       (365,410 )  
11/20/07   EUR     23,432,716       32,012,698       (354,865 )  
11/20/07   EUR     23,432,716       32,012,698       (369,628 )  
11/20/07   GBP     42,927,673       86,414,593       (54,873 )  
11/20/07   GBP     13,169,673       26,510,917       (374,107 )  
11/20/07   GBP     13,169,673       26,510,917       (387,763 )  
11/20/07   GBP     13,169,673       26,510,916       (412,838 )  
11/20/07   GBP     13,169,673       26,510,916       (428,668 )  

 

See accompanying notes to the financial statements.


16


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   GBP     13,169,673     $ 26,510,916     $ (428,379 )  
11/20/07   GBP     13,169,673       26,510,916       (420,740 )  
11/20/07   NOK     66,084,575       11,348,992       130,835    
11/20/07   NOK     66,099,575       11,351,568       128,158    
11/20/07   NOK     3,224,575       553,771       (10,042 )  
11/20/07   NOK     3,224,575       553,771       (10,208 )  
11/20/07   NOK     3,224,575       553,770       (8,950 )  
11/20/07   NOK     3,224,575       553,770       (9,318 )  
11/20/07   NOK     3,224,575       553,770       (8,987 )  
11/20/07   SGD     2,310,456       1,524,536       (2,997 )  
11/20/07   SGD     2,310,456       1,524,536       (3,183 )  
11/20/07   SGD     2,310,456       1,524,535       (4,498 )  
11/20/07   SGD     2,310,456       1,524,535       (2,446 )  
11/20/07   SGD     2,310,456       1,524,535       (3,398 )  
11/20/07   SGD     2,310,456       1,524,535       (2,195 )  
11/20/07   SGD     2,310,456       1,524,535       (2,094 )  
    $ 703,452,650     $ (5,799,376 )  

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  97     CAC 40   September 2007   $ 7,496,864     $ 420,568    
  241     DAX   September 2007     62,800,117       (231,092 )  
  660     E-mini MSCI EAFE   September 2007     72,418,500       (3,218,820 )  
  1,059     MSCI Singapore   September 2007     58,328,888       2,519,110    
  81     S&P/MIB   September 2007     22,206,378       (16,454 )  
  359     SPI 200   September 2007     45,990,731       836,763    
  40     TOPIX   September 2007     5,566,975       (204,177 )  
    $ 274,808,453     $ 105,898    

 

See accompanying notes to the financial statements.


17


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales      
  768     S&P Toronto 60   September 2007   $ 115,607,273     $ 236,598    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  As of August 31, 2007, these rights have been exercised but shares have not yet been credited to the Fund.

(c)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 88.57% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - B ritish Pound
HKD - Hong Kong Dollar		   JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
SGD - Singapore Dollar		  

 

See accompanying notes to the financial statements.


18



GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $4,409,958
(cost $5,527,069,024) (Note 2)		   $ 6,020,958,067    
Cash     23,781    
Foreign currency, at value (cost $7,831,205) (Note 2)     6,951,009    
Receivable for investments sold     17,009,766    
Receivable for Fund shares sold     248,886    
Dividends and interest receivable     13,537,401    
Foreign taxes receivable     1,931,134    
Unrealized appreciation on open forward currency contracts (Note 2)     3,074,681    
Receivable for collateral on open futures contracts (Note 2)     25,170,000    
Receivable for variation margin on open futures contracts (Note 2)     2,643,666    
Receivable for expenses reimbursed by Manager (Note 3)     144,987    
Total assets     6,091,693,378    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     4,539,322    
Payable for investments purchased     6,536,879    
Payable to affiliate for (Note 3):  
Management fee     1,891,099    
Shareholder service fee     366,381    
Trustees and Chief Compliance Officer of GMO Trust fees     9,423    
Unrealized depreciation on open forward currency contracts (Note 2)     11,709,300    
Accrued expenses     284,499    
Total liabilities     25,336,903    
Net assets   $ 6,066,356,475    

 

See accompanying notes to the financial statements.


19


GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 5,399,026,692    
Accumulated undistributed net investment income     76,726,792    
Accumulated net realized gain     105,830,648    
Net unrealized appreciation     484,772,343    
    $ 6,066,356,475    
Net assets attributable to:  
Class III shares   $ 994,933,621    
Class IV shares   $ 678,195,260    
Class VI shares   $ 4,393,227,594    
Shares outstanding:  
Class III     24,058,802    
Class IV     16,403,434    
Class VI     106,273,361    
Net asset value per share:  
Class III   $ 41.35    
Class IV   $ 41.34    
Class VI   $ 41.34    

 

See accompanying notes to the financial statements.


20


GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $9,187,804)   $ 85,427,565    
Interest     6,622,557    
Securities lending income     2,289,668    
Total investment income     94,339,790    
Expenses:  
Management fee (Note 3)     9,175,175    
Shareholder service fee – Class III (Note 3)     700,699    
Shareholder service fee – Class IV (Note 3)     360,874    
Shareholder service fee – Class VI (Note 3)     850,528    
Custodian and fund accounting agent fees     543,390    
Transfer agent fees     24,012    
Audit and tax fees     35,880    
Legal fees     51,704    
Trustees fees and related expenses (Note 3)     24,949    
Miscellaneous     36,800    
Total expenses     11,804,011    
Fees and expenses reimbursed by Manager (Note 3)     (678,262 )  
Net expenses     11,125,749    
Net investment income (loss)     83,214,041    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     102,201,525    
Closed futures contracts     5,560,981    
Foreign currency, forward contracts and foreign currency related transactions     (1,743,107 )  
Net realized gain (loss)     106,019,399    
Change in net unrealized appreciation (depreciation) on:  
Investments     8,818,321    
Open futures contracts     2,387,143    
Foreign currency, forward contracts and foreign currency related transactions     (13,978,036 )  
Net unrealized gain (loss)     (2,772,572 )  
Net realized and unrealized gain (loss)     103,246,827    
Net increase (decrease) in net assets resulting from operations   $ 186,460,868    

 

See accompanying notes to the financial statements.


21


GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 83,214,041     $ 57,734,964    
Net realized gain (loss)     106,019,399       191,962,966    
Change in net unrealized appreciation (depreciation)     (2,772,572 )     212,810,791    
Net increase (decrease) in net assets from operations     186,460,868       462,508,721    
Distributions to shareholders from:  
Net investment income  
Class III     —       (15,520,665 )  
Class IV     —       (19,922,801 )  
Class VI     —       (18,254,450 )  
Total distributions from net investment income     —       (53,697,916 )  
Net realized gains  
Class III     (14,419,979 )     (41,938,026 )  
Class IV     (14,613,420 )     (49,032,006 )  
Class VI     (55,104,845 )     (44,892,191 )  
Total distributions from net realized gains     (84,138,244 )     (135,862,223 )  
      (84,138,244 )     (189,560,139 )  
Net share transactions (Note 7):  
Class III     70,313,945       (41,461,834 )  
Class IV     (64,419,331 )     (579,931,387 )  
Class VI     2,990,782,258       1,311,930,094    
Increase (decrease) in net assets resulting from net share
transactions		     2,996,676,872       690,536,873    
Total increase (decrease) in net assets     3,098,999,496       963,485,455    
Net assets:  
Beginning of period     2,967,356,979       2,003,871,524    
End of period (including accumulated undistributed net investment
income of $76,726,792 and distributions in excess of net
investment income of $6,487,249, respectively)		   $ 6,066,356,475     $ 2,967,356,979    

 

See accompanying notes to the financial statements.


22



GMO International Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 39.38     $ 35.23     $ 30.81     $ 26.75     $ 18.04     $ 20.40    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.73       0.86       0.72       0.55       0.40       0.37    
Net realized and unrealized
gain (loss)		     1.89       6.06       4.79       4.54       8.81       (2.03 )  
Total from investment
operations		     2.62       6.92       5.51       5.09       9.21       (1.66 )  
Less distributions to shareholders:  
From net investment income     —       (0.77 )     (0.16 )     (0.54 )     (0.50 )     (0.70 )  
From net realized gains     (0.65 )     (2.00 )     (0.93 )     (0.49 )     —       —    
Total distributions     (0.65 )     (2.77 )     (1.09 )     (1.03 )     (0.50 )     (0.70 )  
Net asset value, end of period   $ 41.35     $ 39.38     $ 35.23     $ 30.81     $ 26.75     $ 18.04    
Total Return(a)      6.58 %**      20.04 %     18.26 %     19.20 %     51.46 %     (8.28 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 994,934     $ 877,816     $ 820,336     $ 321,463     $ 201,333     $ 68,047    
Net expenses to average daily
net assets		     0.53 %*      0.53 %     0.54 %     0.55 %     0.55 %     0.55 %  
Net investment income to
average daily net assets		     3.47 %*      2.29 %     2.26 %     1.98 %     1.77 %     1.82 %  
Portfolio turnover rate     11 %**      47 %     43 %     45 %     43 %     64 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.03 %*      0.05 %     0.10 %     0.14 %     0.27 %     0.39 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


23


GMO International Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning of period   $ 39.36     $ 35.21     $ 30.80     $ 26.75     $ 21.08    
Income (loss) from investment operations:  
Net investment income (loss)†      0.73       0.85       0.65       0.56       0.16    
Net realized and unrealized gain (loss)     1.90       6.09       4.87       4.54       6.03    
Total from investment operations     2.63       6.94       5.52       5.10       6.19    
Less distributions to shareholders:  
From net investment income     —       (0.79 )     (0.18 )     (0.56 )     (0.52 )  
From net realized gains     (0.65 )     (2.00 )     (0.93 )     (0.49 )     —    
Total distributions     (0.65 )     (2.79 )     (1.11 )     (1.05 )     (0.52 )  
Net asset value, end of period   $ 41.34     $ 39.36     $ 35.21     $ 30.80     $ 26.75    
Total Return(b)      6.61 %**      20.14 %     18.31 %     19.24 %     29.71 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 678,195     $ 711,712     $ 1,183,535     $ 255,580     $ 24,134    
Net expenses to average daily net assets     0.47 %*      0.47 %     0.48 %     0.49 %     0.49 %*   
Net investment income to average daily
net assets		     3.46 %*      2.27 %     1.98 %     2.01 %     0.99 %*   
Portfolio turnover rate     11 %**      47 %     43 %     45 %     43 %††   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.03 %*      0.05 %     0.11 %     0.14 %     0.26 %*   

 

(a)  Period from June 30, 2003 (commencement of operations) through February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout period.

††  Calculation represents portfolio turnover of the Fund for year ended February 29, 2004.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


24


GMO International Core Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months
Ended
August 31, 2007
(Unaudited)		   Period from
March 28, 2006
(commencement
of operations)
through
February 28, 2007		  
Net asset value, beginning of period   $ 39.35     $ 36.09    
Income (loss) from investment operations:  
Net investment income (loss)†      0.73       0.74    
Net realized and unrealized gain (loss)     1.91       5.33    
Total from investment operations     2.64       6.07    
Less distributions to shareholders:  
From net investment income     —       (0.81 )  
From net realized gains     (0.65 )     (2.00 )  
Total distributions     (0.65 )     (2.81 )  
Net asset value, end of period   $ 41.34     $ 39.35    
Total Return(a)      6.64 %**      17.24 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 4,393,228     $ 1,377,829    
Net expenses to average daily net assets     0.44 %*      0.44 %*   
Net investment income to average daily net assets     3.43 %*      2.11 %*   
Portfolio turnover rate     11 %**      47 %††   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.03 %*      0.05 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


25



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO International Core 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, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the MSCI EAFE Index. The Fund typically makes equity investments in companies from developed countries, other than the U.S.

As of August 31, 2007, the Fund had three classes of shares outstanding: Class III, Class IV and Class VI. Each class of shares bears a different level of shareholder service fees.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.


26


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price,


27


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


28


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a


29


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $4,409,958, collateralized by cash in the amount of $4,539,322 which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 5,528,967,561     $ 664,512,031     $ (172,521,525 )   $ 491,990,506    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.


30


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial


31


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.38% 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 of each class at the annual rate of 0.15% for Class III shares, 0.09% for Class IV shares and 0.055% for Class VI shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.38% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $18,877 and $13,524, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $3,361,374,788 and $470,709,665, respectively.


32


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 29.24% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 0.10% of the Fund's shares were held by three related parties comprised of certain GMO employee accounts, and 47.49% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     6,059,870     $ 251,429,483       7,843,505     $ 293,242,889    
Shares issued to shareholders
in reinvestment of distributions		     328,052       14,211,229       1,421,250       53,860,001    
Shares repurchased     (4,619,558 )     (195,326,767 )     (10,261,207 )     (388,564,724 )  
Net increase (decrease)     1,768,364     $ 70,313,945       (996,452 )   $ (41,461,834 )  

 


33


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     4,512,140     $ 193,280,815       7,912,379     $ 293,799,706    
Shares issued to shareholders
in reinvestment of distributions		     337,414       14,613,420       1,684,571       63,941,116    
Shares repurchased     (6,528,535 )     (272,313,566 )     (25,127,429 )     (937,672,209 )  
Net increase (decrease)     (1,678,981 )   $ (64,419,331 )     (15,530,479 )   $ (579,931,387 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from March 28, 2006
(commencement of operations)
through February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     71,693,555     $ 3,007,021,387       34,871,102     $ 1,305,783,453    
Shares issued to shareholders
in reinvestment of distributions		     1,272,629       55,104,845       1,665,967       63,146,641    
Shares repurchased     (1,710,174 )     (71,343,974 )     (1,519,718 )     (57,000,000 )  
Net increase (decrease)     71,256,010     $ 2,990,782,258       35,017,351     $ 1,311,930,094    

 


34



GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall compet ence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


35


GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


36


GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


37


GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


38


GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.53 %   $ 1,000.00     $ 1,065.80     $ 2.75    
2) Hypothetical     0.53 %   $ 1,000.00     $ 1,022.47     $ 2.69    
Class IV      
1) Actual     0.47 %   $ 1,000.00     $ 1,066.10     $ 2.44    
2) Hypothetical     0.47 %   $ 1,000.00     $ 1,022.77     $ 2.39    
Class VI      
1) Actual     0.44 %   $ 1,000.00     $ 1,066.40     $ 2.29    
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.92     $ 2.24    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six month period ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days, divided by 366 days in the year.


39



GMO International Growth Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Growth Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     92.2 %  
Short-Term Investments     4.3    
Preferred Stocks     0.7    
Futures     0.1    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.3 )  
Other     3.0    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     20.5 %  
United Kingdom     19.6    
France     8.5    
Germany     8.3    
Australia     5.7    
Spain     5.3    
Canada     4.9    
Sweden     4.7    
Switzerland     4.3    
Singapore     2.6    
Italy     2.1    
Ireland     2.0    
Belgium     1.9    
Norway     1.9    
Denmark     1.9    
Hong Kong     1.8    
Finland     1.6    
Netherlands     1.4    
Austria     0.8    
Greece     0.2    
      100.0 %  

 


1


GMO International Growth Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     21.2 %  
Industrials     11.4    
Energy     11.1    
Consumer Discretionary     10.9    
Materials     10.9    
Health Care     10.1    
Telecommunication Services     7.6    
Information Technology     7.0    
Consumer Staples     5.7    
Utilities     4.1    
      100.0 %  

 


2



GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        COMMON STOCKS — 92.2%  
        Australia — 5.3%  
      404,779     Australia and New Zealand Banking Group Ltd     9,619,244    
    97,024     Australian Stock Exchange Ltd     3,674,347    
    278,321     BHP Billiton Ltd     8,738,664    
    980,479     BlueScope Steel Ltd     8,535,585    
    563,121     Coles Myer Ltd     6,531,497    
    328,079     CSL Ltd     26,328,019    
    2,286,635     CSR Ltd     6,283,175    
    1,615,520     Foster's Group Ltd     8,347,719    
    817,265     Harvey Norman Holdings Ltd     3,568,598    
    2,473,192     Insurance Australia Group Ltd     10,191,564    
    320,073     Lend Lease Corp Ltd     5,033,031    
    308,068     Macquarie Bank Ltd     18,401,857    
    793,466     QBE Insurance Group Ltd     22,612,729    
    76,922     Rio Tinto Ltd     5,865,799    
    684,958     Toll Holdings Ltd     7,611,711    
    370,620     Westfield Group     6,346,353    
    619,543     Westpac Banking Corp     13,801,751    
    528,795     Woodside Petroleum Ltd     19,532,737    
    432,368     Woolworths Ltd     10,585,078    
    239,535     Worleyparsons Ltd     7,544,905    
    846,918     Zinifex Ltd     11,627,760    
    Total Australia     220,782,123    
      Austria — 0.7%  
    56,211     Erste Bank Der Oesterreichischen Sparkassen AG     4,081,617    
    124,910     OMV AG     7,740,057    
    56,347     Raiffeisen International Bank Holding     8,148,197    
    131,616     Voestalpine AG     10,766,616    
    Total Austria     30,736,487    

 

See accompanying notes to the financial statements.


3


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
      Belgium — 1.8%  
    268,602     Belgacom SA     11,784,823    
    40,143     Colruyt SA     8,575,474    
    521,662     Fortis     19,132,827    
    89,768     Inbev NV     7,371,171    
    58,431     KBC Groep NV     7,332,940    
    40,463     Solvay SA     6,006,544    
    129,708     UCB SA     7,307,705    
    31,558     Umicore     7,237,794    
    Total Belgium     74,749,278    
      Canada — 4.5%  
    100,100     Bank of Nova Scotia     4,951,917    
    133,100     Canadian Imperial Bank of Commerce     12,062,187    
    106,700     Canadian National Railway Co     5,628,021    
    526,100     EnCana Corp     30,833,645    
    270,800     Goldcorp Inc     6,393,034    
    368,600     Potash Corp of Saskatchewan Inc     32,664,383    
    651,600     Research In Motion Ltd *      55,663,670    
    273,900     Rogers Communications Inc     12,444,812    
    125,500     Royal Bank of Canada     6,458,021    
    147,700     Suncor Energy Inc     13,231,458    
    103,000     Toronto Dominion Bank     7,047,112    
    Total Canada     187,378,260    
      Denmark — 1.8%  
    290     AP Moller-Maersk A/S Class A     3,747,345    
    1,420     AP Moller-Maersk A/S     18,584,814    
    101,400     Danske Bank A/S     4,163,403    
    329,400     H Lundbeck A/S     7,750,219    
    260,500     Novo-Nordisk A/S     29,039,014    
    146,950     Vestas Wind Systems A/S *      9,954,002    
    Total Denmark     73,238,797    

 

See accompanying notes to the financial statements.


4


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
      Finland — 1.5%  
    233,563     Elisa Oyj     6,514,810    
    73,714     Kone Oyj     4,833,638    
    659,507     Nokia Oyj     21,726,511    
    257,964     Nokian Renkaat Oyj     9,102,260    
    311,800     Outokumpu Oyj     9,465,756    
    157,021     Rautaruukki Oyj     8,585,764    
    Total Finland     60,228,739    
      France — 7.9%  
    281,929     BNP Paribas     29,595,262    
    148,277     Bouygues     11,630,604    
    98,839     Carrefour SA     6,889,798    
    330,512     Credit Agricole SA     12,414,962    
    135,380     Electricite de France     13,640,969    
    103,490     Groupe Danone     7,858,099    
    67,140     Hermes International     7,227,852    
    42,691     Lafarge SA     6,609,513    
    202,415     Peugeot SA     17,170,650    
    45,187     Renault SA     6,070,381    
    882,567     Sanofi-Aventis     72,284,494    
    51,369     Schneider Electric SA     6,791,784    
    1,468,835     Total SA     110,153,474    
    72,814     Union du Credit-Bail Immobilier     17,443,201    
    57,177     Vinci SA     4,053,970    
    Total France     329,835,013    
      Germany — 6.9%  
    142,483     Allianz SE (Registered)     30,609,170    
    98,800     BASF AG     13,088,099    
    686,898     Depfa Bank Plc     13,025,317    
    241,207     Deutsche Bank AG (Registered)     29,966,882    
    171,408     Deutsche Boerse AG     18,967,249    
    73,435     E. On AG     12,340,883    
    124,353     Fresenius Medical Care AG & Co     6,117,131    

 

See accompanying notes to the financial statements.


5


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        Germany — continued  
    54,876     MAN AG     7,879,047    
    299,463     Muenchener Rueckversicherungs AG (Registered)     51,849,615    
    141,794     Premiere AG *      3,114,726    
    90,146     Salzgitter AG     17,852,952    
    414,706     Siemens AG (Registered)     52,142,209    
    98,515     Stada Arzneimittel AG     6,331,774    
    146,578     ThyssenKrupp AG     8,580,312    
    52,117     Volkswagen AG     10,792,096    
    65,516     Wincor Nixdorf AG     5,658,032    
    Total Germany     288,315,494    
      Greece — 0.2%  
    224,908     Hellenic Telecommunications Organization SA     7,331,634    
      Hong Kong — 1.7%  
    2,110,000     Bank of East Asia Ltd     11,760,463    
    1,717,000     CLP Holdings Ltd     11,823,809    
    1,246,500     Esprit Holdings Ltd     18,107,288    
    1,618,000     Hong Kong Electric Holdings Ltd     8,112,358    
    666,000     Hong Kong Exchanges and Clearing Ltd     12,290,455    
    2,542,000     Li & Fung Ltd     9,443,475    
    Total Hong Kong     71,537,848    
      Ireland — 1.9%  
    346,024     Allied Irish Banks Plc     8,820,298    
    1,281,498     Anglo Irish Bank Corp     23,919,515    
    589,175     Bank of Ireland     10,824,314    
    890,294     C&C Group Plc     6,517,118    
    245,730     CRH Plc     10,623,054    
    247,333     DCC Plc     6,540,709    
    276,210     Irish Life & Permanent Plc     6,850,996    
    164,864     Kerry Group Plc     4,009,781    
    Total Ireland     78,105,785    

 

See accompanying notes to the financial statements.


6


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
      Italy — 2.0%  
    1,534,387     AEM SPA     5,600,114    
    2,188,914     ENI SPA     75,608,635    
    Total Italy     81,208,749    
      Japan — 19.1%  
    476,000     Ajinomoto Co Inc     6,005,289    
    331,100     Astellas Pharma Inc     15,347,566    
    626,150     Canon Inc     35,740,314    
    956,000     Daikyo Inc     3,433,059    
    180,200     Denso Corp     6,309,799    
    202,600     Eisai Co Ltd     8,439,007    
    512,600     Fuji Photo Film Co Ltd     22,080,191    
    44,300     Hirose Electric Co Ltd     5,331,406    
    800,500     Honda Motor Co Ltd     26,310,800    
    320,800     Hoya Corp     11,122,871    
    2,735,000     Isuzu Motors Ltd     14,833,351    
    2,323     Japan Tobacco Inc     12,900,793    
    219,600     JFE Holdings Inc     14,298,723    
    244,900     Kansai Electric Power Co Inc     5,721,571    
    1,617,000     Kawasaki Kisen Kaisha Ltd     20,799,666    
    887     KDDI Corp     6,841,127    
    42,700     Keyence Corp     9,480,403    
    421,300     Komatsu Ltd     12,943,782    
    478,500     Konica Minolta Holdings Inc     7,483,918    
    1,120,000     Mazda Motor Corp     5,636,105    
    566,000     Mitsubishi Estate Co Ltd     15,131,636    
    627,000     Mitsubishi Gas Chemical Co Inc     5,281,048    
    2,513,000     Mitsubishi Heavy Industries     15,351,613    
    349,000     Mitsui & Co     7,254,732    
    2,340,000     Mitsui OSK Lines Ltd     34,373,864    
    1,309,000     Mitsui Trust Holding Inc     10,915,368    
    1,749     Mizuho Financial Group Inc     10,992,835    
    191,000     Nikon Corp     5,966,380    
    84,500     Nintendo Co Ltd     38,892,959    

 

See accompanying notes to the financial statements.


7


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        Japan — continued  
    1,943,000     Nippon Oil Corp     16,348,310    
    8,140,000     Nippon Steel Corp     56,881,039    
    2,002,000     Nippon Yusen Kabushiki Kaisha     19,741,155    
    144,000     Nomura Research Institute     4,847,189    
    4,854     NTT Docomo Inc     7,399,368    
    178,000     Olympus Corp     7,558,294    
    22,990     ORIX Corp     4,881,061    
    1,852,000     Osaka Gas Co Ltd     6,878,593    
    461,000     Pacific Metals Co Ltd     6,367,026    
    7,928     Resona Holdings Inc     16,679,699    
    363,000     Ricoh Company Ltd     7,989,972    
    16,647     SBI Holdings Inc     4,445,649    
    310,200     Seven & I Holdings Co Ltd     8,271,046    
    293,400     Shin-Etsu Chemical Co Ltd     21,212,023    
    446,300     Softbank Corp     8,566,450    
    399,500     Sony Corp     19,126,235    
    393,900     SUMCO Corp     21,047,630    
    298,000     Sumitomo Metal Mining Co Ltd     5,896,670    
    683     Sumitomo Mitsui Financial Group Inc     5,387,501    
    165,000     Sumitomo Realty & Development Co Ltd     5,396,146    
    249,400     Suzuki Motor Corp     6,738,517    
    590,500     Takeda Pharmaceutical Co Ltd     40,401,197    
    185,400     TDK Corp     15,853,356    
    256,100     Terumo Corp     12,012,514    
    211,500     Tokyo Electric Power Co Inc     5,547,088    
    67,000     Tokyo Electron Ltd     4,796,048    
    1,675,000     Tokyo Gas Co Ltd     8,322,120    
    274,100     Tokyo Steel Manufacturing Co     3,624,210    
    755,700     Toyota Motor Corp     43,761,792    
    Total Japan     791,198,074    
        Netherlands — 1.3%  
    329,065     ABN Amro Holdings NV     15,293,362    
    252,276     ASML Holding NV *      7,483,021    

 

See accompanying notes to the financial statements.


8


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        Netherlands — continued  
    314,213     Heineken NV     19,918,643    
    126,460     ING Groep NV     5,089,583    
    90,963     Randstad Holdings NV     5,098,691    
    Total Netherlands     52,883,300    
      Norway — 1.8%  
    229,550     Frontline Ltd (a)      10,725,929    
    632,887     Orkla ASA     10,273,209    
    506,650     Statoil ASA     14,577,143    
    433,900     Tandberg ASA     9,461,291    
    971,500     Telenor ASA *      17,936,369    
    236,345     TGS Nopec Geophysical ASA *      4,050,148    
    274,400     Yara International ASA     7,304,075    
    Total Norway     74,328,164    
      Singapore — 2.4%  
    2,701,000     Capitaland Ltd     13,114,916    
    2,830,000     Cosco Corp     9,370,088    
    4,707,000     Genting International Plc *      1,961,417    
    891,000     Keppel Corp Ltd     7,478,824    
    1,182,000     Keppel Land Ltd     5,975,173    
    4,652,000     Neptune Orient Lines Ltd     14,938,525    
    2,970,000     Oversea-Chinese Banking Corp     16,696,179    
    9,339,500     Singapore Telecommunications     22,336,744    
    541,000     United Overseas Bank Ltd     7,393,211    
    Total Singapore     99,265,077    
      Spain — 4.9%  
    452,627     Acerinox SA     11,393,988    
    302,454     Acesa Infraestructuras SA     9,182,109    
    204,963     ACS Actividades de Construccion y Servicios SA     11,280,872    
    682,521     Banco Popular Espanol SA     12,459,213    
    330,141     Banco Santander Central Hispano SA     6,031,660    
    292,561     Cintra Concesiones de Infraestructuras de Transporte SA     4,610,086    

 

See accompanying notes to the financial statements.


9


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        Spain — continued  
    303,490     Gas Natural SDG SA     16,180,257    
    263,270     Iberdrola SA     14,603,050    
    233,176     Inditex SA     13,689,472    
    346,539     Repsol YPF SA     12,487,316    
    226,305     Sacyr Vallehermoso SA     8,967,118    
    3,375,320     Telefonica SA     83,936,572    
    Total Spain     204,821,713    
      Sweden — 4.3%  
    152,400     Alfa Laval AB     9,203,288    
    819,425     Hennes & Mauritz AB Class B     46,326,441    
    311,100     Kinnevik Investment AB Class B     5,988,064    
    483,900     Nobia AB     5,398,723    
    561,200     Nordea AB     8,574,072    
    1,193,500     Sandvik AB     24,391,818    
    577,200     Scania AB Class B     13,468,488    
    109,900     Skandinaviska Enskilda Banken AB Class A     3,329,887    
    188,200     SSAB Svenskt Stal AB Series A     6,429,431    
    204,900     Swedbank AB     6,731,023    
    326,000     Swedish Match AB     6,319,786    
    336,300     Tele2 AB Class B     6,160,751    
    800,500     TeliaSonera AB     6,256,931    
    708,300     Volvo AB Class A     12,307,135    
    1,096,800     Volvo AB Class B     19,021,064    
    Total Sweden     179,906,902    
      Switzerland — 4.0%  
    321,635     Actelion Ltd *      17,868,768    
    83,157     Adecco SA     5,434,171    
    437,434     Credit Suisse Group     28,707,995    
    55,040     Geberit AG (Registered)     8,126,607    
    246,390     Logitech International *      6,674,603    
    18,468     Nobel Biocare AG     5,040,575    
    795,099     Novartis AG (Registered)     41,913,602    

 

See accompanying notes to the financial statements.


10


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        Switzerland — continued  
    29,934     Swatch Group AG     8,991,593    
    46,183     Synthes Inc     5,282,596    
    137,184     Zurich Financial Services AG     39,399,292    
    Total Switzerland     167,439,802    
      United Kingdom — 18.2%  
    865,278     3i Group Plc     18,453,509    
    229,070     Alliance & Leicester Plc     4,878,375    
    116,447     Anglo American Plc     6,685,257    
    1,023,858     AstraZeneca Plc     50,459,204    
    771,796     Aviva Plc     11,056,174    
    485,139     Barratt Developments Plc     9,110,498    
    2,126,532     BG Group Plc     34,030,841    
    868,117     BHP Billiton Plc     25,457,308    
    158,288     British Land Co     4,140,820    
    2,251,675     BT Group Plc     14,359,829    
    578,429     Burberry Group Plc     7,148,225    
    795,774     Capita Group Plc     12,072,905    
    126,134     Carnival Plc     5,605,085    
    2,291,075     Centrica Plc     17,856,213    
    561,073     Enterprise Inns Plc (Ordinary Shares)     7,313,844    
    674,942     GlaxoSmithKline Plc     17,613,641    
    1,045,283     HBOS Plc     18,580,809    
    442,231     Imperial Tobacco Group Plc     20,011,618    
    653,844     Ladbrokes Plc     5,761,555    
    670,307     Marks & Spencer Group Plc     8,472,864    
    938,414     National Grid Plc     14,063,432    
    514,537     Next Plc     20,111,304    
    2,227,697     Old Mutual Plc     7,194,186    
    462,219     Reckitt Benckiser Plc     25,204,096    
    945,217     Reuters Group Plc     12,180,881    
    742,187     Rio Tinto Plc     51,266,201    
    4,313,025     Royal Bank of Scotland Group     50,118,444    
    1,297,945     Royal Dutch Shell Plc A Shares (London)     50,434,208    

 

See accompanying notes to the financial statements.


11


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)


Shares		  
Description		  
Value ($)		  
        United Kingdom — continued  
    527,309     Royal Dutch Shell Plc B Shares (London)     20,562,564    
    625,893     Scottish & Southern Energy Plc     17,934,677    
    1,132,527     Smith & Nephew Plc     13,342,928    
    2,961,388     Tesco Plc     25,459,314    
    323,543     Travis Perkins Plc     11,680,081    
    25,819,575     Vodafone Group Inc     83,439,713    
    5,121,740     William Morrison Supermarkets Plc     29,683,090    
    408,547     Xstrata Plc     24,037,185    
    Total United Kingdom     755,780,878    
    TOTAL COMMON STOCKS (COST $3,419,262,939)     3,829,072,117    
      PREFERRED STOCKS — 0.7%  
      Germany — 0.7%  
    8,935     Porsche AG (Non Voting) 0.46%     15,977,833    
    116,048     Volkswagen AG 1.39%     14,434,283    
    Total Germany     30,412,116    
    TOTAL PREFERRED STOCKS (COST $13,312,523)     30,412,116    
      RIGHTS AND WARRANTS — 0.0%  
      Singapore — 0.0%  
    2,824,200     Genting International Plc Rights, Expires 09/05/07 *      9,264    
    TOTAL RIGHTS AND WARRANTS (COST $303,235)     9,264    

 

See accompanying notes to the financial statements.


12


GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 4.3%  
    7,489,600     Bank of New York Institutional Cash Reserves Fund (b)      7,489,600    
    168,500,000     Societe Generale Time Deposit, 5.28%, due 09/04/07     168,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $175,989,600)     175,989,600    
    TOTAL INVESTMENTS — 97.2%
(Cost $3,608,868,297)		     4,035,483,097    
        Other Assets and Liabilities (net) — 2.8%     115,893,688    
    TOTAL NET ASSETS — 100.0%   $ 4,151,376,785    

 

See accompanying notes to the financial statements.


13


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
11/20/07   CHF     45,143,060     $ 37,584,201     $ (58,166 )  
11/20/07   CHF     45,143,060       37,584,201       (73,521 )  
11/20/07   CHF     45,143,060       37,584,201       (49,128 )  
11/20/07   CHF     45,143,060       37,584,201       (60,112 )  
11/20/07   CHF     45,143,060       37,584,201       (89,329 )  
11/20/07   CHF     45,143,060       37,584,201       (104,269 )  
11/20/07   CHF     58,925,060       49,058,511       (122,657 )  
11/20/07   EUR     14,523,000       19,840,655       208,608    
11/20/07   EUR     20,343,000       27,791,671       (34,400 )  
11/20/07   GBP     7,486,000       15,069,525       (8,177 )  
11/20/07   JPY     5,287,409,866       46,150,991       (292,700 )  
11/20/07   JPY     5,287,409,866       46,150,991       (296,616 )  
11/20/07   JPY     5,287,409,866       46,150,991       (376,726 )  
11/20/07   JPY     5,287,409,866       46,150,991       (454,649 )  
11/20/07   JPY     5,287,409,866       46,150,991       (425,910 )  
11/20/07   JPY     5,287,409,866       46,150,991       (551,099 )  
11/20/07   JPY     9,108,121,866       79,499,956       (291,275 )  
11/20/07   NOK     54,363,604       9,336,099       169,305    
11/20/07   NOK     54,363,604       9,336,099       172,091    
11/20/07   NOK     54,363,604       9,336,099       150,885    
11/20/07   NOK     54,363,604       9,336,099       164,058    
11/20/07   NOK     54,363,604       9,336,099       157,089    
11/20/07   NOK     54,363,604       9,336,099       151,521    
11/20/07   NOK     54,363,604       9,336,099       155,229    
11/20/07   NZD     44,428,285       30,984,759       (1,958,965 )  
11/20/07   NZD     8,824,285       6,154,150       44,816    
11/20/07   NZD     8,824,285       6,154,150       36,741    
11/20/07   NZD     8,824,285       6,154,150       50,569    
11/20/07   NZD     8,824,285       6,154,150       43,774    
11/20/07   NZD     8,824,285       6,154,150       64,397    
11/20/07   NZD     8,824,285       6,154,150       43,774    
11/20/07   SEK     55,977,480       8,145,283       29,630    
11/20/07   SEK     55,977,480       8,145,283       43,173    

 

See accompanying notes to the financial statements.


14


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
11/20/07   SEK     55,977,480     $ 8,145,283     $ 28,489    
11/20/07   SEK     55,977,480       8,145,283       33,545    
11/20/07   SEK     55,977,480       8,145,283       47,744    
11/20/07   SEK     55,977,480       8,145,283       44,365    
11/20/07   SEK     55,977,480       8,145,283       26,579    
11/20/07   SGD     50,478,870       33,308,063       (233,445 )  
11/20/07   SGD     5,296,870       3,495,096       6,871    
11/20/07   SGD     5,296,870       3,495,096       7,298    
11/20/07   SGD     5,296,870       3,495,096       10,313    
11/20/07   SGD     5,296,870       3,495,096       5,607    
11/20/07   SGD     5,296,870       3,495,096       7,789    
11/20/07   SGD     5,296,870       3,495,096       5,031    
                $ 938,229,442     $ (3,571,853 )  
Sales  
11/20/07   AUD     36,169,826     $ 29,533,109     $ (539,991 )  
11/20/07   AUD     36,169,826       29,533,109       (655,843 )  
11/20/07   AUD     36,169,826       29,533,109       (747,352 )  
11/20/07   AUD     36,169,826       29,533,109       (646,439 )  
11/20/07   AUD     36,169,826       29,533,109       (653,673 )  
11/20/07   AUD     36,169,826       29,533,109       (725,361 )  
11/20/07   AUD     36,169,826       29,533,109       (535,180 )  
11/20/07   CAD     18,183,044       17,242,519       5,807    
11/20/07   CAD     13,096,044       12,418,646       (29,631 )  
11/20/07   CAD     13,096,044       12,418,646       (33,158 )  
11/20/07   CAD     13,096,044       12,418,646       (19,731 )  
11/20/07   CAD     13,096,044       12,418,646       (48,133 )  
11/20/07   CAD     13,096,044       12,418,646       (28,002 )  
11/20/07   CAD     13,096,044       12,418,646       (22,372 )  
11/20/07   DKK     99,347,310       18,226,299       86,277    
11/20/07   DKK     33,705,310       6,183,590       (60,085 )  
11/20/07   DKK     33,705,310       6,183,590       (68,472 )  
11/20/07   DKK     33,705,310       6,183,590       (70,469 )  
11/20/07   DKK     33,705,310       6,183,591       (65,642 )  
11/20/07   DKK     33,705,310       6,183,591       (68,793 )  
11/20/07   DKK     33,705,310       6,183,591       (66,364 )  

 

See accompanying notes to the financial statements.


15


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
11/20/07   EUR     14,507,283     $ 19,819,183     $ (154,238 )  
11/20/07   EUR     11,526,283       15,746,678       (165,229 )  
11/20/07   EUR     11,526,283       15,746,678       (167,581 )  
11/20/07   EUR     11,526,283       15,746,678       (186,196 )  
11/20/07   EUR     11,526,283       15,746,678       (179,741 )  
11/20/07   EUR     11,526,283       15,746,678       (174,554 )  
11/20/07   EUR     11,526,283       15,746,678       (181,816 )  
11/20/07   GBP     11,797,248       23,748,187       (253,373 )  
11/20/07   GBP     9,790,248       19,708,040       (288,261 )  
11/20/07   GBP     9,790,248       19,708,040       (306,901 )  
11/20/07   GBP     9,790,248       19,708,040       (318,669 )  
11/20/07   GBP     9,790,248       19,708,040       (312,776 )  
11/20/07   GBP     9,790,248       19,708,040       (340,972 )  
11/20/07   GBP     9,790,248       19,708,040       (318,454 )  
11/20/07   HKD     71,621,353       9,199,598       (16,431 )  
11/20/07   HKD     71,621,353       9,199,598       (17,782 )  
11/20/07   HKD     71,621,353       9,199,598       (17,138 )  
11/20/07   HKD     71,621,353       9,199,598       (21,139 )  
11/20/07   HKD     71,621,353       9,199,598       (18,550 )  
11/20/07   HKD     71,621,353       9,199,598       (19,727 )  
11/20/07   HKD     71,621,353       9,199,598       (20,903 )  
11/20/07   JPY     483,071,000       4,216,470       (86,504 )  
11/20/07   JPY     669,569,000       5,844,312       (87,673 )  
11/20/07   SEK     51,278,000       7,461,462       225,998    
                $ 692,029,108     $ (8,421,217 )  

 

See accompanying notes to the financial statements.


16


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  40     AEX   September 2007   $ 5,703,468     $ 47,898    
  242     CAC 40   September 2007     18,703,515       183,336    
  390     DAX   September 2007     101,626,745       (1,361,441 )  
  218     FTSE 100   September 2007     27,759,307       225,631    
  357     HANG SENG   September 2007     54,605,413       2,343,954    
  51     IBEX 35   September 2007     10,071,755       28,039    
  734     MSCI Singapore   September 2007     40,428,143       1,746,012    
  4,172     OMXS 30   September 2007     73,560,913       1,454,343    
  23     S&P/MIB   September 2007     6,305,515       28,660    
  14     SPI 200   September 2007     1,793,510       137,731    
  47     TOPIX   September 2007     6,541,195       334,873    
    $ 347,099,479     $ 5,169,036    
Sales      
  926     S&P Toronto 60   September 2007   $ 139,391,061     $ 311,393    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


17


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 84.68% of the Net Assets of the Fund were valued using fair value prices
based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

See accompanying notes to the financial statements.


18



GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $7,242,514
(cost $3,608,868,297) (Note 2)		   $ 4,035,483,097    
Cash     41,916    
Foreign currency, at value (cost $3,449,850) (Note 2)     3,408,789    
Receivable for investments sold     1,767,518    
Receivable for Fund shares sold     100,723,598    
Dividends and interest receivable     6,746,340    
Foreign taxes receivable     1,889,659    
Unrealized appreciation on open forward currency contracts (Note 2)     2,227,373    
Receivable for collateral on open futures contracts (Note 2)     27,250,000    
Receivable for variation margin on open futures contracts (Note 2)     1,871,429    
Receivable for expenses reimbursed by Manager (Note 3)     174,747    
Total assets     4,181,584,466    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     7,489,600    
Payable for investments purchased     1,768,087    
Payable for Fund shares repurchased     4,166,074    
Payable to affiliate for (Note 3):  
Management fee     1,735,150    
Shareholder service fee     352,488    
Trustees and Chief Compliance Officer of GMO Trust fees     7,770    
Unrealized depreciation on open forward currency contracts (Note 2)     14,220,443    
Accrued expenses     468,069    
Total liabilities     30,207,681    
Net assets   $ 4,151,376,785    

 

See accompanying notes to the financial statements.


19


GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 3,294,833,567    
Accumulated undistributed net investment income     55,217,510    
Accumulated net realized gain     381,162,633    
Net unrealized appreciation     420,163,075    
    $ 4,151,376,785    
Net assets attributable to:  
Class III shares   $ 1,048,628,267    
Class IV shares   $ 3,102,748,518    
Shares outstanding:  
Class III     32,218,205    
Class IV     95,264,244    
Net asset value per share:  
Class III   $ 32.55    
Class IV   $ 32.57    

 

See accompanying notes to the financial statements.


20


GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $7,667,115)   $ 71,033,685    
Interest     3,477,515    
Securities lending income     2,966,442    
Total investment income     77,477,642    
Expenses:  
Management fee (Note 3)     10,620,067    
Shareholder service fee – Class III (Note 3)     773,826    
Shareholder service fee – Class IV (Note 3)     1,373,793    
Custodian and fund accounting agent fees     601,344    
Transfer agent fees     23,920    
Audit and tax fees     35,788    
Legal fees     46,552    
Trustees fees and related expenses (Note 3)     22,956    
Miscellaneous     33,120    
Total expenses     13,531,366    
Fees and expenses reimbursed by Manager (Note 3)     (728,580 )  
Net expenses     12,802,786    
Net investment income (loss)     64,674,856    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     364,476,976    
Closed futures contracts     16,847,984    
Foreign currency, forward contracts and foreign currency related transactions     604,100    
Net realized gain (loss)     381,929,060    
Change in net unrealized appreciation (depreciation) on:  
Investments     (133,563,787 )  
Open futures contracts     4,876,288    
Foreign currency, forward contracts and foreign currency related transactions     (18,008,691 )  
Net unrealized gain (loss)     (146,696,190 )  
Net realized and unrealized gain (loss)     235,232,870    
Net increase (decrease) in net assets resulting from operations   $ 299,907,726    

 

See accompanying notes to the financial statements.


21


GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 64,674,856     $ 60,256,121    
Net realized gain (loss)     381,929,060       447,234,776    
Change in net unrealized appreciation (depreciation)     (146,696,190 )     117,750,593    
Net increase (decrease) in net assets from operations     299,907,726       625,241,490    
Distributions to shareholders from:  
Net investment income  
Class III     —       (14,069,563 )  
Class IV     —       (41,057,231 )  
Total distributions from net investment income     —       (55,126,794 )  
Net realized gains  
Class III     (39,371,453 )     (169,426,500 )  
Class IV     (115,370,357 )     (223,169,718 )  
Total distributions from net realized gains     (154,741,810 )     (392,596,218 )  
      (154,741,810 )     (447,723,012 )  
Net share transactions (Note 7):  
Class III     64,664,090       (2,236,726,776 )  
Class IV     126,423,239       2,754,412,787    
Increase (decrease) in net assets resulting from net
share transactions		     191,087,329       517,686,011    
Total increase (decrease) in net assets     336,253,245       695,204,489    
Net assets:  
Beginning of period     3,815,123,540       3,119,919,051    
End of period (including accumulated undistributed net
investment income of $55,217,510 and distributions in
excess of net investment income of $9,457,346, respectively)		   $ 4,151,376,785     $ 3,815,123,540    

 

See accompanying notes to the financial statements.


22



GMO International Growth Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value,
beginning of period		   $ 31.37     $ 29.90     $ 27.22     $ 23.67     $ 16.83     $ 19.65    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.52       0.77       0.53       0.40       0.29       0.25    
Net realized and unrealized
gain (loss)		     1.93       4.80       3.57       3.94       6.81       (2.46 )  
Total from investment
operations		     2.45       5.57       4.10       4.34       7.10       (2.21 )  
Less distributions to shareholders:  
From net investment income     —       (0.49 )     (0.10 )     (0.33 )     (0.26 )     (0.61 )  
From net realized gains     (1.27 )     (3.61 )     (1.32 )     (0.46 )     —       —    
Total distributions     (1.27 )     (4.10 )     (1.42 )     (0.79 )     (0.26 )     (0.61 )  
Net asset value, end of period   $ 32.55     $ 31.37     $ 29.90     $ 27.22     $ 23.67     $ 16.83    
Total Return(a)      7.68 %**      19.21 %     15.54 %     18.66 %     42.33 %     (11.40 )%  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,048,628     $ 950,332     $ 3,119,919     $ 1,653,053     $ 565,104     $ 178,804    
Net expenses to average
daily net assets		     0.67 %*      0.67 %     0.68 %     0.69 %     0.69 %     0.69 %  
Net investment income to
average daily net assets		     3.10 %*      2.46 %     1.89 %     1.64 %     1.38 %     1.32 %  
Portfolio turnover rate     46 %**      74 %     57 %     52 %     63 %     78 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.05 %     0.08 %     0.09 %     0.16 %     0.22 %  

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


23


GMO International Growth Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
July 12, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 31.38     $ 29.92    
Income (loss) from investment operations:  
Net investment income (loss)†      0.53       0.20    
Net realized and unrealized gain (loss)     1.93       4.48    
Total from investment operations     2.46       4.68    
Less distributions to shareholders:  
From net investment income     —       (0.50 )  
From net realized gains     (1.27 )     (2.72 )  
Total distributions     (1.27 )     (3.22 )  
Net asset value, end of period   $ 32.57     $ 31.38    
Total Return(a)      7.70 %**      15.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,102,749     $ 2,864,791    
Net expenses to average daily net assets     0.61 %*      0.61 %*   
Net investment income to average daily net assets     3.19 %*      1.01 %*   
Portfolio turnover rate     46 %**      74 %††   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.04 %*      0.05 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


24



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO International Growth 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, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the S&P/Citigroup Primary Market Index ("PMI") Europe, Pacific, Asia Composite ("EPAC") Growth Index. The Fund typically makes equity investments in companies from developed countries, other than the U.S.

As of August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different level of shareholder service fees.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.


25


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby


26


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.


27


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $7,242,514, collateralized by cash in the amount of $7,489,600 which was invested in the Bank of New York Institutional Cash Reserves Fund.


28


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,612,550,996     $ 526,682,895     $ (103,750,794 )   $ 422,932,101    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums


29


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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 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's operations.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment compani es. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


30


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.52% 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 0.15% for Class III shares and 0.09% for Class IV shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.52% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $17,344 and $12,144, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $1,788,525,543 and $1,800,980,360, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


31


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 21.82% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts, and 96.45% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,891,124     $ 95,191,880       10,949,574     $ 338,325,961    
Shares issued to shareholders
in reinvestment of distributions		     1,165,968       39,339,765       5,869,582       179,928,725    
Shares repurchased     (2,132,310 )     (69,867,555 )     (90,878,436 )     (2,754,981,462 )  
Net increase (decrease)     1,924,782     $ 64,664,090       (74,059,280 )   $ (2,236,726,776 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from July 12, 2006
(commencement of operations)
through February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     9,154,956     $ 297,802,629       90,200,139     $ 2,723,394,473    
Shares issued to shareholders
in reinvestment of distributions		     3,416,355       115,370,357       8,553,466       264,644,244    
Shares repurchased     (8,594,835 )     (286,749,747 )     (7,465,837 )     (233,625,930 )  
Net increase (decrease)     3,976,476     $ 126,423,239       91,287,768     $ 2,754,412,787    

 


32



GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall compet ence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


33


GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


34


GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


35


GMO International Growth Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.67 %   $ 1,000.00     $ 1,076.80     $ 3.50    
2) Hypothetical     0.67 %   $ 1,000.00     $ 1,021.77     $ 3.40    
Class IV      
1) Actual     0.61 %   $ 1,000.00     $ 1,077.00     $ 3.18    
2) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.07     $ 3.10    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days, divided by 366 days in the year.


36



GMO International Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.0 %  
Short-Term Investments     3.9    
Preferred Stocks     2.6    
Futures     0.1    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.3 )  
Other     (0.3 )  
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     18.0 %  
Japan     16.8    
Germany     7.6    
Australia     6.8    
Canada     5.4    
Italy     4.6    
Switzerland     4.1    
Sweden     3.5    
France     3.3    
Singapore     3.2    
Netherlands     3.1    
Finland     2.6    
South Korea     2.6    
Taiwan     2.2    
Ireland     2.0    
Belgium     1.9    
Hong Kong     1.8    
Brazil     1.8    
Greece     1.5    
Austria     1.4    
Spain     1.3    
China     0.9    
Norway     0.7    
Thailand     0.6    
Denmark     0.4    
Malaysia     0.4    
Mexico     0.3    
Israel     0.3    
Russia     0.3    
Poland     0.2    
Turkey     0.1    
Hungary     0.1    
South Africa     0.1    
Philippines     0.1    
      100.0 %  

 


1


GMO International Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Industrials     24.0 %  
Financials     18.9    
Consumer Discretionary     16.9    
Materials     14.5    
Consumer Staples     8.4    
Information Technology     5.0    
Energy     4.8    
Health Care     4.4    
Utilities     1.7    
Telecommunication Services     1.3    
      100.0 %  

 


2



GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
      COMMON STOCKS — 94.0%        
      Australia — 6.5%        
  77,982     BlueScope Steel Ltd     678,874    
  390,066     Boral Ltd     2,515,207    
  195,444     Bradken Ltd     1,685,143    
  98,399     Cabcharge Australia Ltd     798,888    
  335,484     Challenger Financial Services Group Ltd     1,486,038    
  31,614     Cochlear Ltd     1,732,027    
  1,687,677     Commonwealth Property Office Fund     2,320,825    
  210,981     Consolidated Minerals Ltd     701,398    
  939,440     CSR Ltd     2,581,376    
  210,930     David Jones Ltd     893,631    
  1,981,866     DB RREEF Trust     3,251,416    
  282,972     Downer Edi Ltd     1,499,762    
  15,332     Fortescue Metals Group Ltd *      424,692    
  327,452     Great Southern Ltd     627,931    
  230,544     Gunns Ltd     613,446    
  68,625     Incitec Pivot Ltd     3,673,956    
  112,092     Independence Group NL     528,056    
  632,646     ING Industrial Fund Unit     1,387,105    
  170,353     Iress Market Technology     1,140,597    
  53,530     JB Hi-Fi Ltd     547,326    
  113,880     Jubilee Mines     1,429,980    
  98,483     Just Group Ltd     363,086    
  886,608     Macquarie DDR Trust     870,846    
  2,013,549     Macquarie Office Trust     2,588,332    
  227,512     MFS Ltd     840,148    
  386,672     Minara Resources Ltd     1,850,790    
  395,227     Mincor Resources     1,060,540    
  842,641     Mirvac Group Ltd     3,707,265    
  721,173     Oxiana Ltd     1,939,542    
  135,620     Paladin Resources Ltd *      670,929    
  764,444     PaperlinX Ltd     2,114,540    
  210,599     Sally Malay Mining Ltd *      689,252    

 

See accompanying notes to the financial statements.


3


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Australia — continued        
  87,894     Silex Systems Ltd *      617,722    
  276,190     Tattersall's Ltd     947,389    
  80,728     Transpacific Industries Group Ltd     721,570    
  214,341     West Australian Newspapers Holdings Ltd     2,695,951    
    Total Australia     52,195,576    
        Austria — 1.4%        
  76,675     Austrian Airlines *      856,452    
  18,160     Boehler Uddeholm (Bearer)     1,804,705    
  23,003     Flughafen Wien AG     2,302,579    
  142,040     Immofinanz Immobilien Anlagen AG *      1,760,718    
  19,232     Mayr-Melnhof Karton AG (Bearer)     2,074,143    
  41,131     RHI AG *      2,013,357    
    Total Austria     10,811,954    
        Belgium — 1.8%        
  54,656     AGFA-Gevaert NV     1,142,469    
  25,508     CMB Cie Maritime Belge     1,670,916    
  4,721     Cofinimmo SA     812,733    
  66,179     Cumerio     2,699,810    
  54,010     Euronav SA     1,705,663    
  15,667     GIMV NV     1,032,232    
  50,136     Tessenderlo Chemie     2,820,172    
  10,843     Umicore     2,486,831    
    Total Belgium     14,370,826    
        Brazil — 0.3%        
  20,756     Companhia Saneamento Basico Sao Paulo     505,676    
  9,300     Companhia Siderurgica Nacional SA     527,758    
  11,300     Duratex SA (Preferred Shares)     279,908    
  6,300     Porto Seguro SA     213,532    
  9,300     Tele Norte Leste Participacoes SA     317,537    
  7,700     Unibanco-Uniao de Bancos Brasileiros SA GDR     859,166    
    Total Brazil     2,703,577    

 

See accompanying notes to the financial statements.


4


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Canada — 5.2%        
  56,000     Ace Aviation Holdings Inc Class A *      1,314,621    
  73,200     AGF Management Ltd Class B     2,430,295    
  59,400     Anvil Mining Ltd *      981,562    
  91,500     AUR Resources Inc     3,510,966    
  55,500     Baytex Trust     963,892    
  53,800     Biovail Corp     948,633    
  26,800     Canadian Utilities Class A     1,234,678    
  200,500     CGI Group Inc *      2,221,449    
  9,400     Cogeco Cable Inc     408,580    
  106,800     COM DEV International Ltd *      550,182    
  105,500     Denison Mines Corp *      914,134    
  26,000     Dundee REIT     916,648    
  38,046     FNX Mining Co Inc *      1,037,618    
  146,700     Fronteer Development Group Inc *      1,125,256    
  66,900     Hudbay Minerals Inc *      1,513,486    
  76,500     Katanga Mining Ltd *      1,470,597    
  13,500     KHD Humboldt Wedag International Ltd *      851,850    
  15,400     Laurentian Bank of Canada     544,688    
  58,300     Legacy Hotels Real Estate Investment Trust     695,073    
  103,400     Methanex Corp     2,316,708    
  229,400     Northgate Minerals Corp *      692,979    
  14,400     Novatel Inc *      519,120    
  35,666     Onex Corp     1,168,602    
  135,571     Quebecor Inc Class B     4,671,807    
  126,456     Quebecor World Inc *      1,128,045    
  63,500     RONA Inc *      1,293,452    
  87,500     Russel Metals Inc     2,470,052    
  34,100     Transat AT Inc Class B     944,531    
  41,200     Transcontinental Inc     785,375    
  64,900     Trican Well Service Ltd     1,155,417    
  195,500     UEX Corp *      877,528    
    Total Canada     41,657,824    

 

See accompanying notes to the financial statements.


5


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        China — 0.9%        
  116,000     Angang New Steel Co Class H     392,903    
  218,000     China Life Insurance Co Ltd Class H     1,032,563    
  1,232,992     China Petroleum & Chemical Corp Class H     1,357,997    
  146,000     China Shipping Development Co Ltd Class H     441,345    
  7,250     China Telecom Corp Ltd ADR     421,805    
  115,500     China Telecom Corp Ltd Class H     66,905    
  824,000     CNOOC Ltd     1,011,078    
  362,000     Datang International Power Generation Co Ltd     383,775    
  825,600     Denway Motors Ltd     387,048    
  374,000     Huaneng Power International Inc Class H     432,052    
  156,000     Jiangxi Copper Co     363,646    
  202,000     Maanshan Iron & Steel Co Ltd Class H     180,782    
  182,000     Yanzhou Coal Mining Co Ltd     321,341    
    Total China     6,793,240    
        Denmark — 0.4%        
  60,488     A/S Dampskibsselskabet Torm (a)      2,616,110    
  10,562     Sydbank     482,867    
    Total Denmark     3,098,977    
        Finland — 2.5%        
  93,502     Amer Group Class A     2,130,774    
  58,176     Elcoteq Network Corp     444,007    
  32,818     Elisa Oyj     915,398    
  50,011     KCI Konecranes Oyj     1,908,258    
  6,979     Kesko Oyj Class B     411,225    
  100,556     Nokian Renkaat Oyj     3,548,118    
  170,029     OKO Bank     3,388,630    
  45,400     Orion Oyj     1,083,526    
  23,400     Outotec Oyj     1,345,823    
  24,200     Rakentajain Konevuokr     944,924    
  75,900     Ramirent Oyj     1,806,700    
  94,678     Tietoenator Oyj     2,202,908    
    Total Finland     20,130,291    

 

See accompanying notes to the financial statements.


6


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        France — 3.1%        
  8,945     Air France     370,208    
  1,234     Areva     1,232,533    
  27,352     Arkema *      1,694,239    
  45,750     Business Objects SA *      2,007,441    
  25,629     Casino Guichard-Perrachon SA     2,610,170    
  3,709     Ciments Francais     769,710    
  2,985     Michelin SA Class B     374,660    
  35,890     Nexans SA     5,772,974    
  69,191     Publicis Groupe     2,991,196    
  23,036     UbiSoft Entertainment SA *      1,427,443    
  32,128     Valeo SA     1,550,025    
  14,794     Wendel Investissement     2,497,386    
  24,706     Zodiac SA     1,783,166    
    Total France     25,081,151    
        Germany — 7.0%        
  63,776     Altana AG     1,459,017    
  15,014     Arques Industries AG     641,936    
  29,514     Balda AG *      318,202    
  40,214     Bilfinger & Berger AG     3,333,675    
  30,326     Comdirect Bank AG     349,909    
  404,305     Depfa Bank Plc     7,666,642    
  29,813     Deutz AG *      350,228    
  47,489     Epcos AG     903,241    
  14,155     Fielmann AG     926,279    
  41,375     Freenet AG     970,076    
  5,389     Fuchs Petrolub AG Preferred     500,935    
  28,378     GEA Group AG *      924,504    
  22,662     H&R Warsag AG     861,038    
  114,593     Hannover Rueckversicherungs AG (Registered)     5,323,157    
  12,976     Hochtief AG     1,304,399    
  9,528     K&S AG     1,373,371    
  24,695     Kloeckner & Co AG     1,525,269    
  115,324     Norddeutsche Affinerie AG     5,054,351    

 

See accompanying notes to the financial statements.


7


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued        
  3,017     Puma AG Rudolf Dassler Sport     1,214,563    
  12,648     Q-Cells AG *      1,124,061    
  102,012     Rhoen-Klinikum AG     3,132,110    
  3,538     Salzgitter AG     700,683    
  39,232     SGL Carbon AG *      1,894,278    
  251,616     Suedzucker AG     4,830,434    
  11,449     Techem AG     712,598    
  245,698     TUI AG * (a)      6,390,166    
  18,270     Vossloh AG     1,969,320    
    Total Germany     55,754,442    
        Greece — 1.5%        
  33,052     Babis Vovos International *      1,044,019    
  81,892     Diana Shipping Inc     2,174,233    
  37,554     DryShips Inc     2,679,853    
  172,137     Hellenic Technodomiki Tev SA     2,267,225    
  104,627     Michaniki SA     925,706    
  80,094     Quintana Maritime Ltd     1,390,432    
  190,551     Technical Olympic SA *      399,283    
  13,543     Tsakos Energy Navigation Ltd     921,872    
    Total Greece     11,802,623    
        Hong Kong — 1.8%        
  165,500     Asia Satellite Telecommunications Holdings Ltd     323,495    
  48,900     CDC Corp *      429,831    
  790,000     Chinese Estates Holdings Ltd     1,159,016    
  38,000     Dah Sing Financial Services     307,088    
  67,000     Guoco Group     901,449    
  186,500     Kingboard Chemical Holdings Ltd     1,100,875    
  81,000     Orient Overseas International Ltd     877,622    
  3,361,000     Pacific Basin Shipping Ltd     6,030,201    
  615,000     Sun Hung Kai & Co Ltd     844,508    
  986,000     Tian An China Investment     1,275,181    
  66,000     Wing Hang Bank Ltd     859,171    
    Total Hong Kong     14,108,437    

 

See accompanying notes to the financial statements.


8


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Hungary — 0.1%        
  1,510     Gedeon Richter Rt     297,019    
  4,200     MOL Magyar Olaj es Gazipari Rt (New Shares)     598,408    
    Total Hungary     895,427    
        Ireland — 1.9%        
  110,207     C&C Group Plc     806,736    
  276,056     DCC Plc     7,300,287    
  1,474,085     Fyffes Plc     1,605,655    
  109,575     Kerry Group Plc     2,665,056    
  72,866     Kingspan Group Plc     1,883,938    
  1,302,945     Total Produce Ltd *      1,153,709    
    Total Ireland     15,415,381    
        Israel — 0.3%        
  99,500     Bank Hapoalim BM     474,202    
  88,930     Bank Leumi Le     347,403    
  16,910     Check Point Software Technologies Ltd *      396,709    
  24,800     Teva Pharmaceutical Industries ADR     1,066,400    
    Total Israel     2,284,714    
        Italy — 3.6%        
  379,027     AEM SPA     1,383,350    
  311,037     ASM Brescia SPA     1,840,851    
  85,009     Benetton Group SPA     1,303,450    
  1,400,808     Beni Stabili SPA     1,735,745    
  177,554     Bulgari SPA     2,499,080    
  65,697     Buzzi Unicem SPA     1,890,195    
  211,933     Cementir SPA     2,680,055    
  86,797     Danieli and Co SPA (Savings Shares)     1,964,072    
  86,211     ERG SPA     1,923,107    
  266,262     Impregilo SPA *      1,933,309    
  80,093     Indesit Company SPA     1,660,113    
  66,603     Italcementi SPA-Di RISP     1,112,213    
  35,024     Italmobiliare SPA-RNC     2,977,490    

 

See accompanying notes to the financial statements.


9


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued        
  277,957     Milano Assicurazioni SPA     2,217,886    
  196,258     Risanamento SPA *      1,367,401    
    Total Italy     28,488,317    
        Japan — 16.2%        
  108,200     Aderans Co Ltd     1,976,127    
  21,500     Alfresa Holdings Corp     1,428,554    
  205,800     Alps Electric Co Ltd     2,414,456    
  136,400     AOC Holdings Inc     1,989,946    
  2,000     Ardepro Co Ltd     453,236    
  39,000     Avex Group Holding Inc (a)      480,593    
  127,000     Bosch Automotive Systems Corp     608,086    
  212,000     Calsonic Kansei Corp     772,988    
  39,100     Capcom     839,198    
  192,000     Central Glass Co Ltd     990,147    
  68,000     Chiba Kogyo Bank Ltd *      851,053    
  58,000     Chugoku Marine Paints Ltd     654,771    
  253,000     Cosmo Oil Co Ltd     1,142,881    
  112,950     Daiei Inc *      851,582    
  185,000     Daiichi Chuo Kisen Kaisha     1,383,977    
  34,000     Daiichikosho Co Ltd     383,246    
  390,000     Daikyo Inc     1,400,516    
  192,000     Daio Paper Corp (a)      1,571,525    
  65,800     Futaba Industrial Co Ltd     1,658,944    
  201,000     Godo Steel     763,922    
  57,100     H.I.S. Co Ltd     1,440,790    
  9,240     Hakuhodo Dy Holdings Inc     642,610    
  435,000     Hanwa Co Ltd     2,083,995    
  428,400     Haseko Corp *      1,154,050    
  15,400     Hisamitsu Pharmaceutical Co Inc     422,604    
  1,060,500     Hitachi Zosen Corp *      1,741,245    
  129,700     Hosiden Corp     1,851,270    
  625,000     Iwatani International Corp (a)      1,835,913    
  257,000     JACCS Co Ltd     528,348    

 

See accompanying notes to the financial statements.


10


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  71     Japan Excellent Inc     623,938    
  627     Japan Prime Realty Investment Corp     2,551,239    
  53,400     Joint Corp     1,515,095    
  157,000     Juki Corp     1,421,424    
  43,000     Kaga Electronics Co Ltd     739,723    
  150,000     Kamigumi Co Ltd     1,288,660    
  58,000     Kanto Tsukuba Bank Ltd (a)      407,642    
  104,300     Katokichi Co Ltd     489,596    
  252,000     Kayaba Industry Co     1,174,101    
  171     Kenedix Realty Investment Corp     1,134,440    
  400,000     Kiyo Holdings Inc     597,206    
  32,600     KOA Corp     454,447    
  51,000     Kohnan Shoji Co Ltd (a)      740,698    
  85,000     Kojima Co Ltd (a)      650,384    
  6,000     Komatsu Electronic Metal     397,986    
  428,000     Kurabo Industries Ltd     997,293    
  292,000     Kyokuyo Co Ltd     536,351    
  104,000     Kyudenko Corp     545,045    
  365,000     Maeda Corp (a)      1,410,357    
  287,000     Maruha Group Inc     480,306    
  156,000     Meiji Dairies Corp     868,481    
  78,400     Mitsumi Electric Co Ltd     2,938,965    
  251,000     Mizuho Investors Securities (a)      451,822    
  126     MORI TRUST Sogo REIT Inc     1,439,234    
  192,000     Nagase & Co     2,332,455    
  205,000     Nichiro Corp     309,564    
  39,700     Nihon Kohden Corp     788,456    
  111,000     Nikkiso Co Ltd     850,006    
  62,000     Nippon Chemi-Con Corp     611,754    
  191,000     Nippon Corp     1,505,770    
  266,000     Nippon Flour Mills Co Ltd     978,904    
  722,000     Nippon Light Metal     1,580,547    
  69,000     Nippon Meat Packers Inc     747,284    
  249,000     Nippon Metal Industry Co Ltd     1,118,807    

 

See accompanying notes to the financial statements.


11


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  290,000     Nippon Yakin Koguo Co Ltd     2,603,440    
  61,000     Nipro Corp     1,209,925    
  460,000     Nissan Shatai Co Ltd     2,785,784    
  36,000     Nissin Kogyo Co Ltd     930,277    
  133     Nomura Real Estate Office Fund (REIT)     1,257,292    
  300,000     Okasan Securities Co Ltd (a)      1,777,928    
  23,800     Okinawa Electric Power Co     1,448,120    
  204     Orix JREIT Inc     1,396,009    
  141     Osaka Securities Exchange Co Ltd     533,072    
  102,000     Pacific Metals Co Ltd     1,408,756    
  450,000     Penta Ocean Construction Co Ltd * (a)      746,224    
  61,800     Pioneer Corp     751,057    
  14,880     Point Inc     638,513    
  144,900     Q.P. Corp     1,349,097    
  119,000     Ryobi Ltd     758,493    
  11,800     Ryohin Keikaku Co Ltd     764,908    
  100,600     Ryosan Co     2,657,117    
  67,000     Sanki Engineering     439,165    
  458,000     Sankyo-Tateyama Holdings Inc     687,323    
  96,000     Sanyo Shokai Ltd     819,590    
  282,000     Sasebo Heavy Industries Co Ltd     1,718,533    
  21,000     Sawai Pharmaceuticals Co Ltd     815,097    
  220,000     Seino Holdings Co Ltd     2,170,211    
  124,000     Shinwa Kaiun Kaisha Ltd     1,082,175    
  41,000     Showa Corp     506,695    
  543,000     Sumitomo Light Metal Industry     1,009,969    
  39,700     Suzuken Co Ltd     1,312,787    
  97,000     Tadano Ltd     1,242,814    
  161,000     Taihei Kogyo Co Ltd     785,031    
  70,000     Taiyo Yuden Co Ltd     1,402,191    
  79,000     Tanabe Seiyaku Co Ltd     953,166    
  398,000     TOA Corp *      443,255    
  639,000     Toho Gas Co Ltd (a)      3,252,582    
  117,800     Tokyo Steel Manufacturing Co     1,557,577    

 

See accompanying notes to the financial statements.


12


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  92     Tokyu REIT Inc     864,200    
  265,000     Topy Industries Ltd     883,795    
  155,000     Towa Real Eatate Development (a)      452,628    
  331,000     Toyo Construction Co *      255,540    
  75,000     Toyo Suisan Kaisha Ltd     1,312,847    
  561,000     Toyo Tire & Rubber Co Ltd     3,060,777    
  43,000     Tsumura & Co     701,531    
  118,000     Uchida Yoko Co Ltd     535,516    
  92,000     Uniden Corp     644,880    
  18,000     Union Tool Co     803,325    
  109     United Urban Investment Corp     763,583    
  383,000     Unitika Ltd (a)      478,836    
  56,800     Yamato Kogyo Co     2,419,710    
  612,000     Yokohama Rubber Co (a)      4,006,701    
    Total Japan     129,392,595    
        Malaysia — 0.4%        
  265,500     Genting Berhad     563,271    
  336,585     IOI Corp. Berhad     482,043    
  120,700     MISC Berhad     330,163    
  108,100     Public Bank Berhad     291,526    
  283,000     Resorts World Berhad     309,275    
  150,000     Sime Darby Berhad     403,798    
  48,197     Tanjong Plc     233,651    
  79,600     Telekom Malaysia Berhad     223,069    
    Total Malaysia     2,836,796    
        Mexico — 0.3%        
  39,300     Alfa SA de CV Class A     282,648    
  201,886     Cemex SA de CV CPO *      653,984    
  89,600     Grupo Financiero Banorte SA de CV     365,449    
  84,800     Grupo Mexico SA Class B     534,948    
  18,770     Telefonos de Mexico SA de CV Class L ADR     663,332    
    Total Mexico     2,500,361    

 

See accompanying notes to the financial statements.


13


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — 3.0%        
  67,962     Boskalis Westminster     2,943,046    
  29,500     Chicago Bridge & Iron ADR     1,101,825    
  89,403     CSM     2,965,422    
  17,073     Fugro NV     1,186,726    
  27,549     Hunter Douglas NV     2,558,052    
  25,127     Imtech NV     2,214,534    
  15,204     Koninklijke Vopak NV     892,370    
  35,735     Koninklijke Wessanen NV     540,066    
  167,084     OCE NV     3,596,150    
  42,888     SBM Offshore NV     1,605,800    
  18,491     Univar NV     1,333,099    
  9,625     Vastned NV     766,401    
  18,456     Wereldhave NV     2,210,751    
    Total Netherlands     23,914,242    
        Norway — 0.7%        
  294,500     Golden Ocean Group Ltd     1,526,876    
  50,811     Ship Finance International Ltd (New York)     1,461,832    
  17,743     Ship Finance International Ltd (Oslo)     535,633    
  99,800     Tandberg ASA     2,176,162    
    Total Norway     5,700,503    
        Philippines — 0.1%        
  179,520     Bank of the Philippine Islands     233,835    
  7,782     Philippine Long Distance Telephone     444,878    
    Total Philippines     678,713    
        Poland — 0.2%        
  9,380     KGHM Polska Miedz SA     388,475    
  35,530     Polski Koncern Naftowy Orlen SA *      728,592    
  62,160     Telekomunikacja Polska SA     480,732    
    Total Poland     1,597,799    

 

See accompanying notes to the financial statements.


14


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Russia — 0.3%        
  17,900     Gazpromneft Spon ADR     340,100    
  11,650     Mobile Telesystems ADR     770,764    
  4,400     Oao Tatneft GDR (Registered Shares)     444,400    
  18,300     Vimpel-Communications ADR     446,520    
    Total Russia     2,001,784    
        Singapore — 3.1%        
  665,000     Allgreen Properties Ltd     746,732    
  905,000     Asia Food & Properties Ltd *      358,652    
  525,000     Capitacommercial Trust     869,943    
  313,000     CapitaMall Trust     698,093    
  375,000     Cosco Corp     1,241,619    
  2,403,000     Genting International Plc *      1,001,335    
  462,610     Golden Agri Resources Ltd     662,588    
  740,000     Hyflux Ltd     1,279,071    
  94,000     Keppel Land Ltd     475,183    
  1,000     K-Reit Asia     1,591    
  505,000     Marco Polo Developments Ltd     857,972    
  787,000     Midas Holdings Ltd     731,319    
  480,000     Neptune Orient Lines Ltd     1,541,378    
  1,618,000     Noble Group Ltd     1,772,067    
  4,188,100     Pacific Century Region Developments Ltd *      932,765    
  424,000     Singapore Airport Terminal Services Ltd     727,866    
  903,000     Singapore Petroleum Co     3,488,429    
  615,000     Suntec REIT     714,390    
  584,000     United Overseas Land     1,911,471    
  2,103,000     United Test And Assembly Center *      1,619,104    
  156,000     Venture Corp Ltd     1,598,326    
  701,000     Wing Tai Holdings Ltd     1,600,985    
    Total Singapore     24,830,879    
        South Africa — 0.0%        
  109,250     Sanlam Ltd     329,956    

 

See accompanying notes to the financial statements.


15


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — 2.5%        
  14,130     Daegu Bank     263,296    
  2,820     Daelim Industrial Co Ltd     471,699    
  14,800     Daewoo Engineering & Construction Co Ltd     423,341    
  7,920     Daewoo Securities Co Ltd     244,397    
  7,960     Dongkuk Steel Mill     366,114    
  4,720     GS Holdings Corp     243,897    
  10,734     Hana Financial Group Inc     507,626    
  10,310     Hanjin Shipping     576,497    
  21,220     Hynix Semiconductor Inc *      764,585    
  6,771     Hyundai Development Co     605,810    
  910     Hyundai Mipo Dockyard Co Ltd     269,449    
  8,300     Hyundai Mobis     892,377    
  13,300     Hyundai Motor Co     985,542    
  13,970     Hyundai Securities Co     425,754    
  6,690     Hyundai Steel Co     535,191    
  10,400     Kookmin Bank     843,641    
  4,030     Korean Air Lines Co Ltd     272,874    
  9,210     KT Corp ADR     219,382    
  11,900     KT&G Corp     904,818    
  3,290     LG Cable & Machinery Ltd     337,820    
  4,790     LG Chemicals Ltd     498,434    
  9,260     LG Corp     531,531    
  6,700     LG Electronics Inc     514,060    
  6,110     LG Petrochemical Co Ltd     295,594    
  4,190     POSCO     2,564,205    
  21,690     Pusan Bank     404,188    
  24,980     Shinhan Financial Group Co Ltd     1,531,527    
  820     Shinsegae Co Ltd     541,910    
  1,530     SK Corp     235,359    
  8,839     SK Energy Co Ltd *      1,210,499    
  23,730     SK Telecom Co Ltd ADR     649,490    
  4,000     S-Oil Corp     322,414    
  15,800     Woori Finance Holdings Co Ltd     360,102    
    Total South Korea     19,813,423    

 

See accompanying notes to the financial statements.


16


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Spain — 1.3%        
  50,968     Acerinox SA     1,283,018    
  32,774     Bolsas y Mercados Espanoles     1,815,782    
  40,250     Corp Financiera Alba     2,662,841    
  474,022     Iberia Lineas Aereas de Espana     2,158,826    
  24,699     Obrascon Huarte Lain SA     974,529    
  20,730     Tecnicas Reunidas SA     1,355,906    
    Total Spain     10,250,902    
        Sweden — 3.4%        
  14,200     Axfood AB     508,065    
  79,500     Boliden AB     1,675,818    
  83,100     D Carnegie AB     1,350,169    
  54,900     Electrolux AB Series B     1,235,102    
  100,255     Getinge AB     2,196,631    
  45,000     Husqvarna AB Class B     576,578    
  33,400     JM AB NPV     886,074    
  340,817     Kinnevik Investment AB Class B     6,560,058    
  71,700     Kungsleden AB     883,462    
  13,669     Lundbergforetagen AB Class B     960,169    
  115,300     NCC Class B     3,052,512    
  139,300     Ratos AB Series B     4,264,190    
  107,000     Trelleborg AB Class B     2,585,885    
    Total Sweden     26,734,713    
        Switzerland — 4.0%        
  166,850     Actelion Ltd *      9,269,526    
  29,086     Baloise Holding Ltd     2,672,385    
  3,195     Banque Cantonale Vaudoise     1,510,621    
  9,455     Charles Voegele Holding AG *      883,034    
  39,510     Ciba Specialty Chemical Holding Reg     2,165,589    
  53,481     Clariant AG *      714,391    
  2,601     Fischer (George) AG (Registered) *      1,969,446    
  2,130     Galenica AG     795,524    
  5,560     Helvetia Patria Holding (Registered)     1,951,975    

 

See accompanying notes to the financial statements.


17


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued        
  190     Jelmoli Holding AG (Registered)     115,013    
  66,270     Logitech International *      1,795,227    
  11,001     Panalpina Welttransport Holding AG     1,961,057    
  1,158     Sulzer AG (Registered)     1,538,884    
  15,885     Swiss Steel AG (Registered)     1,505,189    
  71,103     Temenos Group AG *      1,687,892    
  4,223     Verwaltungs & Private Bank     1,044,100    
    Total Switzerland     31,579,853    
        Taiwan — 2.1%        
  111,588     Acer Inc     196,250    
  237,621     Advanced Semiconductor Engineering Inc     234,898    
  271,408     Asustek Computer Inc     809,958    
  367,256     AU Optronics Corp     535,716    
  415,120     Chi Mei Optoelectronics Corp     420,309    
  869,920     China Development Financial Holding Corp     354,748    
  841,164     China Steel Corp     1,143,695    
  373,626     Chunghwa Telecom Co Ltd     664,018    
  319,859     Compal Electronics Inc     354,104    
  374,896     Far Eastern Textile Co Ltd     440,858    
  202,000     Far Eastone Telecommunications Co Ltd     243,362    
  357,995     Formosa Chemicals & Fibre Co     871,770    
  423,939     Formosa Plastics Corp     1,053,151    
  350,000     Fubon Financial Holding Co Ltd     301,770    
  46,935     High Tech Computer Corp     637,609    
  163,200     Hon Hai Precision Industry Co Ltd     1,211,155    
  236,882     Lite-On Technology Corp     373,754    
  71,340     MediaTek Inc     1,205,845    
  488,000     Mega Financial Holdings Co Ltd     303,829    
  220,161     Mitac International Corp     274,814    
  109,180     Mosel Vitelic Inc     129,078    
  478,060     Nan Ya Plastics Corp     1,160,082    
  65,279     Novatek Microelectronics     263,438    
  12,100     PixArt Imaging Inc     107,677    

 

See accompanying notes to the financial statements.


18


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued        
  883,878     Powerchip Semiconductor Corp     435,511    
  902,000     Promos Technologies Inc     278,581    
  251,395     Quanta Computer Inc     409,028    
  125,772     Shin Kong Financial Holdings     122,506    
  297,760     Siliconware Precision Industries Co     607,519    
  601,144     Taishin Financial Holdings Co Ltd *      301,290    
  246,000     Taiwan Cellular Corp     313,010    
  67,000     U-Ming Marine Transport Co *      199,921    
  172,380     Unimicron Technology Corp     270,520    
  1,032,410     United Microelectronics Corp     582,833    
  138,846     Wistron Corp     252,340    
    Total Taiwan     17,064,947    
        Thailand — 0.6%        
  93,770     Advanced Info Service Pcl (Foreign Registered) (b)      254,054    
  87,380     Bangkok Bank Pcl NVDR (b)      302,807    
  168,000     Bangkok Dusit Medical Service Pcl (Foreign Registered) (b)      188,342    
  19,810     Banpu Pcl NVDR (b)      163,692    
  1,884,110     IRPC Pcl (Foreign Registered) (b)      364,483    
  193,500     Kasikornbank Pcl NVDR (b)      445,376    
  447,700     Krung Thai Bank Pcl (Foreign Registered) (b)      147,445    
  130,680     PTT Exploration & Production Pcl (Foreign Registered) (b)      463,724    
  110,450     PTT Pcl (Foreign Registered) (b)      982,846    
  267,100     Rayong Refinery Pcl     182,512    
  57,850     Siam Cement Pcl (Foreign Registered) NVDR (b)      421,064    
  150,800     Siam Commercial Bank Pcl (Foreign Registered) (b)      344,865    
  191,860     Thai Oil Pcl (Foreign Registered) (b)      457,521    
  100,880     Thoresen Thai Agencies Pcl     154,363    
  47,470     Thoresen Thai Agencies Pcl NVDR     72,589    
    Total Thailand     4,945,683    
        Turkey — 0.1%        
  13,390     Tupras-Turkiye Petrol Rafineriler AS     305,804    
  21,980     Turk Hava Yollari Anonim Ortakligi *      153,780    

 

See accompanying notes to the financial statements.


19


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Turkey — continued        
  97,660     Turkiye Garanti Bankasi     627,939    
    Total Turkey     1,087,523    
        United Kingdom — 17.4%        
  275,915     Aggreko Plc     2,996,250    
  394,346     AMEC Plc     5,216,890    
  159,819     Arriva Plc     2,449,148    
  90,257     Autonomy Corp Plc *      1,694,386    
  88,822     Aveva Group Plc     1,667,805    
  83,792     Axon Group Plc     1,255,469    
  85,482     Barratt Developments Plc     1,605,279    
  421,780     BBA Aviation Plc     2,058,597    
  47,283     Bellway Plc     1,214,817    
  79,002     Berkeley Group Holdings Plc *      2,567,926    
  228,368     Bradford & Bingley Plc     1,755,500    
  423,307     Brit Insurance Holdings Plc     3,025,802    
  143,912     British Energy Group Plc     1,350,010    
  252,315     Britvic Plc     1,693,715    
  50,961     Bunzl Plc     710,774    
  70,157     Croda International Plc     936,652    
  110,113     Dairy Crest Group Plc     1,605,349    
  3,282,368     Dimension Data Holdings Plc     3,724,652    
  123,706     DSG International Plc     388,151    
  91,037     FirstGroup Plc     1,201,981    
  457,353     Game Group Plc     1,765,157    
  147,238     GKN Plc     1,096,306    
  55,770     Greene King Plc     1,131,940    
  654,118     HMV Group Plc     1,632,887    
  123,647     Hunting Plc     1,817,072    
  134,841     IMI Plc     1,540,923    
  347,311     Inchcape Plc     3,321,431    
  32,985     Intermediate Capital Group Plc     992,349    
  185,919     International Personal Finance *      730,038    
  285,157     Investec Plc     3,121,679    

 

See accompanying notes to the financial statements.


20


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  339,124     JJB Sports Plc     1,439,722    
  91,378     Keller Group Plc     2,043,895    
  179,311     Kesa Electricals Plc     1,122,569    
  193,920     Ladbrokes Plc     1,708,788    
  111,619     Luminar Plc     1,598,340    
  204,114     Max Petroleum Plc *      417,101    
  299,404     MFI Furniture Group Plc *      786,828    
  210,608     Micro Focus International Plc     1,239,180    
  83,628     Millennium & Copthorne Hotels Plc     909,071    
  112,965     Minerva Plc *      635,603    
  251,860     Misys Plc     1,176,805    
  96,082     National Express Group Plc     2,439,932    
  1,619,767     Northern Foods Plc     3,357,299    
  187,490     Paragon Group Cos Plc     1,579,509    
  208,088     Petrofac Ltd     1,950,187    
  92,959     Provident Financial Plc     1,637,320    
  101,268     Regal Petroleum Plc *      425,024    
  162,286     Restaurant Group (Ordinary Shares)     995,534    
  131,066     Rexam Plc     1,385,842    
  46,618     Rightmove Plc     550,022    
  376,950     RPS Group Plc     2,924,350    
  3,234,401     Signet Group Plc     6,188,772    
  645,925     Smith (David S.) Holdings Plc     2,964,270    
  450,381     Smith News Plc     1,332,336    
  219,591     Southern Cross Healthcare Ltd     2,250,190    
  105,093     Spectris Plc     1,891,554    
  115,509     SSL International Plc     1,030,025    
  478,878     Stagecoach Group Plc     2,153,149    
  1,146,029     Taylor Woodrow Plc     8,055,496    
  235,124     TDG Plc     1,245,710    
  636,816     Tomkins Plc     3,072,180    
  203,220     Travis Perkins Plc     7,336,354    
  500,403     Trinity Mirror Plc     4,749,876    
  147,633     UK Coal Plc *      1,556,431    
  104,014     Wetherspoon J D Plc     1,230,312    

 

See accompanying notes to the financial statements.


21


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  348,792     WH Smith Plc     2,897,749    
  107,993     William Hill Plc     1,343,984    
  192,066     Wood Group (John) Plc     1,402,553    
  1,550,446     Woolworths Group Plc     720,876    
  46,523     WSP Group Plc     663,293    
    Total United Kingdom     138,676,966    
    TOTAL COMMON STOCKS (COST $632,983,208)     749,530,395    
        PREFERRED STOCKS — 2.6%        
        Brazil — 1.4%        
  52,700     Aracruz Class B (Registered) 5.51%     333,068    
  50,406     Banco Bradesco SA 1.01%     1,257,581    
  32,060     Banco Itau Holding Financeira SA 0.34%     1,405,280    
  16,800     Bradespar SA 0.41%     710,703    
  30,583     Brasil Telecom Participacoes SA 0.37%     444,249    
  18,700     Brasil Telecom SA 0.67%     164,411    
  34,518     Companhia Energetica de Minas Gerais 1.96%     665,026    
  15,988     Companhia Paranaense de Energia 1.94%     260,763    
  61,300     Companhia Vale do Rio Doce Class A 0.53%     2,536,983    
  18,700     Gerdau Metalurgica SA 3.24%     586,162    
  25,900     Gerdau SA 2.43%     633,639    
  140,722     Itausa-Investimentos Itau SA 0.41%     846,340    
  77,600     Sadia SA 1.92%     390,769    
  9,370     Tele Norte Leste Participacoes ADR 0.18%     206,983    
  33,900     Tele Norte Leste Participacoes SA 0.18%     759,381    
  5,200     Telemar Norte Leste SA 1.32%     177,574    
    Total Brazil     11,378,912    
        Germany — 0.3%        
  41,223     Hugo Boss AG 2.77%     2,435,768    
        Italy — 0.8%        
  188,051     IFI Istituto Finanziario Industries *      6,533,039    

 

See accompanying notes to the financial statements.


22


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Russia — 0.0%        
  330,840     Surgutneftegaz 4.40%     215,046    
        South Korea — 0.1%        
  3,900     Hyundai Motor Co 2.80%     153,785    
  3,270     Hyundai Motor Co 3.01%     130,108    
    Total South Korea     283,893    
    TOTAL PREFERRED STOCKS (COST $10,095,390)     20,846,658    
        RIGHTS AND WARRANTS — 0.0%        
        Italy — 0.0%        
  46,119     Unipol Gruppo Finanziario SPA Rights, Expires 07/03/07 * (c)      —    
        Singapore — 0.0%        
  1,441,800     Genting International Plc Rights, Expires 9/5/07 *      4,729    
    TOTAL RIGHTS AND WARRANTS (COST $155,719)     4,729    
        SHORT-TERM INVESTMENTS — 3.9%        
  15,089,339     Bank of New York Institutional Cash Reserves Fund (d)      15,089,339    
  16,100,000     Branch Bank & Trust Time Deposit, 5.13%, due 09/04/07     16,100,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $31,189,339)     31,189,339    
        TOTAL INVESTMENTS — 100.5%
(Cost $674,423,656)		     801,571,121    
        Other Assets and Liabilities (net) — (0.5%)     (4,217,812 )  
    TOTAL NET ASSETS — 100.0%   $ 797,353,309    

 

See accompanying notes to the financial statements.


23


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
11/20/07   AUD     1,924,000     $ 1,570,970     $ (76,301 )  
11/20/07   CAD     2,832,450       2,685,940       6,409    
11/20/07   CAD     2,832,450       2,685,940       1,892    
11/20/07   CAD     2,832,450       2,685,940       7,171    
11/20/07   CAD     2,832,450       2,685,940       4,267    
11/20/07   CAD     2,832,450       2,685,941       10,410    
11/20/07   CAD     2,832,450       2,685,941       6,056    
11/20/07   CAD     2,832,450       2,685,941       4,839    
11/20/07   CHF     6,264,433       5,215,501       (8,072 )  
11/20/07   CHF     6,264,433       5,215,501       (10,202 )  
11/20/07   CHF     6,264,433       5,215,502       (6,817 )  
11/20/07   CHF     6,264,433       5,215,502       (14,142 )  
11/20/07   CHF     6,264,433       5,215,502       (8,342 )  
11/20/07   CHF     6,264,433       5,215,502       (12,396 )  
11/20/07   CHF     6,264,433       5,215,502       (14,469 )  
11/20/07   GBP     6,660,000       13,406,764       (90,372 )  
11/20/07   JPY     532,701,495       4,649,668       (23,045 )  
11/20/07   JPY     532,701,495       4,649,668       (29,489 )  
11/20/07   JPY     532,701,495       4,649,668       (29,884 )  
11/20/07   JPY     532,701,495       4,649,668       (37,955 )  
11/20/07   JPY     532,701,495       4,649,668       (45,805 )  
11/20/07   JPY     532,701,495       4,649,669       (42,910 )  
11/20/07   JPY     532,701,495       4,649,669       (55,523 )  
11/20/07   NOK     16,817,169       2,888,085       53,236    
11/20/07   NOK     16,817,169       2,888,085       52,374    
11/20/07   NOK     16,817,169       2,888,086       46,676    
11/20/07   NOK     16,817,169       2,888,086       48,595    
11/20/07   NOK     16,817,169       2,888,086       50,751    
11/20/07   NOK     16,817,169       2,888,086       48,019    
11/20/07   NOK     16,817,169       2,888,086       46,872    

 

See accompanying notes to the financial statements.


24


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   NZD     1,949,966     $ 1,359,927     $ 9,903    
11/20/07   NZD     1,949,966       1,359,927       8,119    
11/20/07   NZD     1,949,966       1,359,927       9,673    
11/20/07   NZD     1,949,966       1,359,927       11,175    
11/20/07   NZD     1,949,966       1,359,927       14,230    
11/20/07   NZD     1,949,966       1,359,927       9,673    
11/20/07   NZD     5,400,966       3,766,692       (181,360 )  
11/20/07   SEK     14,030,868       2,041,631       6,662    
11/20/07   SEK     14,030,868       2,041,631       7,427    
11/20/07   SEK     14,030,868       2,041,631       10,821    
11/20/07   SEK     14,030,868       2,041,632       7,141    
11/20/07   SEK     14,030,868       2,041,632       8,408    
11/20/07   SEK     14,030,868       2,041,632       11,967    
11/20/07   SEK     14,030,868       2,041,632       11,120    
11/20/07   SGD     2,701,847       1,782,791       3,505    
11/20/07   SGD     2,701,847       1,782,791       3,722    
11/20/07   SGD     2,701,847       1,782,791       5,260    
11/20/07   SGD     2,701,847       1,782,791       2,860    
11/20/07   SGD     2,701,847       1,782,791       3,973    
11/20/07   SGD     2,701,847       1,782,792       2,567    
11/20/07   SGD     2,701,847       1,782,792       2,449    
    $ 161,749,321     $ (148,862 )  
Sales  
11/20/07   AUD     9,820,926     $ 8,018,907     $ (145,314 )  
11/20/07   AUD     9,820,926       8,018,907       (146,620 )  
11/20/07   AUD     9,820,926       8,018,907       (178,076 )  
11/20/07   AUD     9,820,926       8,018,907       (175,523 )  
11/20/07   AUD     9,820,926       8,018,907       (202,923 )  
11/20/07   AUD     9,820,926       8,018,907       (177,487 )  
11/20/07   AUD     9,820,926       8,018,908       (196,952 )  
11/20/07   CHF     4,928,000       4,102,844       50,755    
11/20/07   DKK     2,967,136       544,352       (5,289 )  
11/20/07   DKK     2,967,136       544,352       (6,028 )  

 

See accompanying notes to the financial statements.


25


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   DKK     3,152,582     $ 578,374     $ (6,591 )  
11/20/07   DKK     3,152,582       578,374       (6,140 )  
11/20/07   DKK     3,152,582       578,374       (6,435 )  
11/20/07   DKK     3,152,582       578,374       (6,207 )  
11/20/07   EUR     848,116       1,158,657       (12,338 )  
11/20/07   EUR     1,353,000       1,848,406       17,178    
11/20/07   EUR     1,423,116       1,944,196       (21,103 )  
11/20/07   GBP     3,930,861       7,912,932       (111,663 )  
11/20/07   GBP     3,930,861       7,912,932       (115,739 )  
11/20/07   GBP     3,930,861       7,912,932       (123,223 )  
11/20/07   GBP     3,930,861       7,912,932       (125,582 )  
11/20/07   GBP     3,930,861       7,912,932       (127,948 )  
11/20/07   GBP     3,930,861       7,912,932       (127,862 )  
11/20/07   GBP     3,930,861       7,912,932       (136,903 )  
11/20/07   HKD     12,785,731       1,642,297       (2,933 )  
11/20/07   HKD     12,785,731       1,642,297       (3,174 )  
11/20/07   HKD     12,785,731       1,642,298       (3,059 )  
11/20/07   HKD     12,785,731       1,642,298       (3,774 )  
11/20/07   HKD     12,785,731       1,642,298       (3,522 )  
11/20/07   HKD     12,785,731       1,642,298       (3,311 )  
11/20/07   HKD     12,785,731       1,642,298       (3,732 )  
11/20/07   JPY     90,927,000       793,653       (8,500 )  
11/20/07   JPY     633,516,000       5,529,625       (113,546 )  
11/20/07   NOK     14,512,000       2,492,209       32,451    
11/20/07   NOK     14,515,000       2,492,724       31,712    
11/20/07   SEK     7,449,000       1,083,904       32,830    
11/20/07   SEK     8,621,000       1,254,442       (10,879 )  
    $ 149,121,818     $ (2,153,450 )  

 

See accompanying notes to the financial statements.


26


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  264     CAC 40   September 2007   $ 20,403,835     $ 1,144,637    
  75     DAX   September 2007     19,543,605       (541,884 )  
    $ 39,947,440     $ 602,753    
Sales      
  4     AEX   September 2007   $ 570,347     $ (22,282 )  
  19     FTSE 100   September 2007     2,419,389       (47,049 )  
  2     Hang Seng   September 2007     305,913       (13,082 )  
  10     IBEX 35   September 2007     1,974,854       (24,375 )  
  10     MSCI Singapore   September 2007     550,792       (23,676 )  
  32     OMXS 30   September 2007     564,226       (12,608 )  
  73     S&P Toronto 60   September 2007     10,988,712       29,262    
  3     S&P/MIB   September 2007     822,458       (19,361 )  
  101     SPI 200   September 2007     12,938,897       43,929    
  16     TOPIX   September 2007     2,226,790       13,818    
    $ 33,362,378     $ (75,424 )  

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


27


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

CPO - Ordinary Participation Certificate (Certificado de Participacion Ordinares), representing a bundle of shares of the multiple series of one issuer that trade together as a unit.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

REIT - Real Estate Investment Trust

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(c)  As of August 31, 2007, these rights have been exercised but shares have not yet been credited to the Fund.

(d)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 84.77% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

See accompanying notes to the financial statements.


28



GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $14,373,796
(cost $674,423,656) (Note 2)		   $ 801,571,121    
Cash     83,857    
Foreign currency, at value (cost $2,110,116) (Note 2)     2,027,178    
Receivable for investments sold     5,673,139    
Receivable for Fund shares sold     184,141    
Dividends and interest receivable     1,236,927    
Foreign taxes receivable     137,011    
Unrealized appreciation on open forward currency contracts (Note 2)     703,148    
Receivable for collateral on open futures contracts (Note 2)     5,200,000    
Receivable for variation margin on open futures contracts (Note 2)     1,590    
Receivable for expenses reimbursed by Manager (Note 3)     79,174    
Total assets     816,897,286    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     15,089,339    
Payable for investments purchased     662,011    
Payable for Fund shares repurchased     1,602    
Payable to affiliate for (Note 3):  
Management fee     399,596    
Shareholder service fee     99,899    
Trustees and Chief Compliance Officer of GMO Trust fees     1,694    
Unrealized depreciation on open forward currency contracts (Note 2)     3,005,460    
Accrued expenses     284,376    
Total liabilities     19,543,977    
Net assets   $ 797,353,309    
Net assets consist of:  
Paid-in capital   $ 573,370,390    
Distributions in excess of net investment income     (5,750,567 )  
Accumulated net realized gain     104,464,303    
Net unrealized appreciation     125,269,183    
    $ 797,353,309    
Net assets attributable to:  
Class III shares   $ 797,353,309    
Shares outstanding:  
Class III     64,249,936    
Net asset value per share:  
Class III   $ 12.41    

 

See accompanying notes to the financial statements.


29


GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,488,200)   $ 14,127,885    
Interest     648,524    
Securities lending income     631,375    
Total investment income     15,407,784    
Expenses:  
Management fee (Note 3)     2,478,469    
Shareholder service fee – Class III (Note 3)     619,617    
Custodian and fund accounting agent fees     402,500    
Transfer agent fees     14,076    
Audit and tax fees     42,228    
Legal fees     9,660    
Trustees fees and related expenses (Note 3)     4,769    
Registration fees     2,116    
Miscellaneous     6,900    
Total expenses     3,580,335    
Fees and expenses reimbursed by Manager (Note 3)     (469,016 )  
Net expenses     3,111,319    
Net investment income (loss)     12,296,465    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     116,398,913    
Closed futures contracts     1,977,515    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $1,468) (Note2)		     3,248,178    
Net realized gain (loss)     121,624,606    
Change in net unrealized appreciation (depreciation) on:  
Investments     (86,415,914 )  
Open futures contracts     1,021,454    
Foreign currency, forward contracts and foreign currency related transactions     (3,029,980 )  
Net unrealized gain (loss)     (88,424,440 )  
Net realized and unrealized gain (loss)     33,200,166    
Net increase (decrease) in net assets resulting from operations   $ 45,496,631    

 

See accompanying notes to the financial statements.


30


GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 12,296,465     $ 16,269,949    
Net realized gain (loss)     121,624,606       216,853,382    
Change in net unrealized appreciation (depreciation)     (88,424,440 )     (45,812,700 )  
Net increase (decrease) in net assets from operations     45,496,631       187,310,631    
Distributions to shareholders from:  
Net investment income  
Class III     (6,168,973 )     (19,881,021 )  
Net realized gains  
Class III     (32,315,967 )     (326,272,225 )  
      (38,484,940 )     (346,153,246 )  
Net share transactions (Note 7):  
Class III     (68,007,522 )     26,733,728    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     1,878,476       1,977,585    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (66,129,046 )     28,711,313    
Total increase (decrease) in net assets     (59,117,355 )     (130,131,302 )  
Net assets:  
Beginning of period     856,470,664       986,601,966    
End of period (including distributions in excess of net investment
income of $5,750,567 and $11,878,059, respectively)		   $ 797,353,309     $ 856,470,664    

 

See accompanying notes to the financial statements.


31



GMO International Small Companies Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 12.22     $ 14.93     $ 17.84     $ 17.09     $ 9.50     $ 10.44    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.19 †      0.25 †      0.34 †      0.30 †      0.20       0.15    
Net realized and unrealized
gain (loss)		     0.55       2.68       3.44       3.56       7.94       (0.80 )  
Total from investment
operations		     0.74       2.93       3.78       3.86       8.14       (0.65 )  
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.33 )     (0.44 )     (0.54 )     (0.20 )     (0.29 )  
From net realized gains     (0.46 )     (5.31 )     (6.25 )     (2.57 )     (0.35 )     —    
Total distributions     (0.55 )     (5.64 )     (6.69 )     (3.11 )     (0.55 )     (0.29 )  
Net asset value, end of period   $ 12.41     $ 12.22     $ 14.93     $ 17.84     $ 17.09     $ 9.50    
Total Return(a)      6.29 %**      23.35 %     25.77 %     24.45 %     86.62 %     (6.30 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 797,353     $ 856,471     $ 986,602     $ 1,517,223     $ 1,592,464     $ 536,648    
Net expenses to average daily
net assets		     0.75 %*      0.75 %     0.75 %     0.75 %     0.75 %     0.75 %  
Net investment income to
average daily net assets		     1.50 %(b)**      1.79 %     2.01 %     1.75 %     1.60 %     1.65 %  
Portfolio turnover rate     32 %**      48 %     49 %     53 %     46 %     44 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.11 %*      0.09 %     0.11 %     0.11 %     0.13 %     0.17 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.03     $ 0.03     $ 0.07     $ 0.08     $ 0.04     $ 0.06    

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  The ratio for six months ended August 31, 2007, has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


32



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO International Small Companies Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts business trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming the S&P/Citigroup Extended Market Index World ex-U.S. Index, the Fund's benchmark. The Fund typically makes equity investments in non-U.S. companies, including non-U.S. companies in developed and emerging countries, but excluding the largest 500 non-U.S. companies in developed countries based on full, non-float adjusted market capitalization and any company in an emerging country with a full, non-float adjusted market capitalization that is greater than or equal to that of any of the 500 excluded developed country companies. The Fund may make investments in emerging countries, but these investments generally will represent 10% or less of the Fund's total assets.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign


33


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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.


34


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstandi ng at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.


35


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the


36


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $14,373,796, collateralized by cash in the amount of $15,089,339, which was invested in the Bank of New York Institutional Cash Reserves Fund.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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 is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. The CPMF tax has been included in the net realized gain (loss) on investments throughout the period. For the year ended August 31, 2007, the Fund incurred $1,468 in CPMF tax which is included in net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.


37


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 691,761,435     $ 158,582,502     $ (48,772,816 )   $ 109,809,686    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.60% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase


38


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $622,869 and $26,637 in purchase premiums and $1,255,607 and $1,950,948 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


39


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.60% 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 average daily net assets at the annual rate of 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.60% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $3,572 and $2,576, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $256,650,012 and $336,789,948, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


40


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 45.25% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.29% of the Fund's shares were held by nine related parties comprised of certain GMO employee accounts, and 2.27% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,960,357     $ 103,205,570       533,510     $ 7,500,711    
Shares issued to shareholders
in reinvestment of distributions		     3,182,200       38,063,150       26,807,328       341,714,636    
Shares repurchased     (16,990,265 )     (209,276,242 )     (23,316,825 )     (322,481,619 )  
Purchase premiums and
redemption fees		     —       1,878,476       —       1,977,585    
Net increase (decrease)     (5,847,708 )   $ (66,129,046 )     4,024,013     $ 28,711,313    

 


41



GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the


42


GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


43


GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


44


GMO International Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.75 %   $ 1,000.00     $ 1,062.90     $ 3.89    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.37     $ 3.81    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


45



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Consolidated Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund also discloses its complete schedule of portfolio holdings on the Fund's website at www.gmo.com.



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)
Consolidated Investments Concentration Summary (a)
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     69.4 %  
Short-Term Investment     6.5    
Futures     0.7    
Forward Currency Contracts     (0.0 )  
Swaps     (0.7 )  
Other     24.1    
      100.0 %  

 

(a)  GMO Alternative Asset SPC Ltd. is a 100% owned subsidiary of GMO Alternative Asset Opportunity Fund.

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 17.4%        
        U.S. Government — 17.4%        
  5,000,000     U.S. Treasury Note, 4.63%, due 03/31/08 (a) (b)      5,007,813    
    TOTAL DEBT OBLIGATIONS (COST $5,003,906)     5,007,813    
        MUTUAL FUNDS — 54.2%        
        Affiliated Issuers — 54.2%        
  604,035     GMO Short-Duration Collateral Fund     15,596,196    
    TOTAL MUTUAL FUNDS (COST $15,511,525)     15,596,196    
        SHORT-TERM INVESTMENTS — 4.9%        
        Money Market Funds — 4.9%        
  1,407,736     Merrimac Cash Series-Premium Class (b)      1,407,736    
    TOTAL MONEY MARKET FUNDS (COST $1,407,736)     1,407,736    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,407,736)     1,407,736    
    TOTAL INVESTMENTS — 76.5%
(Cost $21,923,167)		     22,011,745    
      Other Assets and Liabilities (net) — 23.5%     6,744,644    
    TOTAL NET ASSETS — 100.0%   $ 28,756,389    

 

See accompanying notes to the financial statements.


2


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts (b)

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  10     Cocoa   December 2007   $ 182,400     $ 1,848    
  2     Copper   December 2007     169,850       10,682    
  3     Gasoline RBOB   October 2007     247,527       8,891    
  1     Gold 100 OZ   December 2007     68,190       206    
  9     Soybean   November 2007     397,125       11,272    
  9     Soybean Meal   December 2007     221,130       9,620    
  21     Soybean Oil   December 2007     467,586       10,109    
  6     Wheat   December 2007     232,650       24,198    
                $ 76,826    
Sales      
  1     Crude Oil   October 2007     74,070       (2,305 )  
  9     Coffee "C"   December 2007     390,994       19,197    
  42     Corn   December 2007     714,000       6,127    
  20     Cotton No. 2   December 2007     609,700       (28,367 )  
  31     Lean Hogs   October 2007     828,630       27,231    
  8     Live Cattle   October 2007     310,080       (1,556 )  
  7     Natural Gas   October 2007     382,760       107,091    
  8     Silver   December 2007     489,200       (14,996 )  
  49     Sugar (World)   October 2007     520,263       6,902    
                $ 119,324    

 

See accompanying notes to the financial statements.


3


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements (b)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  14,311,671     USD   4/12/2008   AIG   3 month T-Bill   Return on DJ-AIG  
 
                + 0.19%   Commodity Total  
 
                    Return Index   $ (225,507 )  
                Premiums to (Pay) Receive   $ —     $ (225,507 )  

 

Notes to Schedule of Investments:

(a)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and open swap contracts (Note 2).

(b)  All or a portion of this security is owned by GMO Alternative Asset SPC Ltd., which is a 100% owned subsidiary of GMO Alternative Asset Opportunity Fund.

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


4



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)


Consolidated Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

    GMO
Alternative Asset
Opportunity Fund		   GMO
Alternative Asset
SPC Ltd.		   Eliminations   Consolidated
Totals		  
Assets:  
Investments in unaffiliated issuers,
at value (consolidated
cost $6,411,642) (Note 2)		   $ —     $ 6,415,549     $ —     $ 6,415,549    
Investments in affiliated issuers,
at value (consolidated cost
$15,511,525) (Note 2)		     28,760,030       —       (13,163,834 )     15,596,196    
Cash     145,627       6,853,637       —       6,999,264    
Interest receivable     417       158,089       —       158,506    
Receivable for variation margin on
open futures contracts (Note 2)		     —       1,237       —       1,237    
Receivable for expenses reimbursed
by Manager (Note 3)		     9,362       9,424       —       18,786    
Total assets     28,915,436       13,437,936       (13,163,834 )     29,189,538    
Liabilities:  
Payable for investments purchased     —       —       —       —    
Payable for open swap contracts (Note 2)     —       225,507       —       225,507    
Payable to affiliate for (Note 3):                                  
Management fee     57,049       —       —       57,049    
Shareholder service fee     19,016       —       —       19,016    
Trustees and Chief Compliance
Officer of GMO Trust fees		     372       —       —       372    
Accrued expenses     82,610       48,595       —       131,205    
Total liabilities     159,047       274,102       —       433,149    
Net assets   $ 28,756,389     $ 13,163,834     $ (13,163,834 )   $ 28,756,389    
Net assets consist of:  
Net capital(1)    $ 30,041,114     $ 13,189,284     $ (14,533,230 )   $ 28,697,168    
Net unrealized appreciation     (1,284,725 )     (25,450 )     1,369,396       59,221    
    $ 28,756,389     $ 13,163,834     $ (13,163,834 )   $ 28,756,389    
Shareholders' capital   $ 28,756,389                     $ 28,756,389    
Shares outstanding     1,025,770                   1,025,770    
Net asset value per share   $ 28.03                     $ 28.03    

 

(1)  Net capital includes net investment income (loss) and net realized gain (loss) on investments.

See accompanying notes to the financial statements.


5


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)


Consolidated Statement of Operations — For the Six Months Ended August 31, 2007 (Unaudited)

    GMO
Alternative Asset
Opportunity Fund		   GMO
Alternative Asset
SPC Ltd.		   Eliminations   Consolidated
Totals		  
Investment Income:  
Dividend from affiliated issuers (Note 8)   $ 847,649     $ —     $ —     $ 847,649    
Interest     2,887       1,182,356       —       1,185,243    
Total income     850,536       1,182,356       —       2,032,892    
Expenses:  
Management fee (Note 3)     378,465       —       —       378,465    
Shareholder service fee (Note 3)     126,155       —       —       126,155    
Custodian and transfer agent fees     9,752       42,688       —       52,440    
Audit and tax fees     41,768       7,176       —       48,944    
Legal fees     2,024       2,760       —       4,784    
Trustees fees and related expenses (Note 3)     1,034       3,496       —       4,530    
Miscellaneous     1,104       2,576       —       3,680    
Total expenses     560,302       58,696       —       618,998    
Fees and expenses reimbursed by
Manager (Note 3)		     (54,096 )     (58,696 )     —       (112,792 )  
Net expenses     506,206       —       —       506,206    
Net investment income     344,330       1,182,356       —       1,526,686    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     —       3,945       —       3,945    
Investments in affiliated issuers     (2,588,439 )     —       3,739,718       1,151,279    
Closed futures contracts     —       (2,924,018 )     —       (2,924,018 )  
Closed swap contracts     —       415,615       —       415,615    
Net realized gain (loss)     (2,588,439 )     (2,504,458 )     3,739,718       (1,353,179 )  
Change in net unrealized appreciation
(depreciation) on:		  
Investments in unaffiliated issuers     —       27,649       —       27,649    
Investments in affiliated issuers     (1,410,943 )     —       1,203,209       (207,734 )  
Open futures contracts     —       261,659       —       261,659    
Open swap contracts     —       (3,910,133 )     —       (3,910,133 )  
Net unrealized gain (loss)     (1,410,943 )     (3,620,825 )     1,203,209       (3,828,559 )  
Net realized and unrealized gain (loss)     (3,999,382 )     (6,125,283 )     4,942,927       (5,181,738 )  
Net increase (decrease) in net assets
resulting from operations		   $ (3,655,052 )   $ (4,942,927 )   $ 4,942,927     $ (3,655,052 )  

 

See accompanying notes to the financial statements.


6


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)


Consolidated Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,526,686     $ 8,673,307    
Net realized gain (loss)     (1,353,179 )     64,042    
Change in net unrealized appreciation (depreciation)     (3,828,559 )     3,787,171    
Net increase (decrease) in net assets from operations     (3,655,052 )     12,524,520    
Fund share transactions: (Note 7)  
Proceeds from sale of shares     81,595       4,000,000    
Cost of shares repurchased     (142,183,794 )     (23,957,500 )  
Net increase (decrease) in Fund share transactions     (142,102,199 )     (19,957,500 )  
Total increase (decrease) in net assets     (145,757,251 )     (7,432,980 )  
Net assets:  
Beginning of period     174,513,640       181,946,620    
End of period   $ 28,756,389     $ 174,513,640    

 

See accompanying notes to the financial statements.


7



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Consolidated Financial Highlights
(For a share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		   Period from
April 11, 2005
(commencement of
operations) to
February 28, 2006		  
Net asset value, beginning of period   $ 28.54     $ 26.63     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.26       1.28       0.73    
Net realized and unrealized gain (loss)     (0.77 )     0.63       0.90    
Total from investment operations     (0.51 )     1.91       1.63    
Net asset value, end of period   $ 28.03     $ 28.54     $ 26.63    
Total Return(b)      (1.79 )%**      7.17 %     6.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 28,756     $ 174,514     $ 181,947    
Net expenses to average daily net assets(c)      0.60 %*      0.60 %     0.61 %*   
Net investment income to average daily net assets(a)      1.82 %*      4.60 %     3.12 %*   
Portfolio turnover rate     5 %**      12 %     13 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.13 %*      0.12 %     0.15 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Total returns would have been lower had certain expenses not been reimbursed during the periods shown.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Alternative Asset Opportunity 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of its benchmark. The Fund's benchmark is a composite of the Dow Jones-AIG Commodity Index (50%) and the JPMorgan 3 Month Cash Index (50%). The Fund seeks indirect exposure to investment returns of commodities and, from time to time, other alternative asset classes. The Fund's investment program has two primary components. One component is intended to gain indirect exposure to the commodity markets through the Fund's investments in a wholly owned subsidiary company, which, in turn, invests in various commodity-related derivatives. The second component of the fund's investment program consists of direct and indirect investments in high quality U.S. and foreign fixed income securities. Normally, the Fund gains exposure to fixed income securities indirectly by investing in GMO Short-Duration Collateral Fund.

Shares of the Fund are not publicly offered and are principally available only to other funds of the Trust and certain accredited investors.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements include the accounts of the GMO Alternative Asset Opportunity Fund and its wholly owned investment in GMO Alternative Asset SPC Ltd. The consolidated financial statements include 100% of the assets and liabilities of GMO Alternative Asset SPC Ltd. All significant interfund accounts and transactions have been eliminated in consolidation.


9


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


10


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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


11


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements outstanding at the end of the period.

Taxes

The Fund elected to be taxed as a partnership for federal income tax purposes. As a partnership, the Fund will not be subject to federal and state income tax. Instead, each shareholder is responsible for the tax liability or benefit related to his/her allocable share of taxable income or loss. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2007, the approximate consolidated cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 28,486,170     $ 187,990     $ (6,662,415 )   $ (6,474,425 )  

 

Distributions

The Fund does not intend to make any distributions to its shareholders but may do so in the sole discretion of the Trustees.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.


12


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has deter mined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is


13


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.45% 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 0.15%.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.45% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the GMO Short-Duration Collateral Fund. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.001 %     0.000 %     0.000 %     0.001 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $758 and $552, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

The Fund's investments in commodity-related derivatives are generally made through GMO Alternative Asset Opportunity SPC Ltd., a wholly owned subsidiary organized as a Bermuda limited liability


14


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

company, which GMO serves as investment manager but does not receive any additional management or other fees for such services.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $6,847,649 and $148,600,000, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 72.26% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is another fund of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 100.00% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
    Shares   Amount   Shares   Amount  
Shares sold     2,897     $ 81,595       142,196     $ 4,000,000    
Shares repurchased     (5,091,562 )     (142,183,794 )     (860,208 )     (23,957,500 )  
Net increase (decrease)     (5,088,665 )   $ (142,102,199 )     (718,012 )   $ (19,957,500 )  

 


15


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of the affiliated issuer during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Short-Duration
Collateral Fund		   $ 124,605,003     $ 847,649     $ 110,800,000     $ 847,649     $ —     $ 15,596,196    
Totals   $ 124,605,003     $ 847,649     $ 110,800,000     $ 847,649     $ —     $ 15,596,196    

 


16



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


17


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that the underlying funds do not charge any advisory fees. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associat ed with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax


18


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


19


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
1) Actual     0.60 %   $ 1,000.00     $ 982.10     $ 2.99    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.12     $ 3.05    

 

*  Expenses are calculated using the Fund's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


20



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Core Plus Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.2 %  
Short-Term Investments     3.8    
Options Purchased     0.7    
Loan Participations     0.2    
Preferred Stocks     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Swaps     (0.2 )  
Written Options     (0.2 )  
Forward Currency Contracts     (0.3 )  
Futures     (0.3 )  
Reverse Repurchase Agreements     (0.5 )  
Other     1.4    
      100.0 %  
Country/Region Summary**   % of Investments  
United States     72.2 %  
Sweden     22.8    
Switzerland     12.1    
Australia     9.7    
Euro Region     7.7    
Emerging     3.4    
Canada     1.3    
United Kingdom     (9.8 )  
Japan     (19.4 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 9.4%  
        Albania — 0.4%  
        Foreign Government Obligations  
USD     15,681,227     Republic of Albania Par Bond, Zero Coupon, due 08/31/25 (a) (b)      5,896,428    
        Austria — 0.4%  
        Corporate Debt  
GBP     500,000     Bank Austria Creditanstalt AG, 8.38%, due 11/04/11     1,078,089    
USD     4,175,000     Bank Austria Creditanstalt AG, 144A, 7.25%, due 02/15/17     4,679,591    
    Total Austria     5,757,680    
        Canada — 0.3%  
        Foreign Government Obligations  
CAD     4,000,000     Government of Canada (Cayman), 7.25%, due 06/01/08     3,855,038    
        United States — 8.3%  
        Corporate Debt — 1.8%  
USD     5,000,000     Eastman Chemical Co., 7.25%, due 01/15/24     5,251,500    
USD     10,000,000     General Electric Capital Corp. MTN, 5.88%, due 02/15/12     10,169,000    
USD     5,000,000     Target Corp, 4.00%, due 06/15/13     4,729,000    
USD     5,000,000     Verizon Global Funding Corp, 4.38%, due 06/01/13     4,719,950    
      24,869,450    
        U.S. Government — 6.5%  
USD     58,031,550     U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (c) (d)      57,859,269    
USD     5,000,000     U.S. Treasury Note, 4.00%, due 09/30/07 (c)      5,000,000    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/10 (a)      8,989,121    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/12 (a)      8,136,169    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 08/15/12 (a)      7,939,637    
      87,924,196    
    Total United States     112,793,646    
    TOTAL DEBT OBLIGATIONS (COST $125,436,206)     128,302,792    

 

See accompanying notes to the financial statements.


2


GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Principal Amount / Shares   Description   Value ($)  
        OPTIONS PURCHASED — 0.3%  
        Currency Options — 0.3%  
EUR     82,300,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     4,062,690    
JPY     11,280,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     147,768    
    Total Currency Options     4,210,458    
    TOTAL OPTIONS PURCHASED (COST $2,964,259)     4,210,458    
        PREFERRED STOCKS — 0.1%  
        United States — 0.1%  
      10,000     Home Ownership Funding 2 Preferred 144A, 13.34%     1,507,954    
    TOTAL PREFERRED STOCKS (COST $2,138,851)     1,507,954    
        MUTUAL FUNDS — 90.5%  
        United States — 90.5%  
        Affiliated Issuers  
      4,389,922     GMO Emerging Country Debt Fund, Class IV     45,655,192    
      35,393,864     GMO Short-Duration Collateral Fund     913,869,561    
      93,858     GMO Special Purpose Holding Fund (a) (e)      135,156    
      10,369,966     GMO World Opportunity Overlay Fund     273,352,299    
    Total United States     1,233,012,208    
    TOTAL MUTUAL FUNDS (COST $1,235,934,943)     1,233,012,208    

 

See accompanying notes to the financial statements.


3


GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 0.1%    
    Money Market Funds — 0.1%    
  1,137,266     Merrimac Cash Series-Premium Class     1,137,266    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,137,266)     1,137,266    
    TOTAL INVESTMENTS — 100.4%
(Cost $1,367,611,525)		     1,368,170,678    
    Other Assets and Liabilities (net) — (0.4%)     (5,412,968 )  
    TOTAL NET ASSETS — 100.0%   $ 1,362,757,710    

 

See accompanying notes to the financial statements.


4


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
9/11/07   CHF     227,100,000     $ 187,979,367     $ 928,600    
9/11/07   CHF     51,300,000       42,462,975       74,705    
9/11/07   CHF     37,700,000       31,205,734       15,766    
9/11/07   CHF     25,100,000       20,776,231       (218,993 )  
9/11/07   CHF     131,900,000       109,178,682       (1,253,436 )  
9/25/07   EUR     84,800,000       115,629,797       (510,948 )  
9/04/07   GBP     75,400,000       152,025,250       3,585,352    
9/04/07   GBP     3,600,000       7,258,500       91,656    
11/06/07   GBP     23,100,000       46,518,278       133,478    
10/02/07   JPY     6,250,000,000       54,191,499       1,391,883    
10/02/07   JPY     7,860,000,000       68,151,229       (236,675 )  
10/02/07   JPY     4,640,000,000       40,231,769       990,844    
10/02/07   JPY     2,870,000,000       24,884,736       (302,605 )  
9/18/07   NZD     115,000,000       80,638,389       (6,679,950 )  
9/18/07   NZD     18,800,000       13,182,623       (1,866,081 )  
                $ 994,315,059     $ (3,856,404 )  
Sales  
10/16/07   AUD     51,600,000     $ 42,182,160     $ 1,987,440    
10/16/07   AUD     17,400,000       14,224,217       428,671    
10/16/07   AUD     11,300,000       9,237,566       347,546    
10/23/07   CAD     43,200,000       40,946,751       76,163    
9/11/07   CHF     60,700,000       50,243,715       84,603    
9/11/07   CHF     19,100,000       15,809,801       78,391    
9/11/07   CHF     11,200,000       9,270,669       48,995    
9/25/07   EUR     316,700,000       431,839,113       4,725,653    
9/25/07   EUR     4,300,000       5,863,303       41,629    
9/25/07   EUR     17,500,000       23,862,281       121,189    
9/25/07   EUR     2,300,000       3,136,185       (33,312 )  
9/04/07   GBP     19,500,000       39,316,875       181,582    
9/04/07   GBP     25,200,000       50,809,500       385,938    
9/04/07   GBP     11,200,000       22,582,000       198,847    
9/04/07   GBP     23,100,000       46,575,375       (128,205 )  
10/02/07   JPY     44,110,000,000       382,461,922       (17,856,202 )  
10/02/07   JPY     270,000,000       2,341,073       (77,473 )  
9/18/07   NZD     9,700,000       6,801,673       741,678    
9/18/07   NZD     10,100,000       7,082,154       799,684    
9/18/07   NZD     20,000,000       14,024,068       1,610,232    
9/18/07   NZD     83,600,000       58,620,603       5,271,951    
                $ 1,277,231,004     $ (965,000 )  

 

See accompanying notes to the financial statements.


5


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
10/09/07   EUR 80,800,000     NOK 646,294,960     $ 722,928    
10/09/07   NOK 64,577,250     EUR 8,100,000       (36,036 )  
10/30/07   SEK 113,256,000     EUR 12,100,000       54,549    
    $ 741,441    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  371     Australian Government Bond 10 Yr.   September 2007   $ 30,523,119     $ 658,437    
  1,016     Australian Government Bond 3 Yr.   September 2007     82,716,733       583,579    
  152     Canadian Government Bond 10 Yr.   December 2007     16,059,318       (63,789 )  
  205     Euro BOBL   September 2007     30,167,197       546,888    
  436     Euro Bund   September 2007     67,572,668       1,864,416    
                $ 3,589,531    
Sales      
  201     Japanese Government Bond
10 Yr. (TSE)		   September 2007   $ 234,954,228     $ (5,115,460 )  
  607     U.S. Long Bond (CBT)   December 2007     67,718,437       (542,734 )  
  953     U.S. Treasury Note 10 Yr.   December 2007     103,921,672       (680,859 )  
  1,617     U.S. Treasury Note 2 Yr. (CBT)   December 2007     333,354,656       (614,928 )  
  901     U.S. Treasury Note 5 Yr. (CBT)   December 2007     96,139,516       (594,435 )  
  762     UK Gilt Long Bond   December 2007     164,469,747       (447,837 )  
                $ (7,996,253 )  

 

See accompanying notes to the financial statements.


6


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  10,000,000     USD   12/20/2008   Lehman Brothers   Receive     0.27 %   Federal Home Loan    
   
                                Bank System   $ 26,231    
  350,000,000     USD   12/20/2008   JP Morgan
Chase Bank		   (Pay)     0.15 %   Reference security
within CDX Index		     913,500    
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.25 %   AT&T Wireless
Services, Inc.		     18,923    
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.30 %   Boeing Capital Corp.     29,017    
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.66 %   Daimler-Chrysler AG     51,000    
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.39 %   SBC Communications,
 Inc.		     33,229    
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.35 %   The Kroger Co.     24,574    
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.38 %   Weyerhaeuser Co.     10,262    
  5,000,000     USD   6/20/2010   Barclays Bank PLC   Receive     0.29 %   Merrill Lynch &
Co., Inc.		     (52,542 )  
  5,000,000     USD   6/20/2010   Lehman Brothers   Receive     0.40 %   PSEG Power LLC     27,873    
  5,000,000     USD   6/20/2010   Lehman Brothers   Receive     0.20 %   Royal Bank of
Scotland PLC		     2,361    
  5,000,000     USD   6/20/2010   UBS AG   Receive     0.52 %   TXU Electric
Delivery Co.		     (314,058 )  
  5,000,000     USD   6/20/2010   Barclays Bank PLC   Receive     0.17 %   Wachovia Corp.     (9,724 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.20 %   Bank of America Corp.     (20,983 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.19 %   Citigroup, Inc.     (30,106 )  
  5,000,000     USD   12/20/2010   Deutsche Bank AG   Receive     0.75 %   Enterprise Products
Partners LP		     72,803    
  5,000,000     USD   12/20/2010   Citigroup   Receive     0.39 %   Exelon Generation
Co. LLC		     4,451    
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.45 %   First Energy Corp.     25,907    
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.28 %   JP Morgan
Chase Bank		     (16,138 )  
  5,000,000     USD   12/20/2010   UBS AG   Receive     0.47 %   Progress Energy, Inc.     32,040    
  5,000,000     USD   3/20/2011   Barclays Bank PLC   Receive     0.25 %   Bell South     19,412    

 

See accompanying notes to the financial statements.


7


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  2,000,000     USD   6/20/2011   UBS AG   Receive     0.32 %   Boston Properties    
   
                                Limited Partnership   $ (14,204 )  
  3,000,000     USD   6/20/2011   Bank of
America, N.A.		   Receive     0.14 %   Credit Suisse First
Boston (USA), Inc.		     (19,990 )  
  5,000,000     USD   6/20/2011   Citigroup   Receive     0.37 %   Deutsche Telekom
International Finance B.V.		     12,075    
  2,000,000     USD   6/20/2011   UBS AG   Receive     0.26 %   ERP Operating LP     (16,261 )  
  4,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.20 %   Morgan Stanley     (67,702 )  
  2,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.30 %   Prologis     (20,174 )  
  5,000,000     USD   6/20/2011   Citigroup   Receive     0.49 %   Telecom Italia
SpA		     14,701    
  3,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.08 %   US Bancorp     (26,859 )  
  2,000,000     USD   12/20/2011   Barclays Bank PLC   Receive     0.04 %   UBS     (17,005 )  
  2,000,000     USD   12/20/2011   Barclays Bank PLC   Receive     0.11 %   Wachovia     (17,424 )  
  5,000,000     USD   3/20/2013   Barclays Bank PLC   Receive     0.25 %   Goldman Sachs
Group, Inc.		     (116,511 )  
  2,000,000     USD   12/20/2013   UBS AG   Receive     0.34 %   CIT     (232,135 )  
  3,000,000     USD   12/20/2013   Lehman Brothers   Receive     0.25 %   Mid America Energy     (17,802 )  
  2,000,000     USD   12/20/2013   Barclays Bank PLC   Receive     0.25 %   SLM Corp.     (269,405 )  
  9,920,000     USD   3/20/2015   JP Morgan
Chase Bank		   Receive     0.70 %   Reference security
within CDX Index		     62,179    
  25,000,000     USD   6/20/2015   JP Morgan
Chase Bank		   Receive     0.65 %   Reference security
within CDX Index		     (292,926 )  
  5,000,000     USD   6/20/2015   Lehman Brothers   Receive     0.65 %   Reference security
within CDX Index		     (58,585 )  
  1,000,000     USD   12/20/2016   UBS AG   Receive     0.15 %   Bank of America     (20,162 )  
  1,000,000     USD   12/20/2016   UBS AG   Receive     0.12 %   Citigroup     (25,426 )  
  1,000,000     USD   12/20/2016   Bank of
America, N.A.		   Receive     0.17 %   GECC     (21,750 )  
  1,000,000     USD   12/20/2016   Bank of
America, N.A.		   Receive     0.22 %   JP Morgan
Chase Bank		     (19,236 )  
  1,000,000     USD   12/20/2016   Barclays Bank PLC   Receive     0.33 %   Pacific Gas     (11,825 )  
  73,000,000     USD   12/20/2016   JP Morgan
 Chase Bank		   Receive     0.65 %   Reference security
within CDX Index		     (1,090,267 )  

 

See accompanying notes to the financial statements.


8


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  2,000,000     USD   12/20/2016   JP Morgan   Receive     0.65 %   Reference security    
   
                Chase Bank               within CDX Index   $ (29,870 )  
  10,000,000     USD   12/20/2016   Lehman Brothers   Receive     0.65 %   Reference security
within CDX Index		     (149,351 )  
  1,000,000     USD   12/20/2016   Bank of
America, N.A.		   Receive     0.33 %   Well Point     (14,719 )  
  5,000,000     USD   1/20/2024   Goldman Sachs   (Pay)     1.11 %   Eastman Chemical Co     (113,045 )  
    Premiums to (Pay) Receive   $ 27,386     $ (1,745,647 )  

 

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  565,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month    
   
                                SEK STIBOR   $ (777,349 )  
  10,100,000     USD   2/15/2010   JP Morgan
Chase Bank		   (Pay)     0.00 %   3 month LIBOR     (1,618,764 )  
  10,100,000     USD   2/15/2012   JP Morgan
Chase Bank		   (Pay)     0.00 %   3 month LIBOR     (1,504,782 )  
  10,100,000     USD   8/15/2012   JP Morgan
Chase Bank		   (Pay)     0.00 %   3 month LIBOR     (1,482,667 )  
  115,000,000     SEK   9/19/2012   Barclays Bank PLC   Receive     4.15 %   3 month
SEK STIBOR		     (389,430 )  
  63,000,000     SEK   9/19/2012   Deutsche Bank AG   Receive     4.15 %   3 month
SEK STIBOR		     (213,340 )  
  11,700,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month
CHF LIBOR		     (210,201 )  
  106,800,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month
CHF LIBOR		     (1,918,754 )  
  87,400,000     CHF   9/19/2012   JP Morgan
Chase Bank		   Receive     2.70 %   6 month
CHF LIBOR		     (1,570,217 )  
  23,900,000     AUD   9/17/2017   JP Morgan
Chase Bank		   Receive     6.83 %   6 month
AUD BBSW		     279,984    
  84,200,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (503,814 )  

 

See accompanying notes to the financial statements.


9


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Interest Rate Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  363,700,000     SEK   9/19/2017   JP Morgan
Chase Bank		   Receive     4.25 %   3 month
 SEK STIBOR		   $ (2,176,213 )  
  15,680,000     USD   8/31/2025   JP Morgan
Chase Bank		   (Pay)     0.00 %   3 month LIBOR     (1,314,532 )  
    Premiums to (Pay) Receive   $ 10,145,354     $ (13,400,079 )  

 

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  70,000,000     USD   9/28/2007   JP Morgan
Chase Bank		   1 month
LIBOR-0.01%		   Lehman Aggregate
 Total Return Index		   $ 543,948    
  28,000,000     USD   10/31/2007   JP Morgan
Chase Bank		   1 month
LIBOR-0.01%		   Lehman Aggregate
Total Return Index		     217,579    
  85,000,000     USD   10/31/2007   Lehman Brothers   1 month
LIBOR-0.04%		   Return on Lehman
Brothers U.S.
Government Index		     908,855    
  155,000,000     USD   10/31/2007   Lehman Brothers   1 month
LIBOR-0.055%		   Return on Lehman
 Mortgage Total
Return Index		     1,276,821    
  20,000,000     USD   11/30/2007   JP Morgan
Chase Bank		   1 month
 LIBOR-0.01%		   Return on Lehman
 Aggregate Total
Return Index		     —    
  350,000,000     USD   1/31/2008   Lehman Brothers   1 month
LIBOR-0.05% 		  Return on Lehman
Brothers U.S.
Government Index		     3,745,260    
  100,000,000     USD   5/30/2008   UBS AG   1 month
LIBOR-0.09%		   Return on Lehman
Mortgage Total
Return Index		     826,672    
  245,000,000     USD   6/30/2008   UBS AG   1 month
LIBOR-0.09%		   Lehman Mortgage
 Total Return Index		     2,025,347    
  225,000,000     USD   7/31/2008   Lehman Brothers   1 month
LIBO-0.05%		   Return on Lehman
 Brothers U.S.
Government Index		     2,407,667    
  250,000,000     USD   8/19/2011   Morgan Stanley   3 month
LIBOR-0.01%		   Return on Lehman
Aggregate Total
Return Index		     1,174,755    
    Premiums to (Pay) Receive   $ —     $ 13,126,904    

 

See accompanying notes to the financial statements.


10


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

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.

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

MTN - Medium Term Note

STIBOR - Stockholm Interbank Offered Rate

(a)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(b)  Security is backed by the U.S. Government.

(c)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(d)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(e)  Bankrupt issuer.

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - B ritish Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar		  

 

See accompanying notes to the financial statements.


11



GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $131,676,582) (Note 2)   $ 135,158,470    
Investments in affiliated issuers, at value (cost $1,235,934,943) (Notes 2 and 8)     1,233,012,208    
Receivable for Fund shares sold     10,000,000    
Interest receivable     682,361    
Unrealized appreciation on open forward currency contracts (Note 2)     25,119,953    
Receivable for variation margin on open futures contracts (Note 2)     2,407,090    
Interest receivable for open swap contracts     3,891,697    
Receivable for open swap contracts (Note 2)     14,787,426    
Receivable for closed swap contracts (Note 2)     215,152    
Receivable for expenses reimbursed by Manager (Note 3)     67,359    
Total assets     1,425,341,716    
Liabilities:  
Payable for investments purchased     15,500,000    
Foreign currency due to custodian     374,278    
Payable to affiliate for (Note 3):  
Management fee     289,093    
Shareholder service fee     122,199    
Trustees and Chief Compliance Officer of GMO Trust fees     3,376    
Unrealized depreciation on open forward currency contracts (Note 2)     29,199,916    
Payable for open swap contracts (Note 2)     16,806,248    
Accrued expenses     288,896    
Total liabilities     62,584,006    
Net assets   $ 1,362,757,710    

 

See accompanying notes to the financial statements.


12


GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 1,454,000,952    
Distributions in excess of net investment income     (58,983,232 )  
Accumulated net realized loss     (32,544,883 )  
Net unrealized appreciation     284,873    
    $ 1,362,757,710    
Net assets attributable to:  
Class III shares   $ 154,762,095    
Class IV shares   $ 1,207,995,615    
Shares outstanding:  
Class III     15,628,324    
Class IV     121,805,115    
Net asset value per share:  
Class III   $ 9.90    
Class IV   $ 9.92    

 

See accompanying notes to the financial statements.


13


GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 8,534,988    
Interest     4,544,980    
Dividends     50,000    
Total investment income     13,129,968    
Expenses:  
Management fee (Note 3)     1,963,969    
Shareholder service fee – Class III (Note 3)     116,126    
Shareholder service fee – Class IV (Note 3)     708,170    
Custodian, fund accounting agent and transfer agent fees     326,140    
Audit and tax fees     37,444    
Legal fees     23,000    
Trustees fees and related expenses (Note 3)     9,861    
Registration fees     2,760    
Miscellaneous     11,223    
Total expenses     3,198,693    
Fees and expenses reimbursed by Manager (Note 3)     (392,564 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (102,162 )  
Shareholder service fee waived (Note 3)     (24,493 )  
Net expenses     2,679,474    
Net investment income (loss)     10,450,494    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (6,292,587 )  
Investments in affiliated issuers     8,825,139    
Realized gains distributions from affiliated issuers (Note 8)     1,817,575    
Closed futures contracts     (4,106,002 )  
Closed swap contracts     (9,148,780 )  
Foreign currency, forward contracts and foreign currency related transactions     465,991    
Net realized gain (loss)     (8,438,664 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     1,628,904    
Investments in affiliated issuers     2,155,872    
Open futures contracts     (1,477,372 )  
Open swap contracts     (11,893,550 )  
Foreign currency, forward contracts and foreign currency related transactions     (14,452,525 )  
Net unrealized gain (loss)     (24,038,671 )  
Net realized and unrealized gain (loss)     (32,477,335 )  
Net increase (decrease) in net assets resulting from operations   $ (22,026,841 )  

 

See accompanying notes to the financial statements.


14


GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,450,494     $ 119,373,878    
Net realized gain (loss)     (8,438,664 )     64,383,082    
Change in net unrealized appreciation (depreciation)     (24,038,671 )     (4,611,340 )  
Net increase (decrease) in net assets from operations     (22,026,841 )     179,145,620    
Distributions to shareholders from:  
Net investment income  
Class III     (7,545,179 )     (9,204,300 )  
Class IV     (59,639,694 )     (140,512,830 )  
Total distributions from net investment income     (67,184,873 )     (149,717,130 )  
Net share transactions (Note 7):  
Class III     (22,510,751 )     35,129,910    
Class IV     (895,182,534 )     (461,382,628 )  
Increase (decrease) in net assets resulting from net share
transactions		     (917,693,285 )     (426,252,718 )  
Total increase (decrease) in net assets     (1,006,904,999 )     (396,824,228 )  
Net assets:  
Beginning of period     2,369,662,709       2,766,486,937    
End of period (including distributions in excess of net investment
income of $58,983,232 and $2,248,853, respectively)		   $ 1,362,757,710     $ 2,369,662,709    

 

See accompanying notes to the financial statements.


15



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of
period		   $ 10.49     $ 10.32     $ 10.35     $ 10.40     $ 9.95     $ 10.39    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.07       0.43       0.15       0.18       0.25       0.20    
Net realized and unrealized
gain (loss)		     (0.21 )     0.27       0.17       0.24       0.91       0.44    
Total from investment
operations		     (0.14 )     0.70       0.32       0.42       1.16       0.64    
Less distributions to shareholders:  
From net investment income     (0.45 )     (0.53 )     (0.35 )     (0.25 )     (0.28 )     (0.47 )  
From net realized gains     —       —       —       (0.22 )     (0.43 )     (0.61 )  
Total distributions     (0.45 )     (0.53 )     (0.35 )     (0.47 )     (0.71 )     (1.08 )  
Net asset value, end of period   $ 9.90     $ 10.49     $ 10.32     $ 10.35     $ 10.40     $ 9.95    
Total Return(b)      (1.40 )%**      6.85 %     3.10 %     4.01 %     11.99 %     6.45 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 154,762     $ 187,045     $ 148,476     $ 1,216,251     $ 602,824     $ 286,030    
Net expenses to average daily
 net assets(c) 		     0.39 %*      0.39 %     0.39 %     0.39 %     0.39 %     0.38 %  
Net investment income to
average daily net assets(a) 		     1.44 %*      4.11 %     1.40 %     1.77 %     2.43 %     1.91 %  
Portfolio turnover rate     24 %**      72 %     62 %     108 %     114 %     108 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.07 %*      0.06 %     0.06 %     0.07 %     0.09 %     0.09 %  

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


16


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 10.50     $ 10.33     $ 10.46    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.07       0.45       0.23    
Net realized and unrealized gain (loss)     (0.20 )     0.26       (0.01 )(c)   
Total from investment operations     (0.13 )     0.71       0.22    
Less distributions to shareholders:  
From net investment income     (0.45 )     (0.54 )     (0.35 )  
Total distributions     (0.45 )     (0.54 )     (0.35 )  
Net asset value, end of period   $ 9.92     $ 10.50     $ 10.33    
Total Return(d)      (1.31 )%**      6.90 %     2.06 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,207,996     $ 2,182,618     $ 2,618,011    
Net expenses to average daily net assets(e)      0.34 %*      0.34 %     0.34 %*   
Net investment income to average daily net assets(b)      1.32 %*      4.33 %     2.16 %(f)   
Portfolio turnover rate     24 %**      72 %     62 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.07 %*      0.06 %     0.07 %*   

 

(a)  Period from July 26, 2005 (commencement of operations) through February 28, 2006.

(b)  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 amount is not in accord with the net realized and unrealized gain (loss) on investments for the period because of the timing of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.

(d)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during periods shown and assumes the effect of reinvested distributions.

(e)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(f)  The ratio for the period ended February 28, 2006 has not been annualized since the Fund believes it would not be appropriate because the Fund's net income is not earned ratably throughout the fiscal year.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2006.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


17



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Core Plus 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the Lehman Brothers U.S. Aggregate Index. The Fund typically invests in bonds included in the Lehman Brothers U.S. Aggregate Index and in securities and instruments with similar characteristics. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of Short-Duration Collateral Fund; in futures contracts, currency options, currency forwards, swap contracts, and other types of derivatives; in U.S. and foreign investment-grade bonds, including U.S. and foreign government securities and asset-backed securities issued by U.S. government agencies (including securities neither guaranteed nor insured by the U.S. government) and foreign governments, corporate bonds, and mortgage-backed and other asset-backed securities issued by private issuers; to a signif icant extent in credit default swaps; in shares of World Opportunity Overlay Fund; and up to 5% of the Fund's total assets in sovereign debt of emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund ("ECDF").

As of August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect). Shares of the GMO Short-Duration Collateral Fund, the GMO World Opportunity Overlay Fund and the GMO Special Purpose Holding Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


18


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $574,926 in conjunction with a settlement agreement related to the default of those asset-backed securities.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.


19


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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


20


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total


21


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has expos ure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.


22


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

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. There were no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States.


23


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $34,693,380 and $2,795,729 expiring in 2014 and 2015, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital losses of $31,418,866.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,382,355,532     $ 13,733,736     $ (27,918,590 )   $ (14,184,854 )  

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.


24


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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. 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


25


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.25% 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 0.15% for Class III shares and 0.10% for Class IV shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by a class of shares of the Fund exceeds 0.15% for Class III shares and 0.10% for Class IV shares; provided, however, that the amount of this waiver will not exceed the respective Class's shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 20, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's fees and expenses of the independent trustees of the Trust, fees for legal services not procured or provided by the Manager for the Trust, compensation and expenses of the Trust's CCO (excluding any employee benefits), and investment-related expenses such as brokerage commissions, hedging transaction fees, securities lending fees and expenses, interest expense and transfer taxes), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.015 %     0.003 %     0.048 %     0.066 %  

 


26


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $7,377 and $5,244, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 77,395,156     $ 83,387,383    
Investments (non-U.S. Government securities)     302,719,146       1,285,434,366    

 

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 44.90% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by four related parties comprised of certain GMO employee accounts, and 83.25% of the Fund's shares were held by accounts for which the Manager has investment discretion.


27


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.   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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     6,278,358     $ 65,444,185       10,466,484     $ 108,425,382    
Shares issued to shareholders
in reinvestment of distributions		     664,601       6,639,364       574,344       5,967,454    
Shares repurchased     (9,138,824 )     (94,594,300 )     (7,600,338 )     (79,262,926 )  
Net increase (decrease)     (2,195,865 )   $ (22,510,751 )     3,440,490     $ 35,129,910    
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     12,016,621     $ 125,053,877       90,465,074     $ 952,490,812    
Shares issued to shareholders
in reinvestment of distributions		     5,958,011       59,639,694       13,509,020       140,512,830    
Shares repurchased     (103,980,961 )     (1,079,876,105 )     (149,605,257 )     (1,554,386,270 )  
Net increase (decrease)     (86,006,329 )   $ (895,182,534 )     (45,631,163 )   $ (461,382,628 )  

 


28


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging
Country Debt Fund,
Class IV		   $ 73,734,690     $ 3,372,191     $ 30,200,000     $ 629,541     $ 1,242,649     $ 45,655,192    
GMO Short-Duration
Collateral Fund		     1,648,269,872       264,505,447       1,006,750,000       7,905,447       —       913,869,561    
GMO Special
Purpose Holding
Fund		     132,340       —       —       —       574,926       135,156    
GMO World
Opportunity Overlay
Fund		     475,441,813       34,200,000       240,675,000       —       —       273,352,299    
Totals   $ 2,197,578,715     $ 302,077,638     $ 1,277,625,000     $ 8,534,988     $ 1,817,575     $ 1,233,012,208    

 


29



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one- and five-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall compet ence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


30


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for ce rtain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most


31


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


32


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized Net
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.46 %   $ 1,000.00     $ 986.00     $ 2.30    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    
Class IV      
1) Actual     0.41 %   $ 1,000.00     $ 986.90     $ 2.05    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.08     $ 2.08    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


33



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.6 %  
Short-Term Investments     18.0    
Rights and Warrants     0.0    
Futures     (0.0 )  
Other     (15.6 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financial     26.5 %  
Retail Stores     13.6    
Technology     10.0    
Consumer Goods     9.3    
Services     8.9    
Construction     6.0    
Health Care     5.1    
Utility     4.3    
Food & Beverage     3.9    
Primary Process Industry     3.6    
Automotive     2.8    
Manufacturing     2.7    
Transportation     1.3    
Oil & Gas     1.0    
Machinery     0.8    
Metals & Mining     0.2    
      100.0 %  

 


1



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.6%  
        Automotive — 2.7%  
    5,100     American Axle & Manufacturing Holdings, Inc.     118,932    
    12,550     ArvinMeritor, Inc.     218,997    
    5,000     Autoliv, Inc.     286,850    
    3,000     BorgWarner, Inc.     253,500    
    2,700     Cooper Tire & Rubber Co.     65,988    
    8,400     Goodyear Tire & Rubber Co. (The) *      232,344    
    2,200     Standard Motor Prods     21,538    
    6,400     TRW Automotive Holdings Corp. *      195,584    
    Total Automotive     1,393,733    
        Construction — 5.8%  
    1,090     American Woodmark Corp.     32,885    
    22,500     Annaly Capital Management, Inc.     317,025    
    12,500     Anthracite Capital, Inc. REIT     113,250    
    12,200     Anworth Mortgage Asset Corp. REIT (a)      65,636    
    400     Apogee Enterprises, Inc.     10,068    
    800     Avatar Holdings, Inc. * (a)      48,624    
    7,251     Capstead Mortgage Corp. REIT     72,292    
    2,300     Centex Corp.     66,493    
    1,300     Crane Co.     58,227    
    2,000     Dycom Industries, Inc. *      59,060    
    400     EMCOR Group, Inc. *      12,540    
    1,900     Entertainment Properties Trust REIT     90,896    
    1,200     Inland Real Estate Corp. REIT     18,576    
    4,400     iStar Financial, Inc. REIT     161,040    
    8,100     KB Home (a)      245,754    
    900     KKR Financial Holdings LLC REIT (a)      13,941    
    400     Lennar Corp.-Class A     11,308    
    1,600     Lennox International, Inc.     57,552    
    5,700     Louisiana-Pacific Corp.     106,761    
    3,600     M/I Homes, Inc. (a)      65,628    
    7,224     MDC Holdings, Inc.     321,396    

 

See accompanying notes to the financial statements.


2


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Construction — continued  
    18,266     MFA Mortgage Investments, Inc. REIT     141,561    
    5,400     Newcastle Investment Corp. REIT (a)      89,856    
    900     Senior Housing Properties Trust REIT     18,306    
    4,200     Simpson Manufacturing Co., Inc. (a)      138,600    
    5,100     Thor Industries, Inc.     224,349    
    15,400     Thornburg Mortgage, Inc. REIT (a)      181,412    
    10,900     Toll Brothers, Inc. *      232,824    
    400     Universal Forest Products, Inc. (a)      14,916    
    300     Weingarten Realty Investors REIT     12,063    
    Total Construction     3,002,839    
        Consumer Goods — 9.1%  
    9,900     Alberto-Culver Co.     229,383    
    10,400     Blyth, Inc.     232,544    
    9,500     Brunswick Corp.     238,925    
    1,500     Chattem, Inc. * (a)      92,565    
    1,600     Church & Dwight Co., Inc.     71,888    
    4,900     Columbia Sportswear Co.     293,608    
    500     Deckers Outdoor Corp. *      47,095    
    3,000     Estee Lauder Cos. (The), Inc.-Class A     124,770    
    4,100     Ethan Allen Interiors, Inc.     137,760    
    8,400     Fossil, Inc. *      281,484    
    11,490     Furniture Brands International, Inc.     130,756    
    10,900     Hasbro, Inc.     307,489    
    1,000     Hooker Furniture Corp. (a)      18,350    
    900     Jakks Pacific, Inc. * (a)      20,223    
    13,500     Jones Apparel Group, Inc.     259,065    
    3,000     Kellwood Co.     59,100    
    3,000     K-Swiss, Inc.-Class A     72,360    
    6,900     La-Z-Boy, Inc. (a)      66,516    
    10,500     Leggett & Platt, Inc.     214,200    
    20,000     Liz Claiborne, Inc.     683,400    
    1,700     Marvel Entertainment, Inc. * (a)      38,420    
    1,600     Matthews International Corp.-Class A     69,024    

 

See accompanying notes to the financial statements.


3


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Consumer Goods — continued  
    2,000     Oakley, Inc.     57,540    
    2,800     Perry Ellis International, Inc. *      76,412    
    1,000     Phillips-Van Heusen Corp.     58,230    
    3,900     Plantronics, Inc.     110,760    
    2,600     Polaris Industries, Inc. (a)      124,150    
    1,100     Snap-On, Inc.     53,878    
    5,300     Timberland Co.-Class A *      106,477    
    4,900     Tupperware Corp.     150,871    
    3,700     Universal Corp. (a)      181,781    
    800     Warnaco Group (The), Inc. *      27,920    
    2,600     Wolverine World Wide, Inc.     68,354    
    Total Consumer Goods     4,705,298    
        Financial — 25.9%  
    1,600     AG Edwards, Inc.     133,728    
    300     Alleghany Corp. * (a)      123,600    
    1,200     Amcore Financial, Inc.     32,136    
    4,400     American Capital Strategies Ltd.     181,676    
    9,350     American Financial Group, Inc.     263,670    
    600     American National Insurance Co.     75,630    
    7,900     AmeriCredit Corp. * (a)      136,749    
    3,000     AMERIGROUP Corp. *      95,010    
    1,200     Anchor Bancorp Wisconsin, Inc.     31,608    
    9,500     Associated Banc Corp.     267,995    
    7,350     Astoria Financial Corp.     191,615    
    700     Axis Capital Holdings Ltd.     25,270    
    7,500     Bancorpsouth, Inc.     187,425    
    1,100     Bank of Hawaii Corp.     56,551    
    800     Banner Corp.     25,776    
    4,700     Brown & Brown, Inc. (a)      126,524    
    3,300     Chemical Financial Corp.     83,556    
    2,600     Chittenden Corp.     90,428    
    3,700     Citizens Republic Bancorp, Inc. (a)      65,231    
    3,800     City National Corp.     271,282    

 

See accompanying notes to the financial statements.


4


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    4,025     Commerce Bancshares, Inc.     187,968    
    15,700     Commerce Group, Inc.     500,516    
    3,100     Community Bank System, Inc.     62,341    
    300     Community Trust Bancorp     9,603    
    2,000     Conseco, Inc. *      28,120    
    2,300     Corus Bankshares, Inc. (a)      30,728    
    1,600     Dime Community Bancshares     21,808    
    4,500     Downey Financial Corp. (a)      254,655    
    400     EMC Insurance Group, Inc.     9,780    
    3,600     Erie Indemnity Co.-Class A     201,204    
    1,100     FBL Financial Group, Inc.-Class A     43,043    
    300     Federal Agricultural Mortgage Corp.-Class C     9,780    
    12,116     First American Corp.     506,812    
    4,100     First Bancorp Puerto Rico (a)      41,205    
    100     First Citizens BancShares, Inc.-Class A     17,725    
    14,600     First Horizon National Corp. (a)      447,928    
    2,700     FirstFed Financial Corp. * (a)      135,675    
    8,000     FirstMerit Corp.     154,560    
    9,600     Flagstar Bancorp, Inc.     118,080    
    1,400     Frontier Financial Corp. (a)      34,412    
    5,100     Fulton Financial Corp.     74,970    
    4,700     Greater Bay Bancorp     132,305    
    1,600     Harleysville Group, Inc.     51,616    
    3,700     HCC Insurance Holdings, Inc.     102,157    
    700     Hilb Rogal & Hobbs Co.     32,690    
    7,100     Horace Mann Educators Corp.     137,314    
    1,211     IMPAC Mortgage Holdings, Inc. REIT (a)      2,083    
    700     Imperial Capital Bancorp, Inc.     24,220    
    2,300     Independent Bank Corp., MI     26,933    
    600     Integra Bank Corp.     11,424    
    5,320     International Bancshares Corp.     122,466    
    1,900     Janus Capital Group, Inc. (a)      50,521    
    4,073     Kansas City Life Insurance Co.     182,552    

 

See accompanying notes to the financial statements.


5


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    2,100     Knight Capital Group, Inc.-Class A *      28,854    
    3,300     LandAmerica Financial Group, Inc.     182,787    
    2,800     MAF Bancorp, Inc.     150,332    
    700     Markel Corp. * (a)      332,962    
    3,500     MCG Capital Corp.     50,820    
    5,200     Mercury General Corp.     273,936    
    2,500     MGIC Investment Corp. (a)      75,400    
    3,200     MoneyGram International, Inc.     68,064    
    7,200     Nationwide Financial Services, Inc.-Class A     385,344    
    7,200     New York Community Bancorp, Inc.     127,368    
    5,100     Odyssey Re Holdings Corp.     184,722    
    1,000     Old National Bancorp     15,880    
    23,975     Old Republic International Corp.     436,105    
    4,900     Pacific Capital Bancorp (a)      123,578    
    700     Park District National Corp. (a)      63,644    
    1,200     PFF Bancorp, Inc.     21,024    
    7,900     Philadelphia Consolidated Holding Corp. *      316,158    
    1,400     PMA Capital Corp.-Class A *      14,070    
    9,610     PMI Group (The), Inc. (a)      304,445    
    11,100     Popular, Inc. (a)      136,974    
    1,000     Pre-Paid Legal Services, Inc. * (a)      55,190    
    5,000     Protective Life Corp.     209,000    
    5,500     Radian Group, Inc.     97,020    
    6,000     Redwood Trust, Inc. REIT (a)      223,980    
    8,700     Reinsurance Group of America, Inc.     472,497    
    1,600     RLI Corp.     96,240    
    1,000     S&T Bancorp (a)      35,210    
    2,600     Safety Insurance Group, Inc.     88,764    
    7,000     SEI Investment Co.     177,590    
    3,700     Selective Insurance Group, Inc.     78,070    
    4,500     StanCorp Financial Group, Inc.     211,950    
    2,200     State Auto Financial Corp.     65,824    
    5,300     Stewart Information Services Corp.     196,418    
    600     Student Loan Corp.     118,350    

 

See accompanying notes to the financial statements.


6


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Financial — continued  
    14,300     TCF Financial Corp.     361,361    
    4,900     Transatlantic Holdings, Inc.     347,067    
    4,100     Triad Guaranty, Inc. *      68,593    
    3,100     Trustco Bank Corp., NY     34,658    
    7,400     Trustmark Corp.     208,976    
    2,000     United Bankshares, Inc.     62,600    
    600     Unitrin, Inc.     27,276    
    2,650     Valley National Bancorp     60,155    
    4,927     Washington Federal, Inc. (a)      130,763    
    2,600     Webster Financial Corp.     110,396    
    2,400     Westamerica Bancorporation (a)      116,520    
    700     Whitney Holding Corp.     19,390    
    1,500     Wilmington Trust Corp.     60,150    
    1,800     Zenith National Insurance Corp.     77,598    
    Total Financial     13,336,727    
        Food & Beverage — 3.8%  
    4,300     Chiquita Brands International, Inc. * (a)      67,080    
    500     Corn Products International, Inc.     22,600    
    5,500     Dean Foods Co.     147,730    
    5,800     Del Monte Foods Co.     61,132    
    400     Fresh Del Monte Produce, Inc     10,532    
    1,300     Hormel Foods Corp.     46,319    
    4,400     JM Smucker Co. (The)     242,044    
    500     Lancaster Colony Corp.     20,335    
    900     M&F Worldwide Corp. *      50,760    
    2,600     McCormick & Co., Inc. (Non Voting)     93,184    
    900     Molson Coors Brewing Co.-Class B     80,514    
    2,400     Pilgrim's Pride Corp.     97,416    
    2,300     Ralcorp Holdings, Inc. *      142,117    
    2,450     Sanderson Farms, Inc.     102,753    
    25     Seaboard Corp. (a)      51,975    
    4,600     Smithfield Foods, Inc. *      150,558    
    26,700     Tyson Foods, Inc.-Class A     575,385    
    Total Food & Beverage     1,962,434    

 

See accompanying notes to the financial statements.


7


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Health Care — 5.0%  
    800     American Dental Partners, Inc. * (a)      19,160    
    10,000     Apria Healthcare Group * (a)      266,300    
    3,400     Conmed Corp. *      98,770    
    1,000     Cytyc Corp. *      42,740    
    1,500     Endo Pharmaceuticals Holdings, Inc. *      47,820    
    6,800     Health Management Associates, Inc.-Class A     46,308    
    1,400     Idexx Laboratories, Inc. *      156,450    
    800     Immucor, Inc. *      26,680    
    2,100     Invacare Corp. (a)      48,657    
    3,800     Kindred Healthcare, Inc. *      75,316    
    26,700     King Pharmaceuticals, Inc. *      401,301    
    3,100     LifePoint Hospitals, Inc. *      87,110    
    5,100     Lincare Holdings, Inc. *      183,549    
    600     Molina Healthcare, Inc. *      20,430    
    6,200     Owens & Minor, Inc.     247,380    
    500     Par Pharmaceutical Cos., Inc. *      11,195    
    4,600     Patterson Cos., Inc. *      169,188    
    3,000     Pediatrix Medical Group, Inc. *      178,950    
    1,700     Pharmaceutical Product Development, Inc.     59,551    
    500     PharmaNet Development Group, Inc. *      14,400    
    1,800     Respironics, Inc. *      85,374    
    1,200     Techne Corp. * (a)      75,612    
    10,900     Tenet Healthcare Corp. * (a)      36,951    
    1,780     Universal Health Services, Inc.-Class B     93,984    
    2,000     Watson Pharmaceuticals, Inc. *      59,640    
    Total Health Care     2,552,816    
        Machinery — 0.7%  
    2,700     AGCO Corp. * (a)      116,640    
    1,100     Cascade Corp.     80,971    
    100     NACCO Industries, Inc.-Class A     11,847    
    500     Sauer-Danfoss, Inc.     13,410    
    1,500     Stanley Works (The)     85,110    
    1,200     Tidewater, Inc.     78,540    
    Total Machinery     386,518    

 

See accompanying notes to the financial statements.


8


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Manufacturing — 2.7%  
    700     American Greetings Corp.-Class A     17,318    
    3,600     AptarGroup, Inc.     130,788    
    3,700     Bemis Co., Inc.     110,519    
    2,000     Greif, Inc.-Class A     116,440    
    200     Kennametal, Inc.     16,132    
    2,700     Mueller Industries, Inc.     93,528    
    3,600     Pall Corp.     137,268    
    2,400     Reliance Steel & Aluminum Co.     127,128    
    2,100     Rock-Tenn Co.-Class A     60,879    
    3,400     Sealed Air Corp.     89,930    
    4,600     Sonoco Products Co.     165,692    
    1,900     SPX Corp.     171,095    
    2,500     Temple-Inland, Inc.     137,700    
    300     Tredegar Industries     5,244    
    Total Manufacturing     1,379,661    
        Metals & Mining — 0.2%  
    1,200     Cleveland-Cliffs, Inc. (a)      91,524    
        Oil & Gas — 1.0%  
    1,400     Ashland, Inc.     83,706    
    2,300     Cimarex Energy Co.     82,363    
    1,300     Pogo Producing Co.     64,753    
    4,200     Tesoro Corp.     207,186    
    1,700     Unit Corp. *      83,402    
    Total Oil & Gas     521,410    
        Primary Process Industry — 3.5%  
    7,400     Albemarle Corp.     299,478    
    3,000     Cabot Corp.     121,020    
    1,000     Celanese Corp.-Class A     35,920    
    1,900     Commercial Metals Co.     54,891    
    1,800     Eastman Chemical Co.     120,168    
    400     FMC Corp.     36,000    

 

See accompanying notes to the financial statements.


9


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Primary Process Industry — continued  
    600     Headwaters, Inc. *      9,912    
    3,200     Hercules, Inc. *      66,624    
    2,100     International Flavors & Fragrances, Inc.     105,483    
    3,900     Lubrizol Corp.     247,962    
    2,800     PolyOne Corp. *      22,484    
    3,800     Quanex Corp.     164,578    
    1,300     Schnitzer Steel Industries, Inc.-Class A     75,959    
    8,600     Sensient Technologies Corp.     232,974    
    1,600     Sigma Aldrich Corp.     71,680    
    2,658     Stepan Co.     79,793    
    3,700     Worthington Industries, Inc.     78,292    
    Total Primary Process Industry     1,823,218    
        Retail Stores — 13.3%  
    1,800     99 Cents Only Stores *      22,230    
    3,500     Advance Auto Parts, Inc.     124,460    
    5,300     American Eagle Outfitters, Inc.     136,899    
    6,300     Asbury Automotive Group, Inc.     136,206    
    26,100     AutoNation, Inc. * (a)      495,378    
    7,400     Big Lots, Inc. * (a)      220,298    
    8,400     BJ's Wholesale Club, Inc. *      294,000    
    1,200     Borders Group, Inc.     18,000    
    1,550     Buckle, Inc.     57,986    
    6,600     CDW Corp. *      568,062    
    2,800     Chico's FAS, Inc. *      44,744    
    3,000     CSK Auto Corp. *      39,660    
    1,000     Dillard's, Inc.-Class A     23,740    
    19,000     Dollar Tree Stores, Inc. *      825,550    
    12,400     Family Dollar Stores, Inc.     363,072    
    6,400     Foot Locker, Inc.     106,944    
    4,700     Group 1 Automotive, Inc.     164,782    
    1,700     Haverty Furniture Companies, Inc.     18,224    
    5,600     Ingles Markets, Inc.-Class A     168,616    
    5,300     Insight Enterprises, Inc. *      125,716    

 

See accompanying notes to the financial statements.


10


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Retail Stores — continued  
    600     Jo-Ann Stores, Inc. *      13,500    
    1,000     Lithia Motors, Inc.-Class A     17,910    
    1,400     Longs Drug Stores Corp.     73,822    
    800     Men's Wearhouse, Inc.     40,544    
    3,500     OfficeMax, Inc.     124,320    
    3,500     O'Reilly Automotive, Inc. *      124,390    
    6,600     Pacific Sunwear of California, Inc. *      92,466    
    13,800     Penske Auto Group, Inc.     271,998    
    9,400     RadioShack Corp. (a)      223,438    
    11,400     Rent-A-Center, Inc. * (a)      219,108    
    51,600     Rite Aid Corp. * (a)      261,612    
    3,400     Ross Stores, Inc.     94,622    
    3,000     Ruddick Corp.     97,740    
    3,000     Saks, Inc. (a)      48,510    
    6,200     Sonic Automotive, Inc.     164,920    
    13,500     Supervalu, Inc.     569,025    
    1,800     Talbots, Inc.     38,304    
    800     The Pep Boys - Manny, Moe & Jack     13,112    
    2,900     Tiffany & Co.     148,857    
    800     Tuesday Morning Corp.     8,440    
    1,300     Tween Brands, Inc. * (a)      38,350    
    900     Weis Markets, Inc.     38,682    
    2,300     Williams-Sonoma, Inc. (a)      76,659    
    4,200     Zale Corp. *      94,374    
    Total Retail Stores     6,849,270    
        Services — 8.7%  
    4,600     ABM Industries, Inc.     107,548    
    500     Ameristar Casinos, Inc.     14,455    
    4,975     Applebee's International, Inc.     123,430    
    5,200     Avis Budget Group, Inc. *      120,692    
    5,500     Belo Corp     94,820    
    800     Bob Evans Farms, Inc.     26,696    
    6,000     Brinker International, Inc.     173,040    

 

See accompanying notes to the financial statements.


11


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    9,900     Career Education Corp. *      294,030    
    3,800     CBRL Group, Inc.     142,196    
    400     CDI Corp.     11,440    
    3,650     CEC Entertainment, Inc. *      112,055    
    3,600     Copart, Inc. *      105,624    
    5,400     Corinthian Colleges, Inc. *      75,924    
    400     Corrections Corporation of America *      10,264    
    3,200     Cox Radio, Inc. *      44,096    
    2,300     Discovery Holding Co.-Class A *      57,776    
    2,650     Factset Research Systems, Inc.     158,815    
    300     FTI Consulting, Inc. *      15,756    
    900     Hearst-Argyle Television, Inc.     23,013    
    3,000     Interactive Data Corp.     82,020    
    2,600     ITT Educational Services, Inc. *      285,480    
    4,720     Jack in the Box, Inc. *      293,678    
    4,800     Journal Register Co.     15,120    
    5,300     Kelly Services, Inc.-Class A     120,416    
    4,500     Lee Enterprises, Inc.     78,165    
    1,300     Lin TV Corp.-Class A *      17,329    
    1,800     Manpower, Inc.     126,468    
    4,100     Nash Finch Co. (a)      153,791    
    11,200     New York Times Co.-Class A (a)      246,176    
    3,300     O'Charley's, Inc.     53,724    
    8,000     Performance Food Group Co. *      227,520    
    1,600     R.H. Donnelley Corp. *      94,128    
    3,200     Rare Hospitality International, Inc. * (a)      120,864    
    5,800     Regis Corp.     191,458    
    1,500     Resources Connection, Inc.     45,000    
    3,800     Ruby Tuesday, Inc.     84,170    
    2,100     Scholastic Corp. *      71,568    
    11,400     Service Corporation International     139,308    
    6,300     Stewart Enterprises, Inc.-Class A (a)      45,171    
    900     Unifirst Corp.     37,242    
    6,200     Valassis Communications, Inc. *      56,544    

 

See accompanying notes to the financial statements.


12


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Services — continued  
    1,300     Watson Wyatt Worldwide, Inc.     61,503    
    20,500     Westwood One, Inc.     59,245    
    1,400     World Fuel Services Corp.     53,970    
    Total Services     4,471,728    
        Technology — 9.8%  
    700     ADC Telecommunications, Inc. *      12,811    
    2,400     Alliant Techsystems, Inc. * (a)      252,744    
    900     Anixter International, Inc. * (a)      69,093    
    3,800     Arrow Electronics, Inc. *      159,448    
    8,200     Avnet, Inc. *      322,342    
    2,200     Avocent Corp. *      64,944    
    1,100     CACI International, Inc.-Class A *      56,122    
    1,300     Ciber, Inc. *      10,309    
    2,400     Citrix Systems, Inc. *      87,240    
    14,800     Compuware Corp. *      120,028    
    7,800     Convergys Corp. *      130,650    
    1,400     Curtiss-Wright Corp.     63,840    
    13,700     Deluxe Corp.     520,874    
    600     Diebold, Inc.     26,322    
    4,800     Energizer Holdings, Inc. *      508,464    
    22,050     Ingram Micro, Inc.-Class A *      433,062    
    800     Intersil Corp.-Class A     26,656    
    2,500     Lexmark International, Inc. *      93,150    
    1,900     Manhattan Associates, Inc. *      54,872    
    1,000     Maximus, Inc.     42,780    
    2,000     McAfee, Inc. *      71,500    
    6,100     Novellus System, Inc. * (a)      166,957    
    2,400     PerkinElmer, Inc.     65,784    
    1,000     Perot Systems Corp.-Class A *      15,630    
    3,400     Polycom, Inc. *      103,054    
    3,100     Pomeroy IT Solutions, Inc. *      26,009    
    1,300     ScanSource, Inc. *      36,010    
    2,900     Sybase, Inc. *      66,845    

 

See accompanying notes to the financial statements.


13


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Technology — continued  
    3,800     SYNNEX Corp. *      75,696    
    3,800     Synopsys, Inc. *      103,816    
    11,397     Tech Data Corp. *      444,369    
    1,400     Teleflex, Inc.     108,878    
    6,200     Total System Services, Inc. (a)      171,988    
    6,400     Unisys Corp. *      47,168    
    2,800     United Stationers, Inc. *      165,256    
    2,300     Waters Corp. *      141,611    
    6,300     Western Digital Corp. *      147,168    
    700     Woodward Governor Co.     41,111    
    Total Technology     5,054,601    
        Transportation — 1.2%  
    3,300     Arkansas Best Corp.     118,470    
    13,100     ExpressJet Holdings, Inc. *      57,116    
    400     Horizon Lines, Inc.-Class A     11,284    
    3,300     Overseas Shipholding Group, Inc.     235,620    
    300     Teekay Corp.     17,388    
    2,400     Werner Enterprises, Inc. (a)      44,664    
    4,700     YRC Worldwide, Inc. * (a)      144,807    
    Total Transportation     629,349    
        Utility — 4.2%  
    1,400     Alliant Energy Corp.     53,032    
    11,500     Centerpoint Energy, Inc.     186,530    
    300     Central Vermont Public Service     10,830    
    9,700     CenturyTel, Inc.     465,406    
    2,800     CMS Energy Corp.     45,696    
    600     El Paso Electric Co. *      13,392    
    2,700     Energen Corp.     144,990    
    3,400     Energy East Corp.     90,746    
    2,100     Great Plains Energy, Inc.     59,514    
    500     j2 Global Communications, Inc. *      17,000    
    1,000     Nicor, Inc. (a)      41,560    

 

See accompanying notes to the financial statements.


14


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Utility — continued  
    1,200     Northeast Utilities     33,180    
    3,300     NSTAR     108,141    
    1,600     OGE Energy Corp.     53,952    
    1,600     ONEOK, Inc.     74,960    
    1,700     Pepco Holdings, Inc.     47,396    
    1,700     Pinnacle West Capital Corp.     67,728    
    3,000     Premiere Global Services, Inc. *      39,240    
    3,800     Reliant Energy, Inc. *      96,938    
    5,800     Telephone & Data Systems, Inc.     375,550    
    1,300     UGI Corp.     33,215    
    600     UIL Holdings Corp.     18,594    
    3,400     Westar Energy, Inc.     82,586    
    Total Utility     2,160,176    
    TOTAL COMMON STOCKS (COST $51,035,236)     50,321,302    
        RIGHTS AND WARRANTS — 0.0%  
        Banking and Financial Services — 0.0%  
      175     KKR Financial Holdings LLC Rights, Expires 09/19/07 *      191    
    TOTAL RIGHTS AND WARRANTS (COST $0)     191    
        SHORT-TERM INVESTMENTS — 18.0%  
        Money Market Funds — 1.7%  
    213,429     Barclays Global Investors Institutional Money Market Fund (b)      213,429    
    640,285     Reserve Primary Money Market Fund (b)      640,285    
    Total Money Market Funds     853,714    
        Other Short-Term Investments — 16.3%  
    213,428     Citigroup Eurodollar Overnight Time Deposit, 5.00%, due 09/04/07 (b)      213,428    

 

See accompanying notes to the financial statements.


15


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Other Short-Term Investments — continued  
    1,220,930     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,221,507 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.13%,
maturity date of 08/15/19 and a market value, including accrued interest,
of $1,249,950.		     1,220,930    
    2,134,283     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $2,135,574 and
an effective yield of 5.45%, collateralized by various corporate debt
obligations with an interest rate range of 0.00% - 9.12%, maturity date
range of 04/01/09 - 05/29/37, and an aggregate market value of $2,297,621. (b) 		     2,134,283    
    373,500     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $373,726 and an effective yield
of 5.44%, collateralized by a corporate debt obligation with a rate of 5.38%,
maturity date of 07/22/15, and a market value of $381,010. (b) 		     373,500    
    2,134,283     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $2,135,553 and an effective yield
of 5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%,
maturity date of 11/30/11, and a market value of $2,176,993. (b) 		     2,134,283    
    2,134,283     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $2,135,574 and an effective yield
of 5.45%, collateralized by various corporate debt obligations with an interest
rate range of 0.00% - 8.50%, maturity date range of 11/16/07 - 06/15/37,
and an aggregate market value of $2,186,281. (b) 		     2,134,283    
    210,583     Svenska Handlesbanken Eurodollar Overnight Time Deposit,
5.31%, due 09/04/07 (b) 		     210,583    
    Total Other Short-Term Investments     8,421,290    
    TOTAL SHORT-TERM INVESTMENTS (COST $9,275,004)     9,275,004    
    TOTAL INVESTMENTS — 115.6%
(Cost $60,310,240)		     59,596,497    
            Other Assets and Liabilities (net) — (15.6%)     (8,044,919 )  
    TOTAL NET ASSETS — 100.0%   $ 51,551,578    

 

See accompanying notes to the financial statements.


16


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
  3     Russell Mini   September 2007   $ 238,440     $ (18,362 )  
  2     S&P 400 Mini   September 2007     173,040       (1,187 )  
    $ (19,549 )  

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


17



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $7,824,538
(cost $52,312,961) (Note 2)		   $ 51,599,218    
Investments in repurchase agreements, at value (cost $7,997,279) (Note 2)     7,997,279    
Cash     4,435    
Dividends and interest receivable     76,426    
Receivable for collateral on open futures contracts (Note 2)     16,600    
Receivable for variation margin on open futures contracts (Note 2)     5,580    
Receivable for expenses reimbursed by Manager (Note 3)     5,549    
Total assets     59,705,087    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     8,054,074    
Payable to affiliate for (Note 3):  
Management fee     13,484    
Shareholder service fee     6,525    
Trustees and Chief Compliance Officer of GMO Trust fees     93    
Accrued expenses     79,333    
Total liabilities     8,153,509    
Net assets   $ 51,551,578    
Net assets consist of:  
Paid-in capital   $ 50,500,220    
Accumulated undistributed net investment income     119,760    
Accumulated net realized gain     1,664,890    
Net unrealized depreciation     (733,292 )  
    $ 51,551,578    
Net assets attributable to:  
Class III shares   $ 51,551,578    
Shares outstanding:  
Class III     5,679,857    
Net asset value per share:  
Class III   $ 9.08    

 

See accompanying notes to the financial statements.


18


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $20)   $ 446,102    
Interest     41,157    
Securities lending income     26,125    
Total investment income     513,384    
Expenses:  
Management fee (Note 3)     89,256    
Shareholder service fee - Class III (Note 3)     43,189    
Custodian, fund accounting agent and transfer agent fees     21,160    
Audit and tax fees     26,128    
Legal fees     736    
Trustees fees and related expenses (Note 3)     315    
Miscellaneous     368    
Total expenses     181,152    
Fees and expenses reimbursed by Manager (Note 3)     (48,208 )  
Net expenses     132,944    
Net investment income (loss)     380,440    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,800,889    
Closed futures contracts     (32,034 )  
Net realized gain (loss)     1,768,855    
Change in net unrealized appreciation (depreciation) on:  
Investments     (5,117,875 )  
Open futures contracts     (21,810 )  
Net unrealized gain (loss)     (5,139,685 )  
Net realized and unrealized gain (loss)     (3,370,830 )  
Net increase (decrease) in net assets resulting from operations   $ (2,990,390 )  

 

See accompanying notes to the financial statements.


19


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 380,440     $ 881,835    
Net realized gain (loss)     1,768,855       5,343,873    
Change in net unrealized appreciation (depreciation)     (5,139,685 )     (1,717,958 )  
Net increase (decrease) in net assets from operations     (2,990,390 )     4,507,750    
Distributions to shareholders from:  
Net investment income  
Class III     (298,719 )     (1,160,532 )  
Net realized gains  
Class III     (2,123,223 )     (6,589,407 )  
      (2,421,942 )     (7,749,939 )  
Net share transactions (Note 7):  
Class III     (1,507,946 )     8,181,959    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     19,732       123,054    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (1,488,214 )     8,305,013    
Total increase (decrease) in net assets     (6,900,546 )     5,062,824    
Net assets:  
Beginning of period     58,452,124       53,389,300    
End of period (including accumulated undistributed net investment
income of $119,760 and $38,039, respectively)		   $ 51,551,578     $ 58,452,124    

 

See accompanying notes to the financial statements.


20



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 10.01     $ 10.52     $ 12.38     $ 15.51     $ 9.81     $ 14.91    
Income (loss) from investment
operations:		  
Net investment income (loss)     0.07 †      0.15 †      0.20 †      0.19 †      0.17       0.18    
Net realized and unrealized
gain (loss)		     (0.57 )     0.68       1.11       1.32       5.78       (2.74 )  
Total from investment
operations		     (0.50 )     0.83       1.31       1.51       5.95       (2.56 )  
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.20 )     (0.21 )     (0.16 )     (0.15 )     (0.17 )  
From net realized gains     (0.38 )     (1.14 )     (2.96 )     (4.48 )     (0.10 )     (2.37 )  
Total distributions     (0.43 )     (1.34 )     (3.17 )     (4.64 )     (0.25 )     (2.54 )  
Net asset value, end of period   $ 9.08     $ 10.01     $ 10.52     $ 12.38     $ 15.51     $ 9.81    
Total Return(a)      (5.42 )%**      8.71 %     11.67 %     14.98 %     61.14 %     (18.58 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 51,552     $ 58,452     $ 53,389     $ 80,084     $ 179,268     $ 146,915    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     1.32 %*      1.46 %     1.71 %     1.48 %     1.21 %     1.21 %  
Portfolio turnover rate     30 %**      79 %     48 %     66 %     86 %     69 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.17 %*      0.22 %     0.19 %     0.12 %     0.08 %     0.08 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts:† 		   $ 0.00 (b)    $ 0.02     $ 0.04     $ 0.09     $ 0.04     $ 0.08    

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods
shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholders.

(b)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


21



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO U.S. Small/Mid 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks long-term capital growth. The Fund seeks to achieve its objective by outperforming the Russell 2500 Value Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 2500 Index, and companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. Futures contracts are


22


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their


23


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $7,824,538 collateralized by cash in the amount of $8,054,074, which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, quarterly, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


24


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 60,413,745     $ 4,588,120     $ (5,405,368 )   $ (817,248 )  

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.50% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended


25


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

August 31, 2007 and the year ended February 28, 2007, the Fund received $88 and $63,264 in purchase premiums and $19,644 and $59,790 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.31% 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 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and


26


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) exceed 0.31% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $223 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $16,705,842 and $19,623,957, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 48.91% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.13% of the Fund's shares were held by five related parties comprised of certain GMO employee accounts, and 54.81% of the Fund's shares were held by accounts for which the Manager has investment discretion.


27


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,774     $ 17,586       1,190,034     $ 12,827,643    
Shares issued to shareholders
in reinvestment of distributions		     236,106       2,403,259       788,738       7,656,823    
Shares repurchased     (397,606 )     (3,928,791 )     (1,212,411 )     (12,302,507 )  
Purchase premiums and
redemption fees		     —       19,732       —       123,054    
Net increase (decrease)     (159,726 )   $ (1,488,214 )     766,361     $ 8,305,013    

 


28



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


29


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regardin g the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the


30


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


31


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 945.80     $ 2.25    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.82     $ 2.34    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


32



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     95.8 %  
Short-Term Investments     3.0    
Swaps     0.1    
Forward Currency Contracts     0.0    
Futures     0.0    
Other     1.1    
      100.0 %  
Industry Sector Summary   % of Debt Obligations  
Residential Asset-Backed Securities (United States)     22.7 %  
Credit Cards     20.4    
Auto Financing     6.8    
Residential Mortgage-Backed Securities (European)     6.8    
Business Loans     5.9    
CMBS     5.3    
Student Loans     5.2    
Residential Mortgage-Backed Securities (Australian)     4.6    
Insured Auto Financing     4.3    
Investment Grade Corporate Collateralized Debt Obligations     3.4    
Insured Other     2.2    
Collateralized Loan Obligations     1.6    
CMBS Collateralized Debt Obligations     1.5    
Insured Credit Cards     1.3    
Rate Reduction Bonds     1.2    
Trade Receivables     0.9    
Insured Residential Mortgage-Backed Securities (United States)     0.9    
U.S. Government Agency     0.9    
Insurance Premiums     0.7    
Insured High Yield Collateralized Debt Obligations     0.7    
Insured Time Share     0.4    
Equipment Leases     0.4    
Airlines     0.4    
Corporate Debt     0.3    
Emerging Markets Collateralized Debt Obligations     0.2    
Insured Residential Asset-Backed Securities (United States)     0.2    
ABS Collateralized Debt Obligations     0.2    
Residential Mortgage-Backed Securities (United States)     0.2    
Insured Business Loans     0.1    
Insured Transportation     0.1    
Insured Residential Asset-Backed Securities (European)     0.1    
U.S. Government     0.1    
High Yield Collateralized Debt Obligations     0.0    
      100.0 %  

 


1



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 95.8%  
        Asset-Backed Securities — 94.5%  
        ABS Collateralized Debt Obligations — 0.2%  
    15,000,000     Paragon CDO Ltd., Series 04-1A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 6.01%, due 10/20/44		     12,000,000    
      Airlines — 0.3%  
    23,000,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 6.09%, due 05/15/24		     15,870,000    
    11,578,541     Continental Airlines Inc., Series 991A, 6.55%, due 02/02/19     11,578,541    
    Total Airlines     27,448,541    
      Auto Financing — 6.5%  
    32,000,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
Variable Rate, 1 mo. LIBOR + .40%, 5.90%, due 02/18/14		     32,000,000    
    15,000,000     Capital Auto Receivables Asset Trust, Series 07-SN1, Class A4,
Variable Rate, 1 mo. LIBOR + .10%, , 5.71%, due 02/15/11		     14,935,500    
    31,500,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 02/15/12		     31,181,220    
    40,000,000     Ford Credit Floorplan Master Owner Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .15%, 5.76%, due 05/15/10		     39,836,000    
    58,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-3, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 06/15/11		     57,437,691    
    4,282,185     Franklin Auto Trust, Series 07-1, Class A1, Variable Rate, 5.32%, due 04/15/08     4,277,047    
    9,086,912     Nissan Auto Receivables Owner Trust, Series 04-C, Class A4,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 03/15/10		     9,078,006    
    40,000,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 5.61%, due 06/17/13		     39,628,800    
    12,000,000     Nissan Master Owner Trust Receivables, Series 05-A, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 5.64%, due 07/15/10		     11,982,600    
    37,000,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A,
Variable Rate, 1 mo. LIBOR, 5.61%, due 05/15/12		     36,627,040    
    57,250,000     Sovereign Dealer Floor Plan Master Trust, Series 06-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 08/15/11		     56,403,273    
    38,000,000     Superior Wholesale Inventory Financing Trust, Series 05-A12, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 06/15/10		     37,862,668    

 

See accompanying notes to the financial statements.


2


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Auto Financing — continued  
    20,000,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .10%, 5.71%, due 06/15/12		     19,793,843    
    32,000,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .27%, 5.88%, due 12/15/16		     31,524,160    
    60,000,000     Volkswagen Credit Auto Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 5.56%, due 07/21/10		     59,623,200    
    23,000,000     World Omni Auto Receivables Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 5.61%, due 11/15/12		     22,802,683    
    Total Auto Financing     504,993,731    
        Business Loans — 5.7%  
    37,000,000     ACAS Business Loan Trust, Series 07-1A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.67%, due 08/16/19		     36,774,300    
    6,301,120     Bayview Commercial Asset Trust, Series 04-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .36%, 5.87%, due 04/25/34		     6,277,309    
    5,795,524     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .37%, 5.88%, due 01/25/35		     5,793,206    
    20,160,023     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .39%, 5.90%, due 01/25/36		     20,039,063    
    14,543,601     Bayview Commercial Asset Trust, Series 07-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 5.75%, due 07/25/37		     14,234,549    
    423,933     Capitalsource Commercial Loan Trust, Series 04-1A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 5.87%, due 04/20/13		     423,804    
    16,154,608     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 5.66%, due 08/22/16		     16,140,068    
    15,954,481     Capitalsource Commercial Loan Trust, Series 07-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .13%, 5.67%, due 03/20/17		     15,893,854    
    20,000,000     CNH Wholesale Master Note Trust, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 5.67%, due 07/15/12		     19,914,063    
    6,907,218     GE Business Loan Trust, Series 04-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 5.90%, due 05/15/32		     6,852,964    
    9,442,846     GE Business Loan Trust, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 5.85%, due 11/15/33		     9,442,847    
    8,906,983     GE Commercial Equipment Financing LLC, Series 05-1, Class A3B,
Variable Rate, 1 mo. LIBOR + .01%, 5.55%, due 03/20/09		     8,900,593    
    8,825,937     GE Commercial Loan Trust, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 04/19/17		     8,795,235    

 

See accompanying notes to the financial statements.


3


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    21,154,245     GE Commercial Loan Trust, Series 06-2, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 5.42%, due 04/19/15		     21,075,974    
    35,000,000     GE Dealer Floorplan Master Note Trust, Series 06-4, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.55%, due 10/20/11		     34,650,000    
    52,000,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.33%, due 07/20/12		     51,514,395    
    13,498,373     Lehman Brothers Small Balance Commercial, Series 05-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 02/25/30		     13,166,585    
    12,431,626     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 09/25/30		     12,093,872    
    18,000,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 02/25/13		     17,919,000    
    39,000,000     Navistar Financial Dealer Note Master Trust, Series 98-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 07/25/11		     38,900,940    
    53,000,000     Textron Financial Floorplan Master Note, Series 05-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 5.66%, due 05/13/10		     52,867,500    
    25,000,000     Textron Financial Floorplan Master Note, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 5.60%, due 03/13/12		     24,927,500    
    1,916,870     The Money Store Business Loan Backed Trust, Series 99-1, Class AN,
Variable Rate, 1 mo. LIBOR +.50%, 6.11%, due 09/15/17		     1,919,551    
    Total Business Loans     438,517,172    
        CMBS — 5.1%  
    14,500,000     Banc of America Commercial Mortgage, Inc., Series 06-3, Class A2, 5.81%,
due 07/10/44		     14,749,219    
    12,782,689     Bear Stearns Commercial Mortgage Securities, Inc., Series 05-PW10,
Class A1, 5.09%, due 12/11/40		     12,723,761    
    22,500,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
Variable Rate, 1 mo. LIBOR + .12%, 5.71%, due 07/15/44		     22,356,000    
    43,000,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12,
Class AJ, 144A, Variable Rate, 1 mo. LIBOR + .13%, 5.74%, due 12/15/20		     42,944,100    
    32,000,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     32,065,000    
    19,850,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2,
Variable Rate, 5.52%, due 03/10/44		     19,932,191    
    15,785,053     Greenwich Capital Commercial Funding Corp., Series 06-FL4A,
Class A1, 144A, Variable Rate, 1 mo. LIBOR + .09%, 5.42%, due 11/05/21		     15,765,322    

 

See accompanying notes to the financial statements.


4


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    32,000,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, Variable Rate, 5.51%,
due 04/10/38		     31,978,240    
    15,782,636     GS Mortgage Securities Corp., Series 07-EOP, Class A1, 144A, Variable Rate,
1 mo. LIBOR + .09%, 5.42%, due 03/06/20		     15,683,994    
    9,000,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A, Variable Rate,
1 mo. LIBOR + .13%, 5.46%, due 03/06/20		     8,921,250    
    13,000,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-FL1A,
Class A1B, 144A, Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 02/15/20		     12,992,200    
    57,000,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45		     57,525,540    
    8,350,018     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 5.69%, due 09/15/21		     8,348,220    
    33,000,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, Variable Rate, 5.80%,
due 05/12/39		     33,174,023    
    12,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A2, 5.69%, due 10/15/42     12,070,800    
    13,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, Variable Rate, 5.91%,
due 10/15/42		     13,094,510    
    8,459,321     Morgan Stanley Dean Witter Capital I, Series 03-TOP9, Class A1, 3.98%,
due 11/13/36		     8,197,928    
    34,941,755     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A,
Class A1, 144A, Variable Rate, 1 mo. LIBOR + .09%, 5.70%, due 09/15/21		     34,871,113    
    Total CMBS     397,393,411    
        CMBS Collateralized Debt Obligations — 1.4%  
    9,000,000     ACAS CRE CDO, Series 07-1A, Class A, 144A, Variable Rate,
3 mo. LIBOR + .80%, 6.17%, due 11/23/52		     8,964,090    
    17,205,490     Crest Exeter Street Solar, Series 04-1A, Class A1, 144A, Variable Rate,
3 mo. LIBOR + .35%, 5.71%, due 06/28/19		     16,945,418    
    20,000,000     G-Force LLC, Series 05-RR2, Class A2, 144A, 5.16%, due 12/25/39     19,796,000    
    30,000,000     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .32%, 5.83%, due 08/26/30		     29,853,000    
    35,500,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A, Variable Rate,
1 mo. LIBOR + .33%, 5.84%, due 05/25/46		     35,122,813    
    Total CMBS Collateralized Debt Obligations     110,681,321    

 

See accompanying notes to the financial statements.


5


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Collateralized Loan Obligations — 1.5%  
    3,681,609     Archimedes Funding IV (Cayman) Ltd., Series 4A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 5.99%, due 02/25/13		     3,669,113    
    78,000,000     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
Variable Rate, 3 mo. LIBOR + .17%, 5.53%, due 06/20/25		     77,756,250    
    36,400,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 5.61%, due 07/05/11		     36,202,712    
    Total Collateralized Loan Obligations     117,628,075    
        Credit Cards — 19.6%  
    14,300,000     Advanta Business Card Master Trust, Series 05-A1, Class A1, Variable Rate,
1 mo. LIBOR + .07%, 5.61%, due 04/20/11		     14,262,105    
    20,000,000     Advanta Business Card Master Trust, Series 05-A2, Class A2, Variable Rate,
1 mo. LIBOR + .13%, 5.67%, due 05/20/13		     19,936,719    
    7,000,000     Advanta Business Card Master Trust, Series 05-A5, Class A5, Variable Rate,
1 mo. LIBOR + .06%, 5.60%, due 04/20/12		     6,955,340    
    30,000,000     Advanta Business Card Master Trust, Series 07-A4, Class A4, Variable Rate,
1 mo. LIBOR + .03%, 5.60%, due 04/22/13		     30,000,000    
    5,000,000     American Express Credit Account Master Trust, Series 03-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 09/15/10		     4,994,650    
    17,000,000     American Express Credit Account Master Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + 0.08%, 5.69%, due 09/15/11		     16,947,300    
    25,000,000     American Express Credit Account Master Trust, Series 04-4, Class A,
Variable Rate, 1 mo. LIBOR + 0.09%, 5.70%, due 03/15/12		     24,925,500    
    19,055,000     American Express Credit Account Master Trust, Series 05-3, Class A,
Variable Rate, 1 mo. LIBOR, 5.61%, due 01/18/11		     18,908,277    
    64,000,000     American Express Credit Account Master Trust, Series 05-5, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 02/15/13		     63,558,400    
    1,900,000     American Express Credit Account Master Trust, Series 05-6, Class A,
Variable Rate, 1 mo. LIBOR, 5.61%, due 03/15/11		     1,894,718    
    25,000,000     American Express Credit Account Master Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 5.64%, due 12/15/13		     24,774,000    
    25,000,000     Arran, Series 2005-A, Class A, Variable Rate, 1 mo. LIBOR + .02%, 5.63%,
due 12/15/10		     24,937,500    
    26,175,000     Bank of America Credit Card Trust, Series 06-A10, Class A10,
Variable Rate, 1 mo. LIBOR - .02%, 5.59%, due 02/15/12		     26,038,445    
    20,000,000     Bank One Issuance Trust, Series 02-A5, Class A5, Variable Rate,
1 mo. LIBOR + .12%, 5.73%, due 06/15/10		     19,998,400    

 

See accompanying notes to the financial statements.


6


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    5,000,000     Bank One Issuance Trust, Series 03-A1, Class A1, Variable Rate,
1 mo. LIBOR + .12%, 5.73%, due 09/15/10		     4,998,450    
    11,670,000     Bank One Issuance Trust, Series 03-A10, Class A10, Variable Rate,
1 mo. LIBOR + .11%, 5.72%, due 06/15/11		     11,658,330    
    38,635,000     Bank One Issuance Trust, Series 03-A3, Class A3, Variable Rate,
1 mo. LIBOR + .11%, 5.72%, due 12/15/10		     38,619,546    
    5,710,000     Bank One Issuance Trust, Series 03-A6, Class A6, Variable Rate,
1 mo. LIBOR + .11%, 5.72%, due 02/15/11		     5,706,013    
    10,000,000     Capital One Master Trust, Series 01-6, Class A, Variable Rate,
1 mo. LIBOR + .19%, 5.80%, due 06/15/11		     9,989,700    
    30,000,000     Capital One Master Trust, Series 02-1A, Class A, Variable Rate,
1 mo. LIBOR + .20%, 5.81%, due 11/15/11		     29,940,234    
    15,000,000     Capital One Multi-Asset Execution Trust, Series 02-A1, Class A1,
Variable Rate, 1 mo. LIBOR + .27%, 5.88%, due 07/15/10		     14,999,700    
    15,000,000     Capital One Multi-Asset Execution Trust, Series 04-A2, Class A2,
Variable Rate, 1 mo. LIBOR + .09%, 5.70%, due 01/17/12		     14,953,500    
    15,000,000     Capital One Multi-Asset Execution Trust, Series 04-A3, Class A3,
Variable Rate, 1 mo. LIBOR + .10%, 5.71%, due 02/15/12		     14,965,029    
    26,275,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .15%, 5.71%, due 06/16/14		     26,087,832    
    30,000,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 08/15/13		     29,835,000    
    341,000     Capital One Multi-Asset Execution Trust, Series 06-A7, Class A7,
Variable Rate, 1 mo. LIBOR + .03%, 5.64%, due 03/17/14		     337,917    
    9,000,000     Capital One Multi-Asset Execution Trust, Series 07-A4, Class A4,
Variable Rate, 1 mo. LIBOR + .03%, 5.64%, due 03/16/15		     8,917,200    
    20,000,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .07%, 5.40%, due 05/15/13		     19,850,000    
    14,000,000     Chase Credit Card Master Trust, Series 03-5, Class A, Variable Rate,
1 mo. LIBOR + .12%, 5.73%, due 01/17/11		     13,988,660    
    30,000,000     Chase Issuance Trust, Series 05-A3, Class A, Variable Rate,
1 mo. LIBOR + .02%, 5.63%, due 10/17/11		     29,902,800    
    14,000,000     Chase Issuance Trust, Series 05-A9, Class A9, Variable Rate,
1 mo. + .02%, 5.63%, due 11/15/11		     13,963,600    
    29,000,000     Chase Issuance Trust, Series 06-A7, Class A, Variable Rate,
1 mo. LIBOR + .01%, 5.62%, due 02/15/13		     28,747,120    

 

See accompanying notes to the financial statements.


7


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    5,500,000     Chase Issuance Trust, Series 07-A1, Class A1, Variable Rate,
1 mo. LIBOR + .02%, 5.63%, due 03/15/13		     5,444,088    
    17,500,000     Chase Issuance Trust, Series 07-A11, Class A11, Variable Rate,
1 mo. LIBOR, 5.61%, due 07/16/12		     17,360,631    
    59,000,000     Citibank Credit Card Issuance Trust, Series 01-A1, Class A1, Variable Rate,
3 mo. LIBOR + .17%, 5.53%, due 02/07/10		     58,938,640    
    16,000,000     Citibank Credit Card Issuance Trust, Series 01-A7, Class A7, Variable Rate,
3 mo. LIBOR + .14%, 5.69%, due 08/15/13		     15,934,400    
    20,000,000     Citibank Credit Card Issuance Trust, Series 04-A3, Class A3, Variable Rate,
3 mo. LIBOR + .07%, 5.43%, due 07/25/11		     19,909,600    
    10,000,000     Citibank Credit Card Issuance Trust, Series 05-A3, Class A3, Variable Rate,
1 mo. LIBOR + .07%, 5.57%, due 04/24/14		     9,865,400    
    27,000,000     Citibank Credit Card Issuance Trust, Series 06-A6, Class A6, Variable Rate,
1 mo. LIBOR + .01%, 5.51%, due 05/24/12		     26,881,200    
    16,000,000     Citibank Credit Card Issuance Trust, Series 07-A1, Class A1, Variable Rate,
3 mo. LIBOR - .01%, 5.35%, due 03/22/12		     15,923,200    
    32,000,000     Citibank Credit Card Issuance Trust, Series 07-A2, Class A2, Variable Rate,
3 mo. LIBOR - .01%, 5.49%, due 05/21/12		     31,843,200    
    22,000,000     Discover Card Master Trust I, Series 01-1, Class A, Variable Rate,
1 mo. LIBOR + .22%, 5.83%, due 01/15/08		     22,001,760    
    17,415,000     Discover Card Master Trust I, Series 03-1, Class A3, Variable Rate,
1 mo. LIBOR + .14%, 5.75%, due 04/16/10		     17,410,995    
    64,000,000     Discover Card Master Trust I, Series 03-2, Class A, Variable Rate,
1 mo. LIBOR + .13%, 5.74%, due 08/15/10		     63,980,160    
    12,000,000     Discover Card Master Trust I, Series 03-4, Class A1, Variable Rate,
1 mo. LIBOR + .11%, 5.72%, due 05/15/11		     11,987,400    
    11,905,000     Discover Card Master Trust I, Series 04-2, Class A1, Variable Rate,
1 mo. LIBOR + .02%, 5.63%, due 05/15/10		     11,897,381    
    6,950,000     Discover Card Master Trust I, Series 05-1, Class A, Variable Rate,
1 mo. LIBOR + .01%, 5.62%, due 09/16/10		     6,942,911    
    46,000,000     Discover Card Master Trust I, Series 05-3, Class A, Variable Rate,
1 mo. LIBOR + .02%, 5.63%, due 05/15/11		     45,795,300    
    7,000,000     Discover Card Master Trust I, Series 05-4, Class A1, Variable Rate,
1 mo. LIBOR + .06%, 5.67%, due 06/18/13		     6,953,520    
    4,000,000     Discover Card Master Trust I, Series 07-1, Class A, Variable Rate,
1 mo. LIBOR, 5.62%, due 08/15/12		     3,977,800    

 

See accompanying notes to the financial statements.


8


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
GBP     10,000,000     Earls Five Ltd., Series EMTN, Variable Rate, 3 mo. GBP LIBOR + .14%, 6.74%,
due 02/27/08		     20,134,877    
    5,400,000     GE Capital Credit Card Master Note Trust, Series 04-2, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 09/15/10		     5,399,703    
    25,000,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 5.65%, due 03/15/13		     24,816,625    
    45,000,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 06/15/13		     44,704,688    
    20,000,000     Gracechurch Card Funding Plc, Series 2, Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 10/15/09		     19,996,000    
    48,000,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 04/15/13		     47,553,750    
    3,000,000     MBNA Credit Card Master Note Trust Series 01-A5, Class A5,
Variable Rate, 1 mo. LIBOR + .21%, 5.82%, due 03/15/11		     2,999,040    
    31,976,000     MBNA Credit Card Master Note Trust, Series 03-A3, Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 08/16/10		     31,945,623    
    14,000,000     MBNA Credit Card Master Note Trust, Series 04-A7, Class A7,
Variable Rate, 1 mo. LIBOR + .10%, 5.71%, due 12/15/11		     13,965,000    
    15,000,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
Variable Rate, 1 mo. LIBOR + .15%, 5.76%, due 01/15/14		     14,867,250    
    19,000,000     MBNA Credit Card Master Note Trust, Series 05-A5, Class A5,
Variable Rate, 1 mo. LIBOR, 5.61%, due 12/15/10		     18,958,438    
    75,675,000     MBNA Credit Card Master Note Trust, Series 06-A4, Class A4,
Variable Rate, 1 mo. LIBOR - .01%, 5.60%, due 09/15/11		     75,343,922    
    25,000,000     Pillar Funding Plc, Series 04-2, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 09/15/11		     24,658,250    
    60,500,000     Turquoise Card Backed Securities Plc, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 05/16/11		     60,164,414    
    18,000,000     World Financial Network Credit Card Master Trust, Series 02-A, Class A,
Variable Rate, 1 mo. LIBOR + .43%, 6.04%, due 08/15/11		     18,005,400    
    17,000,000     World Financial Network Credit Card Master Trust, Series 03-A, Class A2,
Variable Rate, 1 mo. LIBOR + .37%, 5.98%, due 05/15/12		     17,021,250    
    54,100,000     World Financial Network Credit Card Master Trust, Series 04-A, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 5.79%, due 03/15/13		     53,775,400    
    15,000,000     World Financial Network Credit Card Master Trust, Series 06-A,
Class A, 144A, Variable Rate, 1 mo. LIBOR + .13%, 5.74%, due 02/15/17		     14,593,350    
    Total Credit Cards     1,517,542,551    

 

See accompanying notes to the financial statements.


9


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Emerging Markets Collateralized Debt Obligations — 0.2%  
    16,000,000     Santiago CDO Ltd., Series 05-1A, Class A, 144A,
Variable Rate, 6 mo. LIBOR + .40%, 5.77%, due 04/18/17		     15,560,000    
        Equipment Leases — 0.4%  
    6,979,263     CNH Equipment Trust, Series 04-A, Class A4A, Variable Rate,
1 mo. LIBOR + .11%, 5.72%, due 09/15/11		     6,974,901    
    23,000,000     CNH Equipment Trust, Series 05-A, Class A4A, Variable Rate,
1 mo. LIBOR + .04%, 5.65%, due 06/15/12		     22,917,430    
    Total Equipment Leases     29,892,331    
        High Yield Collateralized Debt Obligations — 0.0%  
    1,001,012     SHYPPCO Finance Co., Series 1I, Class A2B, 6.64%, due 06/15/10     970,981    
        Insurance Premiums — 0.7%  
    16,000,000     AICCO Premium Finance Master Trust, Series 05-1, Class A, Variable Rate,
1 mo. LIBOR + .08%, 5.69%, due 04/15/10		     15,982,400    
    40,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 12/15/11		     39,600,000    
    Total Insurance Premiums     55,582,400    
        Insured Auto Financing — 4.1%  
    17,500,000     Aesop Funding II LLC, Series 03-5A, Class A2, 144A, XL Capital Assurance,
Variable Rate, 1 mo. LIBOR +.38%, 5.92%, due 12/20/09		     17,468,897    
    10,000,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA, Variable Rate,
1 mo. LIBOR + .12%, 5.66%, due 04/20/11		     9,891,200    
    19,550,000     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .08%, 5.41%, due 05/06/12		     19,491,403    
    23,849,538     AmeriCredit Automobile Receivables Trust, Series 06-RM, Class A1, MBIA,
5.37%, due 10/06/09		     23,813,514    
    20,000,000     AmeriCredit Automobile Receivables Trust, Series 07-BF, Class A4, FSA,
Variable Rate, 1 mo. LIBOR + .05%, 5.38%, due 12/06/13		     19,450,000    
    12,000,000     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B, MBIA,
Variable Rate, 1 mo. LIBOR + .03%, 5.36%, due 05/07/12		     11,919,312    
    30,000,000     ARG Funding Corp., Series 05-2A, Class A3, 144A, AMBAC, Variable Rate,
1 mo. LIBOR + .14%, 5.68%, due 05/20/10		     29,908,596    

 

See accompanying notes to the financial statements.


10


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    9,600,871     Capital One Auto Finance Trust, Series 04-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .10%, 5.71%, due 03/15/11		     9,572,272    
    7,710,660     Capital One Auto Finance Trust, Series 04-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .11%, 5.72%, due 08/15/11		     7,685,278    
    37,000,000     Capital One Auto Finance Trust, Series 06-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .01%, 5.62%, due 12/15/12		     36,768,750    
    29,000,000     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 07/15/13		     28,796,710    
    8,000,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .02%, 5.63%, due 11/15/13		     7,916,640    
    9,000,000     Hertz Vehicle Financing LLC, Series 05-1A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 02/25/10		     8,932,569    
    2,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A3, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 02/25/11		     1,989,320    
    10,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 11/25/11		     9,820,601    
    15,000,000     Rental Car Finance Corp., Series 04-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 06/25/09		     14,907,240    
    50,000,000     Santander Drive Auto Receivables Trust, Series 07-1, Class A4, FGIC,
Variable Rate, 1 mo. LIBOR + .05%, 5.66%, due 09/15/14		     49,000,618    
    8,740,000     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC,
5.01%, due 08/15/12		     8,706,176    
    Total Insured Auto Financing     316,039,096    
        Insured Business Loans — 0.1%  
    5,301,204     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .44%, 5.95%, due 10/25/30		     5,267,450    
    4,082,955     Golden Securities Corp., Series 03-A, Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 5.97%, due 12/02/13		     4,077,280    
    Total Insured Business Loans     9,344,730    
        Insured Credit Cards — 1.2%  
    61,000,000     Cabela's Master Credit Card Trust, Series 03-1A, Class A, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .30%, 5.91%, due 01/15/10		     60,999,554    
    35,000,000     Cabela's Master Credit Card Trust, Series 04-2A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .12%, 5.73%, due 03/15/11		     34,905,942    
    Total Insured Credit Cards     95,905,496    

 

See accompanying notes to the financial statements.


11


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured High Yield Collateralized Debt Obligations — 0.6%  
    26,923,077     Augusta Funding Ltd., Series 10A, Class F-1, 144A, CapMAC,
Variable Rate, 3 mo. LIBOR +.25%, 5.61%, due 06/30/17		     26,317,307    
    1,165,337     Cigna CBO Ltd, Series 96-1, Class A2, 144A, Variable Rate, CapMAC,
6.46%, due 11/15/08		     1,184,880    
    10,000,000     GSC Partners CDO Fund Ltd, Series 03-4A, Class A3, 144A, AMBAC,
Variable Rate, 3 mo. LIBOR + .46%, 5.82%, due 12/16/15		     9,987,000    
    11,885,385     GSC Partners CDO Fund Ltd, Series 2A, Class A, 144A, FSA,
Variable Rate, 6 mo. LIBOR + .52%, 5.89%, due 05/22/13		     11,725,961    
    Total Insured High Yield Collateralized Debt Obligations     49,215,148    
        Insured — Other — 2.1%  
    30,000,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     29,947,288    
    60,000,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A, MBIA, 5.26%,
due 04/25/37		     58,558,194    
    19,101,723     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 5.81%, due 09/15/41		     18,371,273    
    18,496,357     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 5.81%, due 12/15/41		     17,801,264    
    29,000,000     TIB Card Receivables Fund, 144A, FGIC,
Variable Rate, 4 mo. LIBOR + .25%, 5.61%, due 01/05/14		     28,979,700    
    3,488,000     Toll Road Investment Part II, 144A, MBIA, Zero Coupon, due 02/15/30     858,746    
    35,000,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     5,565,350    
    Total Insured — Other     160,081,815    
        Insured Residential Asset-Backed Securities (European) — 0.1%  
GBP     672,624     RMAC, Series 03-NS1A, Class A2A, 144A, AMBAC, Variable Rate,
3 mo. GBP LIBOR + .45%, 6.29%, due 06/12/35		     1,358,078    
GBP     1,543,275     RMAC, Series 03-NS2A, Class A2A, 144A, AMBAC, Variable Rate,
3 mo. GBP LIBOR + .40%, 6.24%, due 09/12/35		     3,111,006    
    Total Insured Residential Asset-Backed Securities (European)     4,469,084    
        Insured Residential Asset-Backed Securities (United States) — 0.2%  
    5,924,262     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1,
XL Capital Assurance, Variable Rate, 1 mo. LIBOR + .21%, 5.72%, due 07/25/34		     5,882,792    

 

See accompanying notes to the financial statements.


12


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Residential Asset-Backed Securities (United States) — continued  
    6,025,132     Citigroup Mortgage Loan Trust, Inc., Series 03-HE3, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .38%, 5.89%, due 12/25/33		     5,926,320    
    514,632     Quest Trust, Series 03-X4A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 5.94%, due 12/25/33		     505,127    
    1,598,470     Quest Trust, Series 04-X1, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .33%, 5.84%, due 03/25/34		     1,586,322    
    Total Insured Residential Asset-Backed Securities (United States)     13,900,561    
        Insured Residential Mortgage-Backed Securities (United States) — 0.9%  
    1,096,003     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1,
144A, AMBAC, Variable Rate, 1 mo. LIBOR + .34%, 5.85%, due 10/25/34		     1,078,445    
    2,556,329     Chevy Chase Mortgage Funding Corp., Series 04-1A, Class A2,
144A, AMBAC, Variable Rate, 1 mo. LIBOR + .33%, 5.84%, due 01/25/35		     2,512,693    
    33,160,481     Countrywide Home Equity Loan Trust, Series 07-E, Class A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 5.76%, due 11/15/32		     31,660,504    
    10,000,000     GMAC Mortgage Corp. Loan Trust, Series 04-HE3, Class A3, FSA,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 10/25/34		     9,970,703    
    1,217,489     GreenPoint Home Equity Loan Trust, Series 04-1, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 07/25/29		     1,176,492    
    1,173,064     GreenPoint Home Equity Loan Trust, Series 04-4, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .28%, 5.89%, due 08/15/30		     1,151,160    
    2,492,944     Lehman ABS Corp., Series 04-2, Class A, AMBAC, Variable Rate,
1 mo. LIBOR + .22%, 5.73%, due 06/25/34		     2,393,226    
    844,402     Residential Funding Mortgage Securities II, Series 03-HS1, Class AII, FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 12/25/32		     835,958    
    7,583,020     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA, Variable Rate,
1 mo. LIBOR + .19%, 5.70%, due 11/25/35		     7,052,208    
    4,686,194     Wachovia Asset Securitization, Inc., Series 02-HE1, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .37%, 5.88%, due 09/27/32		     4,628,362    
    5,073,014     Wachovia Asset Securitization, Inc., Series 04-HE1, Class A, MBIA,
Variable Rate, 1 mo. LIBOR + .22%, 5.73%, due 06/25/34		     4,965,244    
    Total Insured Residential Mortgage-Backed Securities (United States)     67,424,995    
        Insured Time Share — 0.4%  
    3,515,542     Cendant Timeshare Receivables Funding LLC, Series 04-1A, Class A2, 144A,
MBIA, Variable Rate, 1 mo. LIBOR + .18%, 5.72%, due 05/20/16		     3,490,455    
    6,466,124     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2, 144A,
FGIC, Variable Rate, 1 mo. LIBOR + .18%, 5.72%, due 05/20/17		     6,443,896    

 

See accompanying notes to the financial statements.


13


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Time Share — continued  
    11,957,374     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 5.69%, due 05/20/18		     11,877,881    
    11,985,947     Sierra Receivables Funding Co., Series 07-1A, Class A2, 144A, FGIC,
Variable Rate, 1 mo. LIBOR + .15%, 5.69%, due 03/20/19		     11,937,254    
    Total Insured Time Share     33,749,486    
        Insured Transportation — 0.1%  
    10,000,000     GE Seaco Finance SRL, Series 04-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 5.87%, due 04/17/19		     9,926,172    
        Investment Grade Corporate Collateralized Debt Obligations — 3.3%  
    20,000,000     Counts Trust, Series 04-2, 144A, Variable Rate, 3 mo. LIBOR + .95%, 6.31%,
due 09/20/09		     20,177,400    
    10,000,000     Morgan Stanley ACES SPC, Series 04-12, Class A, 144A, Variable Rate,
3 mo. LIBOR + .60%, 5.96%, due 08/05/09		     10,020,000    
    7,000,000     Morgan Stanley ACES SPC, Series 04-12, Class I, 144A,
Variable Rate, 3 mo. LIBOR + 0.80%, 6.16%, due 08/05/09		     6,989,500    
    6,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 5.81%, due 12/20/09		     6,021,000    
    11,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 6.01%, due 12/20/09		     10,989,000    
    3,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
Variable Rate, 3 mo. LIBOR + .75%, 6.10%, due 12/20/09		     3,010,500    
    16,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .52%, 5.88%, due 03/20/10		     15,872,000    
    30,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 5.76%, due 12/20/10		     30,015,000    
    16,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 5.81%, due 03/20/10		     15,920,000    
    46,000,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .29%, 5.65%, due 06/20/13		     43,240,000    
    15,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
Variable Rate, 1 mo. LIBOR + .70%, 6.06%, due 08/01/11		     15,109,500    
    49,000,000     Reve SPC, 144A, Variable Rate, 3 mo. LIBOR + .22%, 5.58%, due 03/20/14     47,652,500    
    30,000,000     Salisbury International Investments Ltd., Series EMTN,
Variable Rate, 3 mo. LIBOR + .42%, 5.78%, due 06/22/10		     29,883,000    
    Total Investment Grade Corporate Collateralized Debt Obligations     254,899,400    

 

See accompanying notes to the financial statements.


14


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Rate Reduction Bonds — 1.1%  
    3,063,614     Connecticut RRB Special Purpose Trust CL&P-1, Series 01-1, Class A4,
Variable Rate, 3 mo. LIBOR + .31%, 5.67%, due 12/30/10		     3,057,870    
    23,000,000     Massachusetts RRB Special Purpose Trust, Series 05-1, Class A3, 4.13%,
due 09/15/13		     22,397,400    
    30,000,000     PG&E Energy Recovery Funding LLC, Series 05-1, Class A4, 4.37%,
due 06/25/14		     29,001,600    
    26,089,053     PG&E Energy Recovery Funding LLC, Series 05-2, Class A1, 4.85%,
due 06/25/11		     25,973,478    
    8,515,314     PSE&G Transition Funding LLC, Series 01-1, Class A4,
Variable Rate, 3 mo. LIBOR + .30%, 5.66%, due 06/15/11		     8,502,797    
    Total Rate Reduction Bonds     88,933,145    
        Residential Asset-Backed Securities (United States) — 21.8%  
    6,347,307     Accredited Mortage Loan Trust, Series 07-1, Class A1,
Variable Rate, 1 mo. LIBOR + .05%, 5.56%, due 02/25/37		     6,284,965    
    1,725,527     Accredited Mortgage Loan Trust, Series 04-4, Class A1B,
Variable Rate, 1 mo. LIBOR + .39%, 5.90%, due 01/25/35		     1,689,399    
    13,738,266     ACE Securities Corp., Series 05-AG1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 5.72%, due 08/25/35		     13,685,785    
    13,124,952     ACE Securities Corp., Series 05-ASP1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 5.72%, due 09/25/35		     13,085,446    
    7,000,000     ACE Securities Corp., Series 05-ASP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .27%, 5.78%, due 09/25/35		     6,914,950    
    7,243,923     ACE Securities Corp., Series 06-ASL1, Class A,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 02/25/36		     6,734,965    
    36,409,000     ACE Securities Corp., Series 06-ASP1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 12/25/35		     36,223,314    
    30,000,000     ACE Securities Corp., Series 06-ASP2, Class A2B,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 03/25/36		     29,805,300    
    10,000,000     ACE Securities Corp., Series 06-ASP2, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 03/25/36		     9,822,400    
    17,000,000     ACE Securities Corp., Series 06-ASP4, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 08/25/36		     16,843,090    
    24,000,000     ACE Securities Corp., Series 06-ASP5, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 10/25/36		     23,408,160    
    5,383,475     ACE Securities Corp., Series 06-CW1, Class A2A,
Variable Rate, 1 mo. LIBOR + .05%, 5.56%, due 07/25/36		     5,365,763    

 

See accompanying notes to the financial statements.


15


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    22,000,000     ACE Securities Corp., Series 06-CW1, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 07/25/36		     21,825,760    
    7,000,000     ACE Securities Corp., Series 06-HE2, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 05/25/36		     6,918,170    
    17,500,000     ACE Securities Corp., Series 06-HE3, Class A2B,
Variable Rate, 1 mo. LIBOR + .09%, 5.60%, due 06/25/36		     17,386,075    
    13,000,000     ACE Securities Corp., Series 06-OP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 04/25/36		     12,755,730    
    9,237,182     ACE Securities Corp., Series 06-SL1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 09/25/35		     8,228,574    
    15,934,472     ACE Securities Corp., Series 06-SL3, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 06/25/36		     14,439,340    
    14,036,000     ACE Securities Corp., Series 06-SL3, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 06/25/36		     9,408,752    
    39,079,576     ACE Securities Corp., Series 07-HE1, Class A2A,
Variable Rate, 1 mo. LIBOR + .09%, 5.60%, due 01/25/37		     38,843,927    
    18,619,966     ACE Securities Corp., Series 07-WM1, Class A2A,
Variable Rate, 1 mo. LIBOR + .07%, 5.58%, due 11/25/36		     18,502,474    
    7,000,000     Aegis Asset Backed Securities Trust, Series 05-5, Class 1A2,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 12/25/35		     6,971,580    
    17,217,815     Alliance Bancorp Trust, Series 07-S1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 05/25/37		     16,615,191    
    4,100,651     Argent Securities, Inc., Series 04-W8, Class A5,
Variable Rate, 1 mo. LIBOR + .52%, 6.03%, due 05/25/34		     4,108,340    
    75,067,000     Argent Securities, Inc., Series 06-M1, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 07/25/36		     72,721,156    
    18,000,000     Argent Securities, Inc., Series 06-M2, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 09/25/36		     17,304,300    
    34,806,486     Argent Securities, Inc., Series 06-W2, Class A2B,
Variable Rate, 1 mo. LIBOR + .19%, 5.70%, due 03/25/36		     33,015,692    
    6,000,000     Argent Securities, Inc., Series 06-W4, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 05/25/36		     5,852,940    
    13,000,000     Argent Securities, Inc., Series 06-W5, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/36		     12,480,000    
    19,000,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 10/25/36		     18,572,500    

 

See accompanying notes to the financial statements.


16


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    13,500,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 10/25/36		     12,791,250    
    6,446,998     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
Variable Rate, 1 mo. LIBOR + .06%, 5.57%, due 11/25/36		     6,366,411    
    63,838,903     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + 0.22%, 5.73%, due 05/25/37		     63,040,917    
    10,000,000     Bayview Financial Acquisition Trust, Series 04-B, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 6.01%, due 05/28/39		     9,717,362    
    10,400,000     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .65%, 6.16%, due 05/28/39		     9,908,736    
    15,000,000     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 6.01%, due 02/28/40		     14,990,039    
    8,587,223     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 11/25/36		     8,422,605    
    10,000,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 11/25/36		     8,621,900    
    13,107,053     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 02/25/37		     11,534,206    
    39,000,000     Carrington Mortgage Loan Trust, Series 06-NC1, Class A2,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 01/25/36		     38,766,000    
    11,172,822     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 02/25/37		     11,111,707    
    47,000,000     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 02/25/37		     46,434,590    
    12,740,295     Centex Home Equity, Series 05-C, Class AV3,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 06/25/35		     12,485,489    
    16,500,000     Centex Home Equity, Series 06-A, Class AV3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 06/25/36		     16,270,650    
    744,551     Chase Funding Mortgage Loan Trust, Series 03-3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .27%, 5.78%, due 04/25/33		     729,398    
    265,768     Citigroup Mortgage Loan Trust, Inc., Series 04-OPT1, Class A1B,
Variable Rate, 1 mo. LIBOR + .41%, 5.92%, due 10/25/34		     264,386    
    14,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 12/25/36		     13,761,406    
    7,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-WMC1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 12/25/35		     7,483,500    

 

See accompanying notes to the financial statements.


17


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    46,500,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 02/25/37		     42,978,274    
    28,252,792     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 03/25/37		     27,939,104    
    18,003,808     Credit-Based Asset Servicing & Securitization, Series 06-RP1,
Class A1, 144A, Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 04/25/36		     17,964,425    
    639,658     Equity One ABS, Inc., Series 04-1, Class AV2,
Variable Rate, 1 mo. LIBOR + .30%, 5.81%, due 04/25/34		     633,861    
    18,500,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 04/25/36		     17,736,875    
    963,337     Fremont Home Loan Trust, Series 05-B, Class 2A2,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 04/25/35		     953,704    
    10,863,869     Fremont Home Loan Trust, Series 06-A, Class 1A2,
Variable Rate, 1 mo. LIBOR + .19%, 5.70%, due 05/25/36		     10,843,499    
    10,000,000     Fremont Home Loan Trust, Series 06-B, Class 2A2,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 08/25/36		     9,932,813    
    23,625,000     Fremont Home Loan Trust, Series 06-B, Class 2A3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 08/25/36		     21,495,146    
    29,477,000     GE-WMC Mortgage Securities, Series 05-2, Class A2B,
Variable Rate, 1 mo. LIBOR + .17%, 5.68%, due 12/25/35		     29,308,981    
    19,000,000     GE-WMC Mortgage Securities, Series 06-1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 08/25/36		     18,027,200    
    6,055,456     Home Equity Asset Trust, Series 05-4, Class 2A2,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 10/25/35		     5,983,548    
    5,904,675     Household Home Equity Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .31%, 5.85%, due 01/20/35		     5,714,388    
    6,560,174     Household Home Equity Loan Trust, Series 05-3, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 5.83%, due 01/20/35		     6,340,562    
    19,996,998     Household Home Equity Loan Trust, Series 06-1, Class A1,
Variable Rate, 1 mo. LIBOR + .16%, 5.70%, due 01/20/36		     19,354,126    
    915,736     IndyMac Residential Asset Backed Trust, Series 06-B, Class 2A1,
Variable Rate, 1 mo. LIBOR + .06%, 5.57%, due 03/14/10		     908,492    
    12,000,000     IXIS Real Estate Capital Trust, Series 06-HE1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 03/25/36		     11,960,400    
    38,000,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 12/25/36		     36,932,960    

 

See accompanying notes to the financial statements.


18


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    14,036,226     Long Beach Mortgage Loan Trust, Series 05-WL2, Class 3A1,
Variable Rate, 1 mo. LIBOR + .18%, 5.69%, due 08/25/35		     12,931,575    
    10,000,000     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 10/25/35		     9,694,176    
    14,490,000     Master Asset-Backed Securities Trust, Series 06-AM3, Class A2,
Variable Rate, 1 mo. LIBOR + .13%, 5.64%, due 10/25/36		     14,347,364    
    25,910,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 03/25/36		     24,039,622    
    2,352,729     Master Asset-Backed Securities Trust, Series 06-HE1, Class A1,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 01/25/36		     2,349,697    
    14,300,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/36		     13,146,504    
    30,390,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 08/25/36		     29,199,329    
    17,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 10/25/36		     15,853,164    
    42,000,000     Master Asset-Backed Securities Trust, Series 06-WMC1, Class A2,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 02/25/36		     41,409,375    
    12,698,956     Master Second Lien Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 03/25/36		     8,635,290    
    31,981,700     Merrill Lynch Mortgage Investors, Series 07-HE2, Class A2A,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 02/25/37		     31,831,785    
    6,127,159     Morgan Stanley ABS Capital I, Series 04-SD1, Class A,
Variable Rate, 1 mo. LIBOR + .40%, 5.91%, due 08/25/34		     5,698,258    
    40,000,000     Morgan Stanley ABS Capital I, Series 07-HE4, Class A2C,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 02/25/37		     38,034,400    
    3,217,140     Morgan Stanley Home Equity Loans, Series 06-2, Class A1,
Variable Rate, 1 mo. LIBOR + 0.07%, 5.58%, due 02/25/36		     3,207,457    
    27,500,000     Morgan Stanley Home Equity Loans, Series 06-3, Class A3,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 04/25/36		     26,558,950    
    27,360,098     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 5.61%, due 04/25/37		     27,191,286    
    11,500,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
Variable Rate, 1 mo. LIBOR + 0.15%, 5.66%, due 11/25/36		     11,029,650    
    1,565,641     Nomura Home Equity Loan, Inc., Series 05-FM1, Class 2A2,
Variable Rate, 1 mo. LIBOR + .22%, 5.73%, due 05/25/35		     1,561,727    

 

See accompanying notes to the financial statements.


19


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    16,016,000     Nomura Home Equity Loan, Inc., Series 06-FM1, Class 2A2,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 11/25/35		     15,375,360    
    1,894,972     Option One Mortgage Loan Trust, Series 05-3, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 08/25/35		     1,847,597    
    5,883,903     People's Choice Home Loan Securities Trust, Series 05-3, Class 1A2,
Variable Rate, 1 mo. LIBOR + .27%, 5.78%, due 08/25/35		     5,670,760    
    23,440,241     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
Variable Rate, 1 mo. LIBOR + .26%, 5.77%, due 12/25/35		     22,920,102    
    4,064,783     RAAC Series Trust, Series 05-RP3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 05/25/39		     4,047,467    
    24,235,000     RAAC Series Trust, Series 06-SP1, Class A2,
Variable Rate, 1 mo. LIBOR + .19%, 5.70%, due 09/25/45		     23,806,154    
    11,967,053     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
Variable Rate, 1 mo. LIBOR + .23%, 5.74%, due 04/25/35		     11,959,574    
    9,950,411     Residential Asset Mortgage Products, Inc., Series 05-RS8, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 10/25/33		     9,774,986    
    50,000,000     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class Al3, FGIC,
Variable Rate, 1 mo. LIBOR + .22%, 5.73%, due 11/25/35		     48,975,000    
    22,743,861     Residential Asset Securities Corp., Series 07-KS3, Class Al1,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 02/25/30		     22,538,711    
    279,557     Saxon Asset Securities Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + .27%, 6.05%, due 03/25/35		     257,192    
    9,000,000     Securitized Asset Backed Receivables LLC, Series 06-NC1, Class A2,
Variable Rate, 1 mo. LIBOR + .16%, 5.67%, due 03/25/36		     8,312,904    
    1,242,742     Security National Mortgage Loan Trust, Series 05-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 02/25/36		     1,238,082    
    9,801,459     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 10/25/36		     9,730,987    
    10,323,749     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
Variable Rate, 1 mo. LIBOR + .26%, 5.77%, due 10/25/35		     10,183,449    
    8,762,345     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 5.63%, due 01/25/37		     8,734,963    
    20,000,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 5.66%, due 06/25/37		     19,384,375    
    13,000,000     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
Variable Rate, 1 mo. LIBOR + .20%, 5.71%, due 01/25/36		     11,572,502    

 

See accompanying notes to the financial statements.


20


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
      17,892,987     Structured Asset Securities Corp., Series 05-S6, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 5.80%, due 11/25/35		     17,848,352    
    35,527,689     Yale Mortgage Loan Trust, Series 07-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .40%, 5.91%, due 06/25/37		     35,283,436    
    Total Residential Asset-Backed Securities (United States)     1,689,704,510    
        Residential Mortgage-Backed Securities (Australian) — 4.4%  
    2,433,015     Australian Mortgage Securities II, Series E3, Class A,
Variable Rate, 3 mo. LIBOR + .25%, 5.63%, due 11/10/32		     2,431,117    
    11,426,290     Australian Mortgage Securities II, Series G3, Class A1A,
Variable Rate, 3 mo. LIBOR + .21%, 5.57%, due 01/10/35		     11,392,126    
    11,767,580     Crusade Global Trust, Series 04-2, Class A1,
Variable Rate, 3 mo. LIBOR + .13%, 5.64%, due 11/19/37		     11,608,836    
    5,689,069     Crusade Global Trust, Series 05-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 06/17/37		     5,663,639    
    18,767,785     Crusade Global Trust, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 07/20/38		     18,689,523    
    29,872,424     Crusade Global Trust, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 04/19/38		     29,396,347    
    8,800,531     Interstar Millennium Trust Series 03-3G, Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 5.61%, due 09/27/35		     8,762,688    
    8,921,245     Interstar Millennium Trust, Series 03-5G, Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 5.61%, due 01/20/36		     8,887,523    
    9,310,203     Interstar Millennium Trust, Series 04-2G, Class A,
Variable Rate, 3 mo. LIBOR + .20%, 5.56%, due 03/14/36		     9,264,397    
    4,398,144     Interstar Millennium Trust, Series 05-1G, Class A,
Variable Rate, 3 mo. LIBOR + .12%, 5.48%, due 12/08/36		     4,376,857    
    6,098,563     Medallion Trust, Series 03-1G, Class A,
Variable Rate, 3 mo. LIBOR + .19%, 5.55%, due 12/21/33		     6,072,888    
    8,275,915     Medallion Trust, Series 04-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .13%, 5.64%, due 05/25/35		     8,246,122    
    4,433,841     Medallion Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .08%, 5.46%, due 05/10/36		     4,408,435    
    21,192,204     Medallion Trust, Series 06-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .05%, 5.41%, due 06/14/37		     21,035,169    
    14,341,605     Medallion Trust, Series 07-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .04%, 5.55%, due 02/27/39		     14,251,970    

 

See accompanying notes to the financial statements.


21


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (Australian) — continued  
    13,481,556     National RMBS Trust, Series 04-1, Class A1,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 03/20/34		     13,412,261    
    32,578,068     National RMBS Trust, Series 06-3, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 10/20/37		     32,338,619    
    33,932,800     Puma Finance Ltd., Series G5, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.57%, due 02/21/38		     33,773,316    
    37,000,000     Superannuation Members Home Loans Global Fund, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 12/12/35		     36,446,628    
    4,193,525     Superannuation Members Home Loans Global Fund, Series 4A, Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.58%, due 10/09/29		     4,158,978    
    2,205,759     Superannuation Members Home Loans Global Fund, Series 6, Class A,
Variable Rate, 3 mo. LIBOR + .16%, 5.52%, due 11/09/35		     2,188,753    
    5,120,869     Superannuation Members Home Loans Global Fund, Series 7, Class A1,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 03/09/36		     5,074,689    
    4,491,848     Superannuation Members Home Loans Global Fund, Series 8, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 01/12/37		     4,453,667    
    12,616,882     Westpac Securitization Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 03/23/36		     12,570,578    
    32,397,123     Westpac Securitization Trust, Series 07-1G, Class A2A,
Variable Rate, 3 mo. LIBOR + .05%, 5.55%, due 05/21/38		     31,909,547    
    Total Residential Mortgage-Backed Securities (Australian)     340,814,673    
        Residential Mortgage-Backed Securities (European) — 6.5%  
    16,600,000     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 09/20/66		     16,575,100    
    20,000,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 5.45%, due 03/20/30		     19,936,000    
    16,000,000     Arkle Master Issuer Plc, Series 06-1A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 5.61%, due 02/17/52		     15,889,600    
    5,064,653     Arran Residential Mortgages Funding Plc, Series 06-1A, Class A1B, 144A,
Variable Rate, 3 mo. LIBOR + .02%, 5.56%, due 04/12/36		     5,059,335    
    40,000,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 5.46%, due 01/13/39		     39,492,000    
    21,753,374     Gracechurch Mortgage Financing Plc, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .03%, 5.54%, due 11/20/31		     21,684,198    
    8,363,842     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 10/11/41		     8,292,666    

 

See accompanying notes to the financial statements.


22


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    4,932,229     Granite Master Issuer Plc, Series 05-2, Class A4,
Variable Rate, 3 mo. LIBOR + .08%, 5.59%, due 12/20/54		     4,928,376    
    15,000,000     Granite Master Issuer Plc, Series 06-2, Class A4,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 12/20/54		     14,896,350    
    8,797,850     Granite Master Issuer Plc, Series 07-1, Class 1A1,
Variable Rate, 1 mo. LIBOR + .03%, 5.57%, due 12/20/30		     8,782,717    
    12,768,908     Granite Mortgages Plc, Series 04-3, Class 2A1,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 09/20/44		     12,732,133    
    49,000,000     Holmes Financing Plc, Series 10A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 07/15/40		     48,536,460    
    13,944,733     Kildare Securities Ltd., Series 07-1A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .02%, 5.38%, due 06/10/14		     13,939,155    
    30,000,000     Kildare Securities Ltd., Series 07-1A, Class A2, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 5.42%, due 12/10/43		     29,782,500    
    6,389,000     Leek Finance Plc, Series 14A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .18%, 5.54%, due 09/21/36		     6,373,666    
    10,699,250     Leek Finance Plc, Series 15A, Class AB, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 03/21/37		     10,661,375    
    5,000,000     Leek Finance Plc, Series 17A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 03/23/09		     4,965,450    
    10,291,550     Lothian Mortgages Master Issuer Plc, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR - .03%, 5.48%, due 01/24/28		     10,284,346    
    2,750,122     Lothian Mortgages Plc, Series 3A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 07/24/19		     2,748,403    
    14,000,000     Mound Financing Plc, Series 5A, Class 2A, 144A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 05/08/16		     13,930,000    
    23,368,158     Paragon Mortgages Plc, Series 11A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR - .01%, 5.60%, due 10/15/41		     23,339,882    
    18,436,754     Paragon Mortgages Plc, Series 12A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 5.67%, due 11/15/38		     18,185,277    
    11,000,000     Paragon Mortgages Plc, Series 14A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR, 5.44%, due 09/15/39		     10,874,490    
    11,554,078     Paragon Mortgages Plc, Series 7A, Class A1A, 144A,
Variable Rate, 3 mo. LIBOR, 5.77%, due 05/15/34		     11,486,949    
    40,000,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 5.60%, due 02/12/16		     39,868,000    

 

See accompanying notes to the financial statements.


23


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    8,640,000     Permanent Financing Plc, Series 4, Class 3A,
Variable Rate, 3 mo. LIBOR + .14%, 5.50%, due 03/10/24		     8,598,096    
    5,000,000     Permanent Financing Plc, Series 5, Class 2A,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 06/10/11		     4,999,219    
    5,000,000     Permanent Financing Plc, Series 6, Class 2A,
Variable Rate, 3 mo. LIBOR + .09%, 5.45%, due 12/10/11		     4,999,000    
    5,000,000     Permanent Financing Plc, Series 7, Class 2A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 09/10/14		     4,999,600    
    25,040,000     Permanent Financing Plc, Series 8, Class 2A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 06/10/14		     25,017,464    
    8,000,000     Permanent Master Issuer Plc, Series 07-1, Class 4A,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 10/15/33		     7,901,040    
    35,471,502     RMAC Securities Plc, Series 06-NS4A, Class A1B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 06/12/25		     35,428,937    
    Total Residential Mortgage-Backed Securities (European)     505,187,784    
        Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,700,491     Chevy Chase Mortgage Funding Corp., Series 04-3A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.81%, due 08/25/35		     1,673,980    
    4,030,825     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 07/25/30		     4,029,565    
    5,180,224     Mellon Residential Funding Corp., Series 04-TBC1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 5.76%, due 02/26/34		     5,167,273    
    Total Residential Mortgage-Backed Securities (United States)     10,870,818    
        Student Loans — 5.0%  
    22,000,000     College Loan Corp. Trust, Series 04-1, Class A2,
Variable Rate, 3 mo. LIBOR + .11%, 5.47%, due 04/25/16		     21,969,063    
    8,000,000     College Loan Corp. Trust, Series 05-1, Class A1,
Variable Rate, 3 mo. LIBOR + .03%, 5.39%, due 01/25/14		     7,993,750    
    15,500,000     College Loan Corp. Trust, Series 06-1, Class A2,
Variable Rate, 3 mo. LIBOR + .02%, 5.38%, due 04/25/22		     15,433,350    
    8,000,000     College Loan Corp. Trust, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .01%, 5.37%, due 01/25/23		     7,961,600    
    4,485,322     Collegiate Funding Services Education Loan Trust I, Series 05-A, Class A1,
Variable Rate, 3 mo. LIBOR + .02%, 5.38%, due 09/29/14		     4,485,129    

 

See accompanying notes to the financial statements.


24


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Student Loans — continued  
    13,089,734     Goal Capital Funding Trust, Series 06-1, Class A1,
Variable Rate, 3 mo. LIBOR, 5.51%, due 08/25/20		     12,995,226    
    10,000,000     Goal Capital Funding Trust, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .02%, 5.38%, due 06/25/21		     9,975,000    
    12,734,907     Keycorp Student Loan Trust, Series 05-A, Class 2A1,
Variable Rate, 3 mo. LIBOR + .05%, 5.41%, due 09/27/21		     12,662,828    
    7,612,577     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
Variable Rate, 3 mo. LIBOR + .04%, 5.40%, due 06/20/15		     7,594,307    
    2,065,509     National Collegiate Student Loan Trust, Series 04-1, Class A1,
Variable Rate, 3 mo. LIBOR +.12%, 5.48%, due 06/25/14		     2,065,186    
    1,963,032     National Collegiate Student Loan Trust, Series 04-2, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 5.62%, due 04/25/23		     1,961,560    
    21,000,000     National Collegiate Student Loan Trust, Series 06-1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 5.65%, due 08/25/23		     20,895,000    
    28,974,417     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 5.59%, due 08/26/19		     28,731,611    
    20,000,000     Nelnet Education Loan Funding, Inc., Series 04-2A, Class A3,
Variable Rate, 3 mo. LIBOR + .10%, 5.61%, due 11/25/15		     19,866,600    
    37,000,000     Nelnet Student Loan Trust, Series 05-3, Class A3,
Variable Rate, 3 mo. LIBOR + .05%, 5.41%, due 06/22/17		     36,995,745    
    29,000,000     SLM Student Loan Trust, Series 05-1, Class A2,
Variable Rate, 3 mo. LIBOR + .08%, 5.44%, due 04/27/20		     28,360,260    
    5,600,664     SLM Student Loan Trust, Series 05-10, Class A2,
Variable Rate, 3 mo. LIBOR + .01%, 5.37%, due 04/25/15		     5,600,989    
    17,000,000     SLM Student Loan Trust, Series 05-3, Class A3,
Variable Rate, 3 mo. LIBOR + .03%, 5.39%, due 07/25/16		     16,930,130    
    30,000,000     SLM Student Loan Trust, Series 05-3, Class A4,
Variable Rate, 3 mo. LIBOR + .07%, 5.43%, due 04/27/20		     29,906,400    
    3,432,872     SLM Student Loan Trust, Series 05-7, Class A1,
Variable Rate, 3 mo. LIBOR, 5.36%, due 01/25/18		     3,429,542    
    36,000,000     SLM Student Loan Trust, Series 06-A, Class A2,
Variable Rate, 3 mo. LIBOR + .03%, 5.39%, due 10/15/15		     35,938,125    
    31,000,000     SLM Student Loan Trust, Series 07-2, Class A2,
Variable Rate, 3 mo. LIBOR, 5.36%, due 07/25/17		     30,893,360    
    3,000,000     SLM Student Loan Trust, Series 07-5, Class A1,
Variable Rate, 3 mo. LIBOR - 0.01%, 5.35%, due 07/25/13		     2,991,563    
    19,710,498     SLM Student Loan Trust, Series 07-A, Class A1,
Variable Rate, 3 mo. LIBOR, 5.39%, due 09/15/22		     19,575,087    
    Total Student Loans     385,211,411    

 

See accompanying notes to the financial statements.


25


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        Trade Receivables — 0.9%  
    55,000,000     ABS Global Finance Plc, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .10%, 5.67%, due 12/17/10		     54,939,500    
    13,000,000     SSCE Funding LLC, Series 04-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .23%, 5.84%, due 11/15/10		     12,805,000    
    Total Trade Receivables     67,744,500    
    Total Asset-Backed Securities     7,331,633,338    
        Corporate Debt — 0.3%  
    22,000,000     TIAA Global Markets, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 5.46%, due 01/12/11		     21,922,120    
        U.S. Government — 0.1%  
    3,000,000     U.S. Treasury Note, 4.63%, due 03/31/08 (a)      3,004,688    
    1,000,000     U.S. Treasury Note, 3.00%, due 11/15/07     998,281    
    Total U.S. Government     4,002,969    
        U.S. Government Agency — 0.9%  
    11,280,500     Agency for International Development Floater (Support of Tunisia),
Variable Rate, 6 mo. LIBOR, 5.41%, due 07/01/23		     11,210,110    
    904,042     Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.57%, due 10/01/11		     898,958    
    14,625,000     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR + .15%, 5.56%, due 10/29/26		     14,606,865    
    650,000     Agency for International Development Floater (Support of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 5.28%, due 01/01/14		     650,007    
    750,001     Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.54%, due 01/01/12		     742,033    
    399,535     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 4.90%, due 05/01/14		     397,541    
    1,130,647     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 4.90%, due 05/01/14		     1,125,005    
    14,625,000     Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.46%, due 02/01/27		     14,533,740    
    2,295,625     Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.18%, due 10/01/12		     2,289,909    

 

See accompanying notes to the financial statements.


26


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        U.S. Government Agency — continued  
    840,600     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 5.23%, due 11/15/14		     837,456    
    3,773,203     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 5.53%, due 03/30/19		     3,789,768    
    17,500,000     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR - .015%, 5.40%, due 02/01/25		     17,292,205    
    Total U.S. Government Agency     68,373,597    
    TOTAL DEBT OBLIGATIONS (COST $7,526,207,096)     7,425,932,024    
        SHORT-TERM INVESTMENTS — 3.0%  
        Money Market Funds — 0.2%  
    14,818,732     Merrimac Cash Series-Premium Class     14,818,732    
        Other Short-Term Investments — 2.8%  
    35,000,000     Amsterdam Funding Corp. Commercial Paper, 5.26%, due 09/07/07     34,969,317    
    60,000,000     Kittyhawk Funding Commercial Paper, 6.00%, due 09/05/07     59,960,000    
    25,000,000     Nieuw Amsterdam Receivables Commercial Paper, 5.75%, due 09/04/07     24,988,021    
    25,000,000     Old Line Funding LLC Commercial Paper, 5.50%, due 09/14/07     24,950,347    
    50,000,000     Sheffield Receivables Commercial Paper, 6.45%, due 09/05/07     49,964,166    
    25,000,000     Windmill Funding Corp. Commercial Paper, 5.25%, due 09/06/07     24,981,771    
    Total Other Short-Term Investments     219,813,622    
    TOTAL SHORT-TERM INVESTMENTS (COST $234,632,354)     234,632,354    
    TOTAL INVESTMENTS — 98.8%
(Cost $7,760,839,450)		     7,660,564,378    
          Other Assets and Liabilities (net) — 1.2%     93,939,934    
    TOTAL NET ASSETS — 100.0%   $ 7,754,504,312    

 

See accompanying notes to the financial statements.


27


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
9/04/07   GBP     12,900,000     $ 26,009,625     $ 71,595    
Sales  
9/04/07   GBP     12,900,000     $ 26,009,625     $ (628,707 )  
11/06/07   GBP     12,200,000       24,568,095       (70,495 )  
                $ 50,577,720     $ (699,202 )  

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales      
  660     U.S. Treasury Note 5 Yr. (CBT)   December 2007   $ 70,859,498     $ (435,435 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  60,000,000     USD   9/20/2010   Morgan Stanley   Receive     0.40 %   Credit Swap Eagle    
   
                Capital Services Inc.               Creek CDO   $ 386,528    
  31,000,000     USD   3/20/2013   Morgan Stanley
Capital Services Inc.		   Receive     0.25 %   MS Synthetic 2006-1     (909,384 )  
  28,000,000     USD   3/20/2015   Lehman Brothers   Receive     0.88 %   Credit Swap
AAA CDO		     (965,041 )  
  Premiums to (Pay) Receive   $ —     $ (1,487,897 )  

 

See accompanying notes to the financial statements.


28


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  50,000,000     USD   1/9/2008   JP Morgan   (Pay)     3.43 %   3 month LIBOR    
   
                Chase Bank                   $ 385,007    
  45,000,000     USD   3/4/2008   JP Morgan
Chase Bank		   (Pay)     3.10 %   3 month LIBOR     682,832 *   
  40,000,000     USD   1/24/2011   Goldman Sachs   (Pay)     6.07 %   3 month LIBOR     3,414,802 **   
  30,000,000     USD   2/7/2012   Deutsche Bank AG   (Pay)     4.33 %   3 month LIBOR     693,920    
  38,100,000     USD   2/24/2013   JP Morgan
Chase Bank		   (Pay)     4.54 %   3 month LIBOR     1,229,998 *   
  Premiums to (Pay) Receive   $ —     $ 6,406,559    

 

*  Includes unrealized gains of $513,041 incurred by GMO Alpha LIBOR Fund prior to transfer to the Fund on March 31, 2004.

**   Includes unrealized gains of $4,887,149 incurred by GMO Alpha LIBOR Fund prior to transfer to the Fund on November 27, 2002.

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.

ACES - Aerolineas Centrales de Colombia

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

C.A.B.E.I. - Central American Bank of Economic Integration

CapMAC - Insured as to the payment of principal and interest by Capital Markets Assurance Corporation.

CDO - Collateralized Debt Obligation

CMBS - Collateralized Mortgage Backed Security

EMTN - Euromarket Medium Term Note

FGIC - Insured as to the payment of principal and interest by Financial Guaranty Insurance Corporation.

FSA - Insured as to the payment of principal and interest by Financial Security Assurance.

LIBOR - London Interbank Offered Rate

MBIA - Insured as to the payment of principal and interest by MBIA Insurance Corp.

See accompanying notes to the financial statements.


29


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

RMAC - Residential Mortgage Acceptance Corp.

RMBS - Residential Mortgage Backed Security

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

(a)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

Currency Abbreviations:

GBP - British Pound
USD - United States Dollar		  

 

See accompanying notes to the financial statements.


30



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $7,760,839,450) (Note 2)   $ 7,660,564,378    
Receivable for Fund shares sold     63,845,000    
Interest receivable     31,309,220    
Unrealized appreciation on open forward currency contracts (Note 2)     71,595    
Receivable for variation margin on open futures contracts (Note 2)     175,301    
Interest receivable for open swap contracts     33,186    
Receivable for open swap contracts (Note 2)     2,865,244    
Receivable for expenses reimbursed by Manager (Note 3)     92,226    
Total assets     7,758,956,150    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     13,085    
Unrealized depreciation on open forward currency contracts (Note 2)     699,202    
Payable for open swap contracts (Note 2)     3,346,772    
Accrued expenses     392,779    
Total liabilities     4,451,838    
Net assets   $ 7,754,504,312    
Net assets consist of:  
Paid-in capital   $ 7,684,157,694    
Accumulated undistributed net investment income     203,750,548    
Accumulated net realized loss     (36,950,460 )  
Net unrealized depreciation     (96,453,470 )  
    $ 7,754,504,312    
Net assets   $ 7,754,504,312    
Shares outstanding:     300,300,717    
Net asset value per share:   $ 25.82    

 

See accompanying notes to the financial statements.


31


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 207,925,558    
Total investment income     207,925,558    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     364,320    
Audit and tax fees     39,100    
Legal fees     86,940    
Trustees fees and related expenses (Note 3)     39,417    
Miscellaneous     44,528    
Total expenses     574,305    
Fees and expenses reimbursed by Manager (Note 3)     (507,104 )  
Net expenses     67,201    
Net investment income (loss)     207,858,357    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     88,873    
Closed futures contracts     (940,870 )  
Closed swap contracts     1,750,825    
Foreign currency, forward contracts and foreign currency related transactions     (1,470,015 )  
Net realized gain (loss)     (571,187 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (108,965,773 )  
Open futures contracts     493,848    
Open swap contracts     (3,760,250 )  
Foreign currency, forward contracts and foreign currency related transactions     684,465    
Net unrealized gain (loss)     (111,547,710 )  
Net realized and unrealized gain (loss)     (112,118,897 )  
Net increase (decrease) in net assets resulting from operations   $ 95,739,460    

 

See accompanying notes to the financial statements.


32


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 207,858,357     $ 320,575,277    
Net realized gain (loss)     (571,187 )     (6,328,968 )  
Change in net unrealized appreciation (depreciation)     (111,547,710 )     10,162,741    
Net increase (decrease) in net assets from operations     95,739,460       324,409,050    
Distributions to shareholders from:  
Net investment income     (56,537,315 )     (323,728,016 )  
Net share transactions (Note 7):     1,111,701,865       2,122,606,885    
Total increase (decrease) in net assets     1,150,904,010       2,123,287,919    
Net assets:  
Beginning of period     6,603,600,302       4,480,312,383    
End of period (including accumulated undistributed net investment
income of $203,750,548 and $52,429,506, respectively)		   $ 7,754,504,312     $ 6,603,600,302    

 

See accompanying notes to the financial statements.


33



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003(a)   
Net asset value, beginning
of period		   $ 25.66     $ 25.60     $ 25.33     $ 25.18     $ 25.01     $ 25.00    
Income (loss) from
investment operations:		  
Net investment income (loss)†      0.73       1.43       1.01       0.59       0.56       0.18    
Net realized and
unrealized gain (loss)		     (0.38 )     —       (0.03 )     (0.09 )     0.06 (b)      (0.12 )  
Total from investment
operations		     0.35       1.43       0.98       0.50       0.62       0.06    
Less distributions to shareholders:  
From net investment income     (0.19 )     (1.37 )     (0.71 )     (0.34 )     (0.45 )     (0.05 )  
From net realized gains     —       —       —       (0.01 )     —       —    
Total distributions     (0.19 )     (1.37 )     (0.71 )     (0.35 )     (0.45 )     (0.05 )  
Net asset value, end of period   $ 25.82     $ 25.66     $ 25.60     $ 25.33     $ 25.18     $ 25.01    
Total Return(c)      1.37 %**      5.68 %     3.89 %     2.01 %     2.48 %     0.24 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 7,754,504     $ 6,603,600     $ 4,480,312     $ 3,483,889     $ 1,751,535     $ 1,146,954    
Net operating expenses to
average daily net assets(d) 		     0.00 %*      0.00 %     0.00 %     0.00 %     0.00 %     0.00 %*   
Interest expense to
average daily net assets		     —       0.01 %     0.02 %     —       0.00 %(e)      —    
Total net expenses to average
daily net assets		     0.00 %*(f)      0.01 %     0.02 %     0.00 %(f)      0.00 %(f)      0.00 %*(f)   
Net investment income to
average daily net assets		     5.59 %*      5.50 %     3.96 %     2.31 %     2.51 %     2.94 %*   
Portfolio turnover rate     15 %**      68 %     45 %     34 %     33 %     15 %**   
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.01 %*      0.02 %     0.02 %     0.02 %     0.02 %     0.05 %*   

 

(a)  Period from November 26, 2002 (commencement of operations) through February 28, 2003.

(b)  The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemptions of Fund shares in relation to the fluctuating market values of the Fund.

(c)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(d)  Net operating expenses were less than 0.01% to average daily net assets.

(e)  Interest expense was less than 0.01% to average daily net assets.

(f)  Total net expenses were less than 0.01% to average daily net assets.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


34



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Short-Duration Collateral 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the JPMorgan U.S. 3 Month Cash Index. The Fund seeks to achieve its investment objective by investing primarily in high quality U.S. and foreign floating rate fixed income securities. Fixed income securities in which the Fund invests include securities issued by a wide range of private issuers and, to a lesser extent, securities issued by federal, state, local, and foreign governments (including securities neither guaranteed nor insured by the U.S. government). The Fund may invest a substantial portion of its assets in asset-backed securities, including, but not limited to, securities backed by pools of residential and commercial mortgages, credit-card receivables, home equity loans, automobile loans, educational loans, corporate and sovereign bonds, and bank loans made to corporations. In addition, the Fund may invest in government securities, corporate debt securities, money mar ket instruments, and commercial paper, and enter into credit default swaps, reverse repurchase agreements, and repurchase agreements. The Fund also may use exchange-traded and over-the-counter ("OTC") derivatives, including swap contracts, futures contracts, options on futures, options on swaps (or "swaptions"), and other types of options, and forward currency contracts. The Fund's fixed income securities primarily have floating interest rates (or may be hedged using derivatives to convert the fixed rate interest payments into floating rate interest payments), but may also include all types of interest rate, payment, and reset terms, including fixed rate, zero coupon, contingent, deferred, and payment-in-kind features. From time to time, the Fund may hold fixed income securities that are rated below investment grade.

Shares of the Fund are not publicly offered and are principally available only to other funds of the Trust and certain accredited investors.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


35


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


36


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument


37


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.


38


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.


39


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. Interest expense incurred as a result of entering into reverse repu rchase agreements is included in the Fund's expenses. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.


40


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $29,576,884, $142,552, $614,650 and $5,952,458 expiring in 2011, 2012, 2014 and 2015, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital and currency losses of $1,022,012.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 7,760,521,857     $ 8,543,465     $ (108,500,944 )   $ (99,957,479 )  

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal


41


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

or face amount of the securities adjusted for inflation is recorded as interest income. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO does not charge the Fund any management or service fees for its services. In addition, the Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and


42


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)).

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $29,757 and $20,976, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 994,375     $ —    
Investments (non-U.S. Government securities)     2,226,801,929       1,065,476,537    

 

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 70.09% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Each of the shareholders are other funds of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 100.00% of the Fund's shares were held by accounts for which the Manager has investment discretion.


43


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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  
    August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
    Shares   Amount   Shares   Amount  
Shares sold     173,095,115     $ 4,479,370,000       219,917,838     $ 5,677,261,801    
Shares issued to
shareholders in reinvestment
of distributions		     2,181,223       56,537,315       12,712,127       323,728,016    
Shares repurchased     (132,305,672 )     (3,424,205,450 )     (150,328,858 )     (3,878,382,932 )  
Net increase (decrease)     42,970,666     $ 1,111,701,865       82,301,107     $ 2,122,606,885    

 


44



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of t he Manager.

The Trustees gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement. The Trustees also considered so-called


45


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

"fallout benefits" to the Manager, such as the possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees did not consider possible economies of scale to the Manager because the Manager does not receive an advisory fee from the Fund.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


46


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio(a) 		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred*(a) 		  
  1 ) Actual     0.00 %   $ 1,000.00     $ 1,013.70     $ 0.00    
  2 ) Hypothetical     0.00 %   $ 1,000.00     $ 1,025.14     $ 0.00    

 

(a)  Annualized net expense ratio rounds to less than 0.01% and net expense incurred rounds to less than $0.01.

*  Expenses are calculated using the annualized net expense ratio (including interest expense), for the
six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


47



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.8 %  
Short-Term Investments     3.0    
Swaps     0.1    
Forward Currency Contracts     0.0    
Futures     0.0    
Other     1.1    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in GMO Short-Duration Collateral Fund.


1


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary**   % of Debt Obligations  
Residential Asset-Backed Securities (United States)     22.7 %  
Credit Cards     20.4    
Auto Financing     6.8    
Residential Mortgage-Backed Securities (European)     6.8    
Business Loans     5.9    
CMBS     5.3    
Student Loans     5.2    
Residential Mortgage-Backed Securities (Australian)     4.6    
Insured Auto Financing     4.3    
Investment Grade Corporate Collateralized Debt Obligations     3.4    
Insured Other     2.2    
Collateralized Loan Obligations     1.6    
CMBS Collateralized Debt Obligations     1.5    
Insured Credit Cards     1.3    
Rate Reduction Bonds     1.2    
Trade Receivables     0.9    
Insured Residential Mortgage-Backed Securities (United States)     0.9    
U.S. Government Agency     0.9    
Insurance Premiums     0.7    
Insured High Yield Collateralized Debt Obligations     0.7    
Insured Time Share     0.4    
Equipment Leases     0.4    
Airlines     0.4    
Corporate Debt     0.3    
Emerging Markets Collateralized Debt Obligations     0.2    
Insured Residential Asset-Backed Securities (United States)     0.2    
ABS Collateralized Debt Obligations     0.2    
Residential Mortgage-Backed Securities (United States)     0.2    
Insured Business Loans     0.1    
Insured Transportation     0.1    
Insured Residential Asset-Backed Securities (European)     0.1    
U.S. Government     0.1    
High Yield Collateralized Debt Obligations     0.0    
      100.0 %  

 

**  The table above incorporates aggregate industry sector exposure associated with investments in GMO Short-Duration Collateral Fund.


2



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    1,882,022     GMO Short-Duration Collateral Fund     48,593,814    
    TOTAL MUTUAL FUNDS (COST $48,359,079)     48,593,814    
    TOTAL INVESTMENTS — 100.0%
(Cost $48,359,079)		     48,593,814    
      Other Assets and Liabilities (net) — 0.0%     9,437    
    TOTAL NET ASSETS — 100.0%   $ 48,603,251    

 

See accompanying notes to the financial statements.


3



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in affiliated issuers, at value (cost $48,359,079) (Notes 2 and 8)   $ 48,593,814    
Cash     9,669    
Receivable for Fund shares sold     44,920    
Interest receivable     133    
Receivable for expenses reimbursed by Manager (Note 3)     4,805    
Total assets     48,653,341    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     2,043    
Shareholder service fee     6,129    
Trustees and Chief Compliance Officer of GMO Trust fees     377    
Accrued expenses     41,541    
Total liabilities     50,090    
Net assets   $ 48,603,251    
Net assets consist of:  
Paid-in capital   $ 51,774,649    
Accumulated undistributed net investment income     306,758    
Accumulated net realized loss     (3,712,891 )  
Net unrealized appreciation     234,735    
    $ 48,603,251    
Net assets attributable to:  
Class III shares   $ 48,603,251    
Shares outstanding:  
Class III     1,915,967    
Net asset value per share:  
Class III   $ 25.37    

 

See accompanying notes to the financial statements.


4


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 354,863    
Interest     550    
Total investment income     355,413    
Expenses:  
Management fee (Note 3)     12,110    
Shareholder service fee – Class III (Note 3)     36,329    
Custodian, fund accounting agent and transfer agent fees     8,004    
Audit and tax fees     13,248    
Legal fees     460    
Trustees fees and related expenses (Note 3)     124    
Registration fees     3,220    
Miscellaneous     276    
Total expenses     73,771    
Fees and expenses reimbursed by Manager (Note 3)     (25,116 )  
Net expenses     48,655    
Net investment income (loss)     306,758    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     280,290    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     13,841    
Net realized and unrealized gain (loss)     294,131    
Net increase (decrease) in net assets resulting from operations   $ 600,889    

 

See accompanying notes to the financial statements.


5


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 306,758     $ 28,764,726    
Net realized gain (loss)     280,290       (3,989,905 )  
Change in net unrealized appreciation (depreciation)     13,841       220,894    
Net increase (decrease) in net assets from operations     600,889       24,995,715    
Distributions to shareholders from:  
Net investment income  
Class VI     —       (28,768,002 )  
Return of capital  
Class VI     —       (36,666 )  
      —       (28,804,668 )  
Net share transactions (Note 7):  
Class III     7,439,480       40,536,328    
Class VI     —       3,835,507    
Increase (decrease) in net assets resulting from net share
transactions		     7,439,480       44,371,835    
Total increase (decrease) in net assets     8,040,369       40,562,882    
Net assets:  
Beginning of period     40,562,882       —    
End of period (including accumulated undistributed net investment
income of $306,758 and $0, respectively)		   $ 48,603,251     $ 40,562,882    

 

See accompanying notes to the financial statements.


6



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
December 28, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.05     $ 24.82    
Income (loss) from investment operations:  
Net investment income (loss)†(a)      0.16       (0.01 )  
Net realized and unrealized gain (loss)     0.16       0.24    
Total from investment operations     0.32       0.23    
Net asset value, end of period   $ 25.37     $ 25.05    
Total Return(b)      1.28 %**      0.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 48,603     $ 40,563    
Net expenses to average daily net assets     0.20 %*      0.21 %*   
Net investment income to average daily net assets(a)      1.27 %*      (0.21 )%*   
Portfolio turnover rate     41 %**      125 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.10 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by GMO Short-Duration Collateral Fund.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the period from March 1, 2006 (commencement of operations) through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Short-Duration Collateral 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, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the JPMorgan U.S. 3 Month Cash Index. The Fund invests substantially all of its assets in GMO Short-Duration Collateral Fund (an arrangement often referred to as a "master-feeder" structure) ("SDCF") and, to a limited extent, in cash and cash equivalents. The Fund's investment objective and principal investment strategies are identical to those of SDCF. SDCF seeks to achieve its investment objective by investing primarily in high quality U.S. and foreign floating rate fixed income securities. SDCF may invest a substantial portion of its assets in asset-backed securities.

As of August 31, 2007, the Fund had one class of shares outstanding, Class III. Class III shares commenced operations on December 28, 2006. Class VI shares were liquidated on February 26, 2007.

The financial statements of SDCF should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of SDCF are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 SDCF are valued at their net asset value.

Investments held by SDCF are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are


8


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital losses of $3,874,263.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 48,396,990     $ 196,824     $ —     $ 196,824    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.


9


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from SDCF are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain fees and expenses indirectly as a shareholder in SDCF (See Note 3).

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.05% 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 average daily net assets at the annual rate of 0.15% for Class III shares.


10


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.05% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in SDCF. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.002 %     0.000 %     0.000 %     0.002 %  

 

        

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $124 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $26,689,863 and $18,997,450, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


11


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 89.11% 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 may have a material effect on the Fund.

As of August 31, 2007, 92.14% of the Fund's shares were held by six related parties comprised of certain GMO employee accounts.

7.  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
August 31, 2007
(Unaudited)		   Period from
December 28, 2006
(commencement of operations)
through February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,369,749     $ 34,430,919       1,619,496     $ 40,541,330    
Shares issued to shareholders
in reinvestment of distributions		     —       —       —       —    
Shares repurchased     (1,073,077 )     (26,991,439 )     (201 )     (5,002 )  
Net increase (decrease)     296,672     $ 7,439,480       1,619,295     $ 40,536,328    
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
March 1, 2006
(commencement of operations)
through February 26, 2007* 		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       22,535,851     $ 565,101,317    
Shares issued to shareholders
in reinvestment of distributions		     —       —       1,160,507       28,803,789    
Shares repurchased     —       —       (23,696,358 )     (590,069,599 )  
Net increase (decrease)     —     $ —       —     $ 3,835,507    

 

*  Effective February 26, 2007, all shareholders redeemed or exchanged out of Class VI.


12


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of the affiliated issuer during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Short-Duration
Collateral Fund		   $ 40,607,270     $ 26,689,863     $ 18,997,450     $ 354,863     $ —     $ 48,593,814    
Totals   $ 40,607,270     $ 26,689,863     $ 18,997,450     $ 354,863     $ —     $ 48,593,814    

 


13



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees noted that the Fund invests substantially all of its assets in another series of the Trust, GMO Short-Duration Collateral Fund ("SDCF"), and, therefore, that the Fund's investment objective and principal investment strategies are identical to those of SDCF. The Trustees met over the course of the year with the Fund's and SDCF's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing SDCF and the level of skill required to manage SDCF. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund and SDCF. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's and SDCF's investment performance relative to their performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed the Fund's performance since inception in 2006 and SDCF's performance over various periods, including a one-year period and for the life of SDCF, information prepared by the third-party data services, various statistical measures of the Fund's and SDCF's performance relative to its benchmark (including the volatility of the Fund's and SDCF's returns), as well as factors identified by the Manager as contributing to the Fund's and SDCF's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund and SDCF, the support those personnel received from the Manager, the investment techniques used to manage SDCF, and the overall competence of the Manager.


14


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement, and noted that SDCF does not pay an advisory fee to the Manager. The Trustees also noted that the Fund's expense ratio reflects total expenses payable by the Fund and SDCF. In evaluating the Fund's advisory fee arrangement, the Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage SDCF. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund and SDCF in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund and SDCF are subject. The Trustees also reviewed information provided by the Manager regarding the combined profits it realized on the services (excluding distribution services) it provided to the Fund and SDCF, and profits it realized on the services (excluding distribution services) it provided to the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing clie nt relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fees payable under the Fund's agreement appropriately reflected any economies of scale associated with managing the Fund and SDCF. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the Fund's investment management agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund and SDCF. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund, SDCF, and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund and SDCF with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and resul ts with respect to the execution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most


15


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund and SDCF, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


16


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 1, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.20 %   $ 1,000.00     $ 1,012.80     $ 1.01    
2) Hypothetical     0.20 %   $ 1,000.00     $ 1,024.13     $ 1.02    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


17



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     92.2 %  
Short-Term Investments     5.5    
Preferred Stocks     0.6    
Futures     0.1    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.9 )  
Other     2.5    
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region     37.9 %  
Japan     21.3    
United Kingdom     20.7    
Australia     4.4    
Sweden     4.0    
Switzerland     3.8    
Singapore     2.7    
Hong Kong     2.4    
Denmark     1.0    
Norway     1.0    
Canada     0.8    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 99.0%        
        United States — 99.0%        
        Affiliated Issuers        
  2,943,983     GMO International Growth Equity Fund, Class IV     95,885,525    
  2,606,807     GMO International Intrinsic Value Fund, Class IV     95,096,303    
      190,981,828    
    TOTAL MUTUAL FUNDS (COST $170,531,735)     190,981,828    
        SHORT-TERM INVESTMENTS — 1.6%        
  3,100,000     ING Bank Time Deposit, 5.32%, due 09/04/07     3,100,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,100,000)     3,100,000    
    TOTAL INVESTMENTS — 100.6%
(Cost $173,631,735)		     194,081,828    
        Other Assets and Liabilities (net) — (0.6%)     (1,193,764 )  
    TOTAL NET ASSETS — 100.0%   $ 192,888,064    

 

See accompanying notes to the financial statements.


2


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward currency contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
11/20/07   CHF     1,007,000     $ 838,386     $ (15,172 )  
11/20/07   DKK     7,192,000       1,319,447       (17,964 )  
11/20/07   EUR     1,767,000       2,413,994       42    
11/20/07   GBP     1,224,000       2,463,946       3,134    
11/20/07   HKD     5,700,000       732,152       2,225    
11/20/07   JPY     356,081,000       3,108,042       61,200    
11/20/07   SEK     6,568,000       955,710       (23,931 )  
11/20/07   SGD     813,345       536,679       737    
11/20/07   SGD     813,345       536,679       773    
11/20/07   SGD     813,345       536,679       861    
11/20/07   SGD     813,345       536,679       1,055    
11/20/07   SGD     813,345       536,679       1,121    
11/20/07   SGD     813,345       536,679       1,196    
11/20/07   SGD     813,345       536,679       1,584    
    $ 15,588,430     $ 16,861    
Sales  
11/20/07   AUD     1,787,323     $ 1,459,372     $ (36,930 )  
11/20/07   AUD     1,787,323       1,459,372       (35,844 )  
11/20/07   AUD     1,787,323       1,459,371       (32,408 )  
11/20/07   AUD     1,787,323       1,459,371       (32,301 )  
11/20/07   AUD     1,787,323       1,459,371       (31,944 )  
11/20/07   AUD     1,787,323       1,459,371       (26,684 )  
11/20/07   AUD     1,787,323       1,459,371       (26,446 )  
11/20/07   CHF     3,010,055       2,506,045       3,276    
11/20/07   CHF     3,010,055       2,506,045       3,878    
11/20/07   CHF     3,010,055       2,506,045       4,008    
11/20/07   CHF     3,010,055       2,506,044       4,902    
11/20/07   CHF     3,010,055       2,506,044       5,959    
11/20/07   CHF     3,010,055       2,506,044       6,795    

 

See accompanying notes to the financial statements.


3


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   CHF     3,010,055     $ 2,506,044     $ 6,952    
11/20/07   DKK     9,260,619       1,698,958       (19,361 )  
11/20/07   DKK     9,260,619       1,698,957       (18,901 )  
11/20/07   DKK     9,260,619       1,698,957       (18,813 )  
11/20/07   DKK     9,260,619       1,698,957       (18,234 )  
11/20/07   DKK     9,260,619       1,698,957       (18,035 )  
11/20/07   DKK     9,260,619       1,698,957       (17,356 )  
11/20/07   DKK     9,260,619       1,698,957       (16,509 )  
11/20/07   EUR     5,540,505       7,569,183       (89,501 )  
11/20/07   EUR     5,540,505       7,569,183       (87,396 )  
11/20/07   EUR     5,540,505       7,569,183       (86,399 )  
11/20/07   EUR     5,540,505       7,569,183       (83,905 )  
11/20/07   EUR     5,540,505       7,569,183       (80,598 )  
11/20/07   EUR     5,540,505       7,569,183       (80,553 )  
11/20/07   EUR     5,540,505       7,569,183       (79,423 )  
11/20/07   GBP     2,761,353       5,558,680       (96,171 )  
11/20/07   GBP     2,761,353       5,558,680       (89,881 )  
11/20/07   GBP     2,761,353       5,558,680       (89,820 )  
11/20/07   GBP     2,761,353       5,558,680       (88,219 )  
11/20/07   GBP     2,761,353       5,558,680       (86,562 )  
11/20/07   GBP     2,761,353       5,558,680       (81,304 )  
11/20/07   GBP     2,761,353       5,558,680       (78,441 )  
11/20/07   HKD     4,641,054       596,133       (1,370 )  
11/20/07   HKD     4,641,054       596,133       (1,355 )  
11/20/07   HKD     4,641,054       596,133       (1,278 )  
11/20/07   HKD     4,641,054       596,133       (1,202 )  
11/20/07   HKD     4,641,054       596,133       (1,152 )  
11/20/07   HKD     4,641,054       596,132       (1,111 )  
11/20/07   HKD     4,641,054       596,132       (1,065 )  
11/20/07   JPY     759,561,120       6,629,806       32,859    
11/20/07   JPY     759,561,120       6,629,806       42,048    
11/20/07   JPY     759,561,120       6,629,806       42,610    
11/20/07   JPY     759,561,120       6,629,805       54,119    
11/20/07   JPY     759,561,120       6,629,805       61,184    
11/20/07   JPY     759,561,120       6,629,805       65,312    
11/20/07   JPY     759,561,120       6,629,805       79,168    

 

See accompanying notes to the financial statements.


4


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   NOK     5,438,776     $ 934,025     $ (17,217 )  
11/20/07   NOK     5,438,776       934,025       (16,938 )  
11/20/07   NOK     5,438,776       934,025       (16,413 )  
11/20/07   NOK     5,438,776       934,025       (15,716 )  
11/20/07   NOK     5,438,776       934,025       (15,530 )  
11/20/07   NOK     5,438,776       934,024       (15,159 )  
11/20/07   NOK     5,438,776       934,024       (15,095 )  
11/20/07   SEK     6,309,828       918,143       (5,382 )  
11/20/07   SEK     6,309,828       918,143       (5,001 )  
11/20/07   SEK     6,309,828       918,143       (4,866 )  
11/20/07   SEK     6,309,828       918,143       (3,781 )  
11/20/07   SEK     6,309,828       918,143       (3,340 )  
11/20/07   SEK     6,309,828       918,143       (3,211 )  
11/20/07   SEK     6,309,828       918,143       (2,997 )  
    $ 195,092,392     $ (1,284,048 )  

 

Notes to Schedule of Investments:

As of August 31, 2007, 85.85% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

SEK - Swedish Krona

SGD - Singapore Dollar

See accompanying notes to the financial statements.


5



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $3,100,000) (Note 2)   $ 3,100,000    
Investments in affiliated issuers, at value (cost $170,531,735) (Notes 2 and 8)     190,981,828    
Cash     75,222    
Foreign currency, at value (cost $38,627) (Note 2)     49,022    
Interest receivable     458    
Unrealized appreciation on open forward currency contracts (Note 2)     486,998    
Receivable for expenses reimbursed by Manager (Note 3)     112,413    
Total assets     194,805,941    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     86,806    
Shareholder service fee     24,116    
Trustees and Chief Compliance Officer of GMO Trust fees     441    
Unrealized depreciation on open forward currency contracts (Note 2)     1,754,185    
Accrued expenses     52,329    
Total liabilities     1,917,877    
Net assets   $ 192,888,064    
Net assets consist of:  
Paid-in capital   $ 165,580,545    
Distributions in excess of net investment income     (789,261 )  
Accumulated net realized gain     8,903,486    
Net unrealized appreciation     19,193,294    
    $ 192,888,064    
Net assets attributable to:  
Class III shares   $ 192,888,064    
Shares outstanding:  
Class III     25,913,199    
Net asset value per share:  
Class III   $ 7.44    

 

See accompanying notes to the financial statements.


6


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 166,770    
Total investment income     166,770    
Expenses:  
Management fee (Note 3)     609,657    
Shareholder service fee – Class III (Note 3)     169,349    
Custodian and fund accounting agent fees     36,064    
Transfer agent fees     13,616    
Audit and tax fees     27,324    
Legal fees     2,668    
Trustees fees and related expenses (Note 3)     1,257    
Registration fees     920    
Miscellaneous     1,564    
Total expenses     862,419    
Fees and expenses reimbursed by Manager (Note 3)     (81,420 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (587,950 )  
Shareholder service fee waived (Note 3)     (99,843 )  
Net expenses     93,206    
Net investment income (loss)     73,564    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     7,286,065    
Realized gains distributions from affiliated issuers (Note 8)     6,990,374    
Foreign currency, forward contracts and foreign currency related transactions     (4,363,825 )  
Net realized gain (loss)     9,912,614    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     642,221    
Foreign currency, forward contracts and foreign currency related transactions     491,964    
Net unrealized gain (loss)     1,134,185    
Net realized and unrealized gain (loss)     11,046,799    
Net increase (decrease) in net assets resulting from operations   $ 11,120,363    

 

See accompanying notes to the financial statements.


7


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 73,564     $ 3,614,363    
Net realized gain (loss)     9,912,614       139,338,705    
Change in net unrealized appreciation (depreciation)     1,134,185       (77,805,071 )  
Net increase (decrease) in net assets from operations     11,120,363       65,147,997    
Distributions to shareholders from:  
Net investment income  
Class III     —       (9,318,611 )  
Net realized gains  
Class III     (12,003,096 )     (155,726,954 )  
      (12,003,096 )     (165,045,565 )  
Net share transactions (Note 7):  
Class III     (33,325,446 )     (401,820,578 )  
Total increase (decrease) in net assets     (34,208,179 )     (501,718,146 )  
Net assets:  
Beginning of period     227,096,243       728,814,389    
End of period (including distributions in excess of net investment
income of $789,261 and $862,825, respectively)		   $ 192,888,064     $ 227,096,243    

 

See accompanying notes to the financial statements.


8



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 7.45     $ 9.07     $ 8.38     $ 7.33     $ 5.54     $ 7.14    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.00 (b)      0.10       0.07       0.21       0.20       0.22    
Net realized and unrealized
gain (loss)		     0.40       1.17       2.17       0.84       1.59       (1.55 )  
Total from investment operations     0.40       1.27       2.24       1.05       1.79       (1.33 )  
Less distributions to shareholders:  
From net investment income     —       (0.12 )     (0.71 )(c)      —       —       (0.27 )  
From net realized gains     (0.41 )     (2.77 )     (0.84 )     —       —       —    
Total distributions     (0.41 )     (2.89 )     (1.55 )     —       —       (0.27 )  
Net asset value, end of period   $ 7.44     $ 7.45     $ 9.07     $ 8.38     $ 7.33     $ 5.54    
Total Return(d)      5.09 %**      15.60 %     28.42 %     14.32 %     32.31 %     (19.53 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 192,888     $ 227,096     $ 728,814     $ 580,905     $ 160,586     $ 28,923    
Net expenses to average daily
net assets(e) 		     0.08 %*      0.07 %     0.05 %     0.04 %     0.04 %     0.06 %  
Net investment income to average
daily net assets(a) 		     0.07 %*      1.23 %     0.82 %     2.64 %     2.98 %     3.32 %  
Portfolio turnover rate     3 %**      18 %     36 %     3 %     5 %     90 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.68 %*      0.68 %     0.67 %     0.71 %     0.87 %     1.32 %  

 

(a)  Net Investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Net investment income was less than $0.01 per share.

(c)  Distributions from net investment income include amounts (approximately $0.07 per share) from foreign currency transactions which are treated as realized capital gain for book purposes.

(d)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(e)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Currency Hedged International 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming the MSCI EAFE Index (Europe, Australasia, and Far East) (Hedged). The Fund is a fund of funds and invests in other GMO Funds. The Fund may invest to varying extents in GMO International Core Equity Fund, GMO International Intrinsic Value Fund, GMO International Growth Equity Fund, and GMO International Small Companies Fund ("underlying funds"). GMO attempts to hedge at least 70% of the foreign currency exposure in the underlying funds' investments relative to the U.S. dollar.

The financial statements of the underlying funds should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect) or visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies


10


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or


11


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in t he value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or


12


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

loss. The risk associated with purchasing put and call options is limited to the premium paid. There were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.


13


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Securities Lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of 1,004,449 expiring in 2011. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the fund elected to defer to March 1, 2007 post-October currency losses of $2,560,441.


14


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 173,631,735     $ 20,450,093     $ —     $ 20,450,093    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.


15


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.54% 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 average daily net assets at the annual rate of 0.15% for Class III shares.

The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by the Fund exceeds 0.15%; provided, however, that the amount of this waiver will not exceed 0.15%.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is


16


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses") exceed 0.54% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in the underlying funds (excluding these Funds' Excluded Fund Fees and Expenses)), exceeds 0.54% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.54% of the Fun d's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses (excluding
shareholder service fees)		   Indirect Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.522 %     0.088 %     0.610 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $981 and $736, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $6,990,374 and $48,400,000, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


17


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, 49.06% 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. One of the shareholders is another fund of the Trust.

As of August 31, 2007, there were no shares held by related parties, and 98.68% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     463     $ 3,380       4,383,950     $ 35,031,290    
Shares issued to shareholders
in reinvestment of distributions		     1,513,644       11,912,379       20,822,962       163,736,057    
Shares repurchased     (6,075,339 )     (45,241,205 )     (75,107,197 )     (600,587,925 )  
Net increase (decrease)     (4,561,232 )   $ (33,325,446 )     (49,900,285 )   $ (401,820,578 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO International Growth
Equity Fund, Class IV		   $ 111,898,773     $ 4,299,745     $ 24,400,000     $ —     $ 4,299,745     $ 95,885,525    
GMO International Intrinsic
Value Fund, Class IV		     112,564,395       2,690,629       24,000,000       —       2,690,629       95,096,303    
Totals   $ 224,463,168     $ 6,990,374     $ 48,400,000     $ —     $ 6,990,374     $ 190,981,828    

 


18



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


19


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In c onsidering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.


20


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


21


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.69 %   $ 1,000.00     $ 1,050.90     $ 3.56    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.67     $ 3.51    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


22



GMO Emerging Markets Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Emerging Markets Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     82.5 %  
Preferred Stocks     11.7    
Short-Term Investments     4.1    
Private Equity Securities     0.6    
Investment Funds     0.4    
Debt Obligations     0.1    
Rights and Warrants     0.1    
Convertible Securities     0.0    
Mutual Funds     0.0    
Other     0.5    
      100.0 %  
Country Summary   % of Investments*  
South Korea     24.8 %  
Taiwan     21.3    
Brazil     14.7    
China     9.8    
Malaysia     5.1    
Thailand     4.1    
Mexico     3.9    
Philippines     2.7    
Russia     2.5    
Poland     2.4    
India     2.3    
South Africa     1.9    
Israel     1.9    
Turkey     1.3    
Hungary     0.5    
Indonesia     0.5    
Chile     0.2    
United States     0.1    
Sri Lanka     0.0    
Lebanon     0.0    
Ukraine     0.0    
      100.0 %  

 

*  The table excludes short-term investments.


1


GMO Emerging Markets Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Industry Sector Summary   % of Investments*  
Financials     21.2 %  
Information Technology     17.5    
Materials     17.4    
Industrials     10.7    
Energy     9.8    
Telecommunication Services     7.6    
Consumer Discretionary     7.6    
Utilities     2.9    
Consumer Staples     2.8    
Health Care     1.5    
Miscellaneous     1.0    
      100.0 %  

 

*  The table excludes short-term investments.


2



GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 82.5%  
        Brazil — 4.5%  
    227,875,320     Aes Tiete SA     8,350,783    
    471,900     B2W Compania Global do Varejo     18,159,251    
    9,954,660     Banco do Brasil SA     143,079,211    
    3,014,102     Companhia Saneamento Basico Sao Paulo     73,432,251    
    1,083,772     Companhia Siderurgica Nacional SA     61,502,128    
    1,516,900     Companhia Vale do Rio Doce     74,979,084    
    1,474,720     Companhia Vale do Rio Doce ADR     72,747,938    
    873,270     Companhia Vale do Rio Doce Sponsored ADR     36,459,022    
    822,192     Electrobras (Centro)     10,639,885    
    1,086,400     Gafisa SA     13,123,180    
    454,250     Iguatemi Empresa de Shopping     6,758,184    
    1,477,800     Localiza Rent A Car     14,687,615    
    315,800     OdontoPrev SA     8,772,222    
    924,210     Petroleo Brasileiro SA (Petrobras) ADR     57,153,146    
    1,723,504     Souza Cruz SA (Registered)     36,007,354    
    Total Brazil     635,851,254    
        Chile — 0.2%  
    221,500     Banco Santander Chile SA ADR     10,543,400    
    1,409,500     Lan Airlines SA     22,622,475    
    Total Chile     33,165,875    
        China — 9.2%  
    18,629,990     Advanced Semiconductor Manufacturing Co *      1,475,080    
    27,452,000     Bank of China Ltd Class H     14,121,622    
    5,797,000     Belle International Holdings Ltd *      6,653,691    
    1,860,000     China Communication Services *      1,259,933    
    20,759,000     China Construction Bank Class H     17,426,842    
    11,690,000     China Life Insurance Co Ltd Class H     55,370,031    
    36,023,000     China Merchants Bank     135,496,539    

 

See accompanying notes to the financial statements.


3


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        China — continued  
    16,438,442     China Mobile Ltd     223,883,162    
    375,649     China Mobile Ltd ADR     25,465,246    
    168,680,351     China Petroleum & Chemical Corp Class H     185,781,689    
    6,871,400     China Resources Enterprise Ltd     28,013,888    
    1,554,000     China Shenhua Energy Co Ltd Class H     6,753,567    
    8,666,000     China Shipping Development Co Ltd Class H     26,196,545    
    463,670     China Telecom Corp Ltd ADR (a)      26,976,321    
    84,838,700     China Telecom Corp Ltd Class H     49,144,027    
    14,248,000     China Ting Group Holding Ltd     3,933,085    
    58,314,000     China Travel International Investment Hong Kong Ltd     36,784,040    
    63,282,416     Denway Motors Ltd     29,667,297    
    2,257,000     Dongfang Electrical Machinery Co Ltd     15,187,502    
    12,250,686     Fountain Set Holdings Ltd     4,787,534    
    145,069     Global Sources Ltd *      2,796,930    
    2,717,284     GOME Electrical Appliances Holdings Ltd     4,299,028    
    25,266,700     Guangdong Investments Ltd     15,920,874    
    2,266,000     Hang Lung Group Ltd     10,818,006    
    2,101,350     Hengan International Group Co Ltd Class H     6,475,698    
    34,954,000     Huaneng Power International Inc Class H     40,379,554    
    12,580,000     Jiangxi Copper Co     29,324,751    
    571,700     New Oriental Education & Technology Group Inc *      30,271,515    
    4,516,100     Parkson Retail Group Ltd     36,167,893    
    6,356,172     Peace Mark Holdings Ltd     9,460,101    
    182,310     Perfect World Co Ltd ADR *      4,132,968    
    61,183,101     PetroChina Co Ltd Class H     89,448,405    
    33,832,789     Pico Far East Holdings Ltd     9,977,172    
    9,513,000     Shandong Weigao Group Medical Polymer Co Ltd Class H     20,524,261    
    12,984,344     Shanghai Industrial Holdings Ltd     56,962,999    
    2,522,000     Shanghai Jin Jiang International Hotels     1,299,933    
    37,711,500     Sinofert Holdings Ltd     26,757,602    
    8,864,020     Synear Food Holdings Ltd     9,545,823    
    4,861,187     Weiqiao Textile Co     10,790,038    
    3,396,000     Zhuzhou CSR Times Electric Co     5,450,219    
    Total China     1,315,181,411    

 

See accompanying notes to the financial statements.


4


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Hungary — 0.5%  
    50,840     Gedeon Richter Rt     10,000,292    
    95,040     MOL Magyar Olaj es Gazipari Rt (New Shares)     13,541,110    
    832,930     OTP Bank     41,825,937    
    Total Hungary     65,367,339    
        India — 2.1%  
    51,800     BF Utilities Ltd *       2,699,857    
    243,900     Bombay Dyeing & Manufacturing Co Ltd     3,428,926    
    11,896,352     CBAY Systems Holdings Ltd *      22,666,789    
    5,948,177     CBAY Systems Ltd * (b) (c)      59,482    
    21,797,849     Centurion Bank Ltd *      21,063,789    
    3,000     Cipla Ltd (Shares Under Objection) (b)      —    
    353,270     Crompton Greaves Ltd     2,646,058    
    271,260     Cummins India Ltd     2,481,544    
    176,150     Emco Ltd     4,480,965    
    1,503,561     Gammon India Ltd     17,063,514    
    200     HCL Infosystems Ltd (Shares Under Objection) (b)      —    
    1,482,625     Hexaware Technologies Ltd     4,339,944    
    250,737     ICICI Bank Ltd     5,466,167    
    1,500     ITC Ltd (Shares Under Objection) (b)      —    
    4,625,621     IVRCL Infrastructures & Projects Ltd     42,837,641    
    691,108     Jaiprakash Associates Ltd     15,433,668    
    333,102     Jindal Steel & Power Ltd     32,021,203    
    87     Mahind GESCO Developers Ltd *      1,101    
    704,029     Mahindra & Mahindra Ltd     12,203,829    
    700     NTPC Ltd     2,964    
    1,057,749     Reliance Capital Ltd     31,014,782    
    1,287,022     Reliance Energy Ltd     24,486,835    
    900     Reliance Energy Ltd (Shares Under Objection) (b)      —    
    267,578     Reliance Industries Ltd     12,852,547    
    7,133     Reliance Industries Ltd (Shares Under Objection) (b)      —    
    333,456     Rolta India Ltd     3,825,161    
    28,949     SAW Pipes Ltd     414,291    
    2,112,025     Shree Precoated Steels Ltd *      16,005,212    

 

See accompanying notes to the financial statements.


5


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        India — continued  
    1,878,500     Sintex Industries Ltd     14,837,572    
    525,136     Tasc Pharmaceuticals Ltd *      623,452    
    812,429     United Phosphorus     6,595,624    
    67,166     Welspun India Ltd *      96,925    
    600     Wockhardt Ltd     5,641    
    Total India     299,655,483    
        Indonesia — 0.4%  
    10,341,000     Astra International Tbk PT     19,663,257    
    23,836,400     Bank Rakyat Indonesia     15,864,677    
    16,842,000     Bumi Resources Tbk PT     4,570,974    
    59,543,100     Matahari Putra Prima Tbk PT     5,068,130    
    6,158,500     Telekomunikasi Indonesia Tbk PT     7,199,143    
    68,871,500     Truba Alam Manunggal Engineering Tbk PT *      10,327,375    
    Total Indonesia     62,693,556    
        Israel — 1.8%  
    13,282,220     Bank Hapoalim BM     63,301,070    
    7,672,820     Bank Leumi Le - Israel     29,973,686    
    1,322,600     Check Point Software Technologies Ltd *      31,028,196    
    2,900     Teva Pharmaceutical Industries     124,513    
    2,306,520     Teva Pharmaceutical Industries ADR     99,180,360    
    44,050     The Israel Corp Ltd     30,980,846    
    Total Israel     254,588,671    
        Lebanon — 0.0%  
    8,700     Banque Libanaise pour le Commerce Sal * (b)      35,695    
        Malaysia — 4.9%  
    24,859,000     Berjaya Sports Toto     35,540,241    
    25,414,330     Bumiputra-Commerce Holdings Berhad     80,228,427    
    26,379,000     Genting Berhad     55,964,312    
    10,721,231     Highlands and Lowlands Berhad     21,696,599    
    4,293,100     Hong Leong Bank Berhad     7,362,700    

 

See accompanying notes to the financial statements.


6


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Malaysia — continued  
    13,829,540     IJM Corp Berhad     29,083,307    
    9,475,700     KNM Group Berhad     12,265,233    
    15,937,000     Malayan Banking Berhad     53,302,813    
    17,554,400     Public Bank Berhad     47,340,981    
    61,892,700     Resorts World Berhad     67,639,185    
    46,919,800     RHB Capital Berhad     72,394,377    
    651,000     Shangri-La Hotels     448,681    
    12,106,600     SP Setia Berhad     25,138,440    
    14,890,400     Sunway City Berhad     21,093,209    
    4,006,800     Tanjong Plc     19,424,312    
    17,047,268     Tenaga Nasional Berhad     49,032,743    
    1,593,843     Top Glove Corp Berhad     3,223,236    
    13,051,900     UEM World Berhad     15,528,089    
    15,300,700     UMW Holdings Berhad     61,050,732    
    9,222,266     WCT Engineering Berhad     16,722,551    
    Total Malaysia     694,480,168    
        Mexico — 3.7%  
    5,488,200     Alfa SA de CV Class A     39,471,465    
    1,980,264     Alsea SA     3,203,817    
    1,237,850     America Movil SA de CV Class L ADR     74,840,411    
    4,424,389     Carso Global Telecom Class A *      21,053,242    
    8,802,535     Cemex SA de CV CPO *      28,514,692    
    160,373     Cemex SA de CV CPO ADR *      5,178,444    
    9,706,700     Corporacion GEO SA de CV Series B *      50,499,826    
    4,054,000     Grupo Cementos de Chihuahua SA de CV     24,982,458    
    10,493,010     Grupo Financiero Banorte SA de CV     42,797,557    
    12,451,400     Grupo Mexico SA Class B     78,547,760    
    1,917,932     Sare Holding SA de CV *      3,215,965    
    4,305,550     Telefonos de Mexico SA de CV Class L ADR     152,158,137    
    Total Mexico     524,463,774    

 

See accompanying notes to the financial statements.


7


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Philippines — 2.5%  
    14,758,000     Alliance Global Group Inc *      1,788,369    
    906,304     Ayala Corp     9,570,440    
    102,171,783     Ayala Land Inc     31,771,824    
    11,224,330     Bank of the Philippine Islands     14,620,353    
    707,472,942     Filinvest Land Inc *      24,065,329    
    4,914,000     First Gen Corp *      6,807,812    
    9,161,023     First Philippine Holdings     15,664,050    
    949,166,687     Megaworld Corp     71,491,382    
    6,219,000     Paxys Inc *      1,973,858    
    1,350,346     Philippine Long Distance Telephone     77,196,075    
    85,180     Philippine Long Distance Telephone ADR (a)      5,002,621    
    11,567,600     PNOC Energy Development Corp     1,621,502    
    165,608,210     Robinsons Land Corp Class B (d)      63,922,848    
    2,390,100     SM Investments Corp     18,957,257    
    55,793,745     SM Prime Holdings     14,319,475    
    Total Philippines     358,773,195    
        Poland — 1.7%  
    164,285     BRE Bank *       29,322,279    
    5,095,830     PKO Bank Polski SA     97,568,982    
    5,048,690     Polski Koncern Naftowy Orlen SA *      103,530,352    
    1,455,350     Telekomunikacja Polska SA     11,255,364    
    Total Poland     241,676,977    
        Russia — 2.1%  
    1,628,650     Lukoil ADR     120,520,100    
    203,173     OAO Mechel ADR     8,844,121    
    135,000     Russia Petroleum * (b)      1,364,850    
    39,548,250     Sberbank RF     151,469,797    
    122,789     Sistema Hals GDR 144A * (b)      1,430,492    
    740,300     Vimpel-Communications ADR     18,063,320    
    Total Russia     301,692,680    

 

See accompanying notes to the financial statements.


8


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Africa — 1.8%  
    1,047,375     Absa Group Ltd     19,109,857    
    927,200     AECI Ltd     10,303,762    
    1,783,830     African Bank Investments Ltd     7,914,995    
    76,800     Anglo American Platinum Corp     10,270,017    
    1,354,614     Aveng Ltd     10,032,426    
    498,400     Barloworld Ltd     8,566,748    
    467,115     City Lodge Hotels Ltd     4,940,757    
    677,900     Ellerine Holdings Ltd     7,113,831    
    1,128,790     Foschini Ltd     9,220,034    
    577,400     Imperial Holdings Ltd     11,578,776    
    1,224,800     Massmart Holdings Ltd     15,834,324    
    600,700     Mittal Steel South Africa Ltd     10,412,307    
    2,059,280     Murray & Roberts Holdings Ltd     21,754,824    
    1,595,544     Pretoria Portland Cement Co Ltd     10,117,610    
    523,657     Remgro Ltd     13,534,392    
    10,656,571     Sanlam Ltd     32,184,897    
    1,531,600     Standard Bank Group Ltd     22,458,067    
    400,341     Telkom SA Ltd     9,896,256    
    737,348     Tiger Brands Ltd     19,386,703    
    Total South Africa     254,630,583    
        South Korea — 21.6%  
    4,403,499     Biomass Korea Co Ltd * (d)      6,221,233    
    184,289     Boryung Pharmaceutical Co Ltd (d)      8,149,847    
    297,808     Cheil Industries Inc     16,300,800    
    846,410     Dacom Corp     22,098,096    
    577,880     Dae Han Pulp Industries * (d)      3,851,828    
    1,129,710     Daegu Bank     21,050,788    
    462,850     Daelim Industrial Co Ltd     77,420,511    
    24,669     Daesun Shipbuilding *      7,329,032    
    1,897,090     Daewoo Engineering & Construction Co Ltd     54,264,537    
    143,017     DC Chemical Co Ltd     24,986,138    
    252,897     Doosan Infracore Co Ltd     9,205,873    
    1,413,948     EnE System Inc * (d)      11,334,405    

 

See accompanying notes to the financial statements.


9


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    365,540     GS Holdings Corp     18,888,565    
    211,779     Hana Financial Group Inc     10,015,328    
    225,301     Hana Tour Service Inc     20,912,118    
    1,993,250     Hanaro Telecom Inc *      17,671,167    
    196,928     Hanil Cement Manufacturing     22,708,089    
    1,194,075     Hanjin Heavy Industries & Construction Co Ltd *      102,443,821    
    441,644     Hanjin Heavy Industries & Construction Holdings Co Ltd     20,074,727    
    339,250     Hanjin Shipping     18,969,618    
    2,064,210     Hanwha Chemical Corp     54,035,145    
    2,617,958     Hanwha Corp     168,406,390    
    345,901     Honam Petrochemical Co     53,387,987    
    993,160     Hynix Semiconductor Inc *      35,784,906    
    1,177,898     Hyundai Development Co     105,388,105    
    779,300     Hyundai Engineering & Construction *      62,901,977    
    205,840     Hyundai Heavy Industries     81,111,187    
    59,621     Hyundai Mipo Dockyard Co Ltd     17,653,671    
    612,860     Hyundai Mobis     65,891,808    
    512,220     Hyundai Motor Co     37,955,956    
    774,120     Hyundai Securities Co     23,592,338    
    810,810     Hyundai Steel Co     64,863,651    
    131,410     Hyunjin Materials Co Ltd     5,808,376    
    2,224,600     Industrial Bank of Korea     48,572,618    
    169,736     JVM Co Ltd     8,060,865    
    73,520     KCC Corp     37,607,051    
    699,310     Kolon Construction     11,989,176    
    1,221,000     Kookmin Bank     99,046,691    
    40,200     Kookmin Bank ADR     3,274,290    
    240,440     Korea Electric Power Corp     10,734,101    
    643,621     Korea Gas Corp     39,476,244    
    91,771     Korea Iron & Steel Co Ltd     8,785,544    
    11,353,300     Korea Real Estate *      25,175,525    
    113,191     Korea Zinc Co Ltd     22,696,985    
    710,144     Korean Air Lines Co Ltd     48,084,372    
    214,420     KT Corp     10,171,959    

 

See accompanying notes to the financial statements.


10


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    313,740     KT Corp ADR     7,473,287    
    1,876,960     KT&G Corp     142,714,960    
    566,000     KT&G Corp GDR 144A     20,387,320    
    625,250     LG Philips LCD Co Ltd *      26,598,233    
    542,448     Maeil Dairy Industry     22,551,923    
    193,100     Megastudy Co Ltd     43,735,317    
    747,360     Nasan Co Ltd * (d)      20,844,963    
    171,442     NHN Corp *      33,094,284    
    491,630     Poongsan Corp     13,365,024    
    546,029     POSCO     334,159,954    
    76,000     POSCO Sponsored ADR     11,651,560    
    794,190     Pumyang Construction Co Ltd (d)      16,062,027    
    357,130     Samsung Corp     24,311,124    
    138,620     Samsung Electro Mechanics Co Ltd     7,665,484    
    428,824     Samsung Electronics Co Ltd     270,326,319    
    1,594,720     Shinhan Financial Group Co Ltd     97,772,506    
    411,162     SK Corp     63,248,819    
    1,006,448     SK Energy Co Ltd *       137,832,855    
    400     SK Telecom Co Ltd     87,789    
    616,500     SK Telecom Co Ltd ADR     16,873,605    
    930,280     SSCP Co Ltd *      26,700,696    
    90,600     Sung Kwang Bend Co Ltd     2,477,776    
    476,647     Taewoong Co Ltd     38,745,967    
    1,857,040     Woori Finance Holdings Co Ltd     42,324,316    
    Total South Korea     3,065,359,547    
        Sri Lanka — 0.0%  
    417,000     Lanka Walltile Ltd     214,968    
        Taiwan — 20.3%  
    8,024,052     Acer Inc     14,111,949    
    4,325,000     Altek Corp     9,575,956    
    30,102,250     Asustek Computer Inc     89,833,597    
    3,694,109     AU Optronics Corp     5,388,597    
    23,473,820     Cheng Loong Corp     9,172,573    

 

See accompanying notes to the financial statements.


11


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    68,971,000     China Bills Finance Corp *      16,828,715    
    90,088,000     China Development Financial Holding Corp     36,737,340    
    120,861,079     China Steel Corp     164,329,682    
    383,778     China Steel Corp GDS     10,323,628    
    27,588,387     Chinatrust Financial Holding Co Ltd *      20,749,644    
    47,043,172     Chunghwa Telecom Co Ltd     83,606,408    
    931,955     Chunghwa Telecom Co Ltd ADR     16,327,852    
    19,953,548     Compal Electronics Inc     22,089,847    
    5,124,855     Delta Electronics Inc     19,107,789    
    2,487,596     DFI     7,430,261    
    10,569,806     Dimerco Express Taiwan Corp (d)      17,306,039    
    13,398,720     D-Link Corp     29,577,593    
    14,488,320     Eternal Chemical Co Ltd     16,867,785    
    18,019,040     Far Eastern Department Stores Ltd     17,977,105    
    39,812,295     Far Eastern International Bank     17,796,217    
    36,602,162     Far Eastern Textile Co Ltd     43,042,257    
    9,021,000     Far Eastone Telecommunications Co Ltd     10,868,145    
    30,062,208     Formosa Chemicals & Fibre Co     73,205,849    
    5,200,044     Formosa Petrochemical Corp     14,482,044    
    27,288,107     Formosa Plastics Corp     67,789,198    
    5,652,250     Foxconn Technology Co Ltd     51,374,362    
    12,922,000     Fubon Financial Holding Co Ltd     11,141,348    
    1,390,000     Gemtek Technology Corp     3,450,325    
    64,468,526     Hon Hai Precision Industry Co Ltd     478,439,686    
    870,000     Hotai Motor Company Ltd     2,227,738    
    11,003,586     Innolux Display Corp     46,713,624    
    53,088,604     Inventec Co Ltd     33,797,171    
    3,389,426     Kings Town Construction *      2,465,006    
    12,583,883     Les Enphants Co Ltd (d)      12,261,164    
    9,815,206     Lite-On Technology Corp     15,486,491    
    16,897,365     MediaTek Inc     285,612,627    
    68,120,000     Mega Financial Holdings Co Ltd     42,411,512    
    11,474,005     Micro-Star International Co Ltd     11,836,618    
    18,358,720     Mosel Vitelic Inc     21,704,513    

 

See accompanying notes to the financial statements.


12


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    22,381,405     Nan Ya Plastics Corp     54,311,735    
    370,531     Nanya Technology Corp     272,494    
    17,383,199     Oriental Union Chemical     17,654,535    
    1,866,700     PixArt Imaging Inc     16,611,650    
    69,850,647     Powerchip Semiconductor Corp     34,417,319    
    6,558,277     Powertech Technology Inc     26,457,481    
    60,837,000     Promos Technologies Inc     18,789,415    
    9,544,543     Realtek Semiconductor Corp     46,705,180    
    3,379,850     Richtek Technology Corp     37,175,759    
    30,299,966     Shin Kong Financial Holdings     29,513,177    
    12,916,903     Siliconware Precision Industries Co     26,354,318    
    27,921,128     Sinopac Holdings Co     13,243,076    
    78,128,125     Taishin Financial Holdings Co Ltd *      39,157,343    
    47,674,000     Taiwan Cellular Corp     60,660,398    
    57,372,350     Taiwan Cement Corp     73,827,262    
    153,439,965     Taiwan Semiconductor Manufacturing Co Ltd     291,324,372    
    5,450,438     Tsann Kuen Enterprises Co Ltd *      7,306,593    
    14,392,000     U-Ming Marine Transport Co *      42,944,202    
    9,921,540     Unimicron Technology Corp     15,570,083    
    36,925,100     Uni-President Enterprises Corp     42,879,888    
    67,888,450     Walsin Lihwa Corp     33,348,864    
    26,552,873     Wan Hai Lines Ltd     18,743,754    
    49,930,020     Waterland Financial Holdings     15,438,060    
    17,836,000     Wintek Corp     20,446,272    
    35,676,425     Yieh Phui Enterprise     15,798,386    
    24,826,000     Yuanta Financial Holding Co Ltd *      14,157,440    
    8,397,195     Yulon Motor Co Ltd     9,182,333    
    4,415,580     Zyxel Communications Corp     7,679,697    
    Total Taiwan     2,883,419,341    
        Thailand — 3.9%  
    13,604,590     Advanced Info Service Pcl (Foreign Registered) (b)      36,859,359    
    11,003,100     Airports of Thailand Pcl (Foreign Registered) (b)      18,575,837    
    29,855,800     Bangkok Dusit Medical Service Pcl (Foreign Registered) (b)      33,470,780    

 

See accompanying notes to the financial statements.


13


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Thailand — continued  
    2,719,500     Bank of Ayudhya Pcl (Foreign Registered) (b)      2,120,719    
    58,545,090     Bank of Ayudhya Pcl NVDR (b)      45,273,220    
    4,853,530     Banpu Pcl (Foreign Registered) (b)      42,364,628    
    281,410     Banpu Pcl NVDR (b)      2,325,318    
    15,324,700     Central Pattana Pcl (Foreign Registered) (b)      13,583,687    
    27,293,310     Home Product Center Pcl (Foreign Registered) (b)      3,974,752    
    58,076,700     Italian Thai Development Pcl (Foreign Registered) * (b)      11,320,979    
    40,084,460     Kasikornbank Pcl NVDR (b)      92,261,786    
    18,456,500     Major Cineplex Group (b)      9,138,576    
    4,078,800     National Finance Pcl (Foreign Registered) (b)      1,839,407    
    12,621,800     PTT Pcl (Foreign Registered) (b)      112,315,847    
    8,938,690     Robinson Department Store Pcl (Foreign Registered) (b)      2,733,139    
    3,499,793     Robinson Department Store Pcl NVDR (b)      1,070,114    
    13,251,400     Saha Pathana International Holding Pcl (Foreign Registered) (b)      8,111,664    
    10,116,078     Siam Cement Pcl (Foreign Registered) NVDR (b)      73,630,365    
    20,877,900     Siam Commercial Bank Pcl (Foreign Registered) (b)      47,745,707    
    3,108,050     Star Block Co Ltd (Foreign Registered) * (b) (d) (e)      906    
    512,190     TMB Bank Public Corp Pcl * (b)      28,600    
    7,000,400     Yarnapund Pcl (b) (d)      938,045    
    Total Thailand     559,683,435    
        Turkey — 1.3%  
    2,415,370     Enka Insaat ve Sanayi AS     26,442,796    
    3,434,790     Eregli Demir ve Celik Fabrikalari TAS     26,973,044    
    3,093,610     Haci Omer Sabanci Holding AS     17,146,180    
    42,150     Medya Holding AS * (b) (e)      324    
    527,270     Tupras-Turkiye Petrol Rafineriler AS     12,041,918    
    1,931,130     Turk Hava Yollari Anonim Ortakligi *      13,510,853    
    10,617,830     Turkiye Garanti Bankasi     68,271,074    
    2,823,740     Turkiye IS Bankasi Class C     13,798,796    
    Total Turkey     178,184,985    
    TOTAL COMMON STOCKS (COST $7,611,896,746)     11,729,118,937    

 

See accompanying notes to the financial statements.


14


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        PREFERRED STOCKS — 11.7%  
        Brazil — 9.6%  
    2,438,768     Banco Bradesco SA 1.01%     60,844,900    
    1,820,970     Banco Itau Holding Financeira SA 0.34%     79,818,257    
    725,000     Bradespar SA 0.41%     30,670,234    
    2,326,326     Companhia Energetica de Minas Gerais 1.96%     44,819,125    
    4,853,004     Companhia Vale do Rio Doce Class A 0.53%     200,848,076    
    67,967,000     Geracao Tiete 9.62%     2,217,068    
    204,200     Gerdau Metalurgica SA 3.24%     6,400,765    
    5,732,031     Gerdau SA 2.43%     140,233,174    
    33,237,582     Itausa-Investimentos Itau SA 0.41%     199,899,831    
    7,831,252     Net Servicos de Comunicacoa SA *      117,748,183    
    11,956,752     Petroleo Brasileiro SA (Petrobras) 0.67%     318,115,420    
    1,025,400     Petroleo Brasileiro SA ADR 0.70%     54,582,042    
    8,209,223     Sadia SA 1.92%     41,339,003    
    2,172,460     Tele Norte Leste Participacoes ADR 0.18%     47,989,641    
    14,877,632     Unipar, Class B 0.51%     16,530,702    
    Total Brazil     1,362,056,421    
        Malaysia — 0.0%  
    15,370,443     WCT Engineering Series ICPS 13.50%     2,699,649    
        South Korea — 2.1%  
    644,720     Hyundai Motor Co 2.80%     25,422,675    
    365,610     LG Electronics Inc 1.96%     16,142,795    
    552,144     Samsung Electronics Co Ltd (Non Voting) 1.28%     259,159,172    
    Total South Korea     300,724,642    
    TOTAL PREFERRED STOCKS (COST $629,121,888)     1,665,480,712    
        PRIVATE EQUITY SECURITIES — 0.6%  
        Poland — 0.6%  
    —     CHP Investors (Multimedia) * (b) (c)      28,666,787    
    —     MHP Investors (Tri Media Holdings Ltd) * (b) (c)      55,988,241    
    Total Poland     84,655,028    

 

See accompanying notes to the financial statements.


15


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Russia — 0.0%  
    46,624     Divot Holdings NV, Convertible Securities-Class F * (b) (c) (e)      466    
    90,000     Divot Holdings NV, Private Equity Securities-Class D * (b) (c) (e)      900    
    124,330     Divot Holdings NV, Private Equity Securities-Class E * (b) (c) (e)      1,243    
    Total Russia     2,609    
        Sri Lanka — 0.0%  
    2,545,869     Millenium Information Technology * (b) (c)      787,470    
    TOTAL PRIVATE EQUITY SECURITIES (COST $3,925,626)     85,445,107    
        INVESTMENT FUNDS — 0.4%  
        China — 0.1%  
    250,446     Martin Currie China A Share Fund Ltd * (b) (c)      12,750,948    
        India — 0.1%  
    7,584     Fire Capital Mauritius Private Fund * (b) (c)      6,640,781    
    170     SPG Infinity Technology Fund I * (b) (c)      5,583    
    1,371,900     TDA India Technology Fund II LP * (b) (c)      1,989,008    
    100     UTI Masterplus 1991 Units (Shares Under Objection) * (b) (c)      —    
    Total India     8,635,372    
        Poland — 0.0%  
    1,749,150     The Emerging European Fund II LP * (b) (c)      675,032    
        Russia — 0.2%  
    9,500,000     NCH Eagle Fund LP * (b) (c)      28,474,350    
    2,000     Steep Rock Russia Fund LP (b) (c)      2,126,984    
    Total Russia     30,601,334    
        Ukraine — 0.0%  
    16,667     Societe Generale Thalmann Ukraine Fund * (b) (c)      4,000    
    TOTAL INVESTMENT FUNDS (COST $24,592,276)     52,666,686    

 

See accompanying notes to the financial statements.


16


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 0.1%  
        United States — 0.1%  
    15,641,528     U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (f)      15,857,819    
    TOTAL DEBT OBLIGATIONS (COST $16,404,977)     15,857,819    
        RIGHTS AND WARRANTS — 0.1%  
        India — 0.1%  
    126,997     Arvind Mills Ltd Warrants, 144A, Expires 12/06/07
(Goldman Sachs) * (b) (g) 		     149,134    
    32,542     Uniphos Enterprises Ltd Warrants, 144A, Expires 01/28/09
(Merrill Lynch) * (b) (g) 		     29,656    
    711,650     United Phosphorus Ltd Warrants, 144A, Expires 01/28/09
(Merrill Lynch) * (b) (g) 		     5,764,583    
    Total India     5,943,373    
        Philippines — 0.0%  
    102,171,783     Ayala Land Inc Rights, Expires 12/31/49 *      219,535    
        Thailand — 0.0%  
    2,689,393     True Corp Pcl Warrants, Expires 04/03/08 * (b)      —    
    TOTAL RIGHTS AND WARRANTS (COST $2,037,985)     6,162,908    
        MUTUAL FUNDS — 0.0%  
        United States — 0.0%  
        Affiliated Issuer  
    8,064     GMO Special Purpose Holding Fund (b) (e)      11,613    
    TOTAL MUTUAL FUNDS (COST $0)     11,613    

 

See accompanying notes to the financial statements.


17


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
        CONVERTIBLE SECURITIES — 0.0%  
        Russia — 0.0%  
    56,000     Lukinter Finance BV, 0.03%, due 11/29/07     197,156    
    TOTAL CONVERTIBLE SECURITIES (COST $59,290)     197,156    
        SHORT-TERM INVESTMENTS — 4.1%  
    564,700,000     Bank Nationale de Paris Time Deposit, 5.19% due 09/04/07     564,700,000    
    23,728,600     Bank of New York Institutional Cash Reserves Fund (h)      23,728,600    
    TOTAL SHORT-TERM INVESTMENTS (COST $588,428,600)     588,428,600    
    TOTAL INVESTMENTS — 99.5%
(Cost $8,876,467,388)		     14,143,369,538    
          Other Assets and Liabilities (net) — 0.5%     76,005,668    
    TOTAL NET ASSETS — 100.0%   $ 14,219,375,206    

 

See accompanying notes to the financial statements.


18


GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Additional information on each restricted security is as follows:

Issuer Description   Acquisition
Date		   Acquisition
Cost		   Value as a
Percentage
of Fund's
Net Assets		   Value as of
August 31, 2007		  
CBAY Systems Ltd   5/06/03-8/04/05   $ —       0.00 %   $ 59,482    
CHP Investors (Multimedia)   12/13/99-3/05/01     18,178,923       0.20 %     28,666,787    
Divot Holdings NV, Convertible
Securities-Class F		   3/27/02     46,624       0.00 %     466    
Divot Holdings NV, Private Equity
Securities-Class D		   6/26/00     1,502,100       0.00 %     900    
Divot Holdings NV, Private Equity
Securities-Class E		   9/21/01     124,330       0.00 %     1,243    
Fire Capital Mauritius Private Fund   9/06/06-4/04/07     7,622,761       0.05 %     6,640,781    
Martin Currie China A Share
Fund Ltd		   1/20/06     2,710,928       0.09 %     12,750,948    
MHP Investors (Tri Media
Holdings Ltd)		   11/27/01     27,983,521       0.39 %     55,988,241    
Millenium Information Technology   10/21/99     2,252,570       0.01 %     787,470    
NCH Eagle Fund LP   1/21/97     9,500,000       0.20 %     28,474,350    
Societe Generale Thalmann
Ukraine Fund		   7/15/97     260,172       0.00 %     4,000    
SPG Infinity Technology Fund I   12/23/99     189,555       0.00 %     5,583    
Steep Rock Russia Fund LP   12/26/06     2,000,000       0.01 %     2,126,984    
TDA India Technology Fund II LP   2/23/00-3/23/04     1,371,900       0.01 %     1,989,008    
The Emerging European Fund II LP   12/05/97-3/17/00     1,749,150       0.00 %     675,032    
UTI Masterplus 1991 Units
(Shares Under Objection)		   11/14/97     48       0.00 %     —    
    $ 138,171,275    

 

See accompanying notes to the financial statements.


19


GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

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.

ADR - American Depositary Receipt

CPO - Ordinary Participation Certificate (Certificado de Participacion Ordinares), representing a bundle of shares of the multiple series of one issuer that trade together as a unit.

Foreign Registered - Shares issued to foreign investors in markets that have foreign ownership limits.

GDR - Global Depository Receipt

GDS - Global Depository Share

NVDR - Non-Voting Depository Receipt

*  Non-income producing security.

(a)  All or a portion of this security is out on loan (Note 2).

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(c)  Direct placement securities are restricted as to resale.

(d)  Affiliated company (Note 8).

(e)  Bankrupt issuer.

(f)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(g)  Structured warrants with risks similar to equity swaps.

(h)  All or a portion of this security represents investment of security lending collateral (Note 2).

As of August 31, 2007, 66.87% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


20



GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value, including securities on loan of $23,791,366
(cost $8,764,249,418) (Note 2)		   $ 13,982,464,620    
Investments in affiliated issuers, at value (cost $112,217,970) (Notes 2 and 8)     160,904,918    
Cash     184,406    
Foreign currency, at value (cost $93,618,234) (Note 2)     93,904,249    
Receivable for investments sold     12,094,844    
Receivable for Fund shares sold     2,900,000    
Dividends and interest receivable     42,862,062    
Foreign taxes receivable     3,672,930    
Receivable for expenses reimbursed by Manager (Note 3)     56,451    
Total assets     14,299,044,480    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     23,728,600    
Payable for investments purchased     5,270,198    
Payable for Fund shares repurchased     34,622,953    
Accrued capital gain and repatriation taxes payable (Note 2)     501,291    
Payable to affiliate for (Note 3):  
Management fee     9,484,321    
Shareholder service fee     1,117,959    
Trustees and Chief Compliance Officer of GMO Trust fees     26,246    
Accrued expenses     4,917,706    
Total liabilities     79,669,274    
Net assets   $ 14,219,375,206    

 

See accompanying notes to the financial statements.


21


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 7,425,748,079    
Accumulated undistributed net investment income     12,099,899    
Accumulated net realized gain     1,514,753,970    
Net unrealized appreciation     5,266,773,258    
    $ 14,219,375,206    
Net assets attributable to:  
Class III shares   $ 3,831,185,363    
Class IV shares   $ 3,560,294,137    
Class V shares   $ 889,720,516    
Class VI shares   $ 5,938,175,190    
Shares outstanding:  
Class III     159,015,988    
Class IV     148,182,209    
Class V     37,041,815    
Class VI     246,957,345    
Net asset value per share:  
Class III   $ 24.09    
Class IV   $ 24.03    
Class V   $ 24.02    
Class VI   $ 24.05    

 

See accompanying notes to the financial statements.


22


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $29,632,078)   $ 192,433,862    
Interest     2,870,986    
Dividends from affiliated issuers (Note 8)     2,261,387    
Securities lending income     43,477    
Total investment income     197,609,712    
Expenses:  
Management fee (Note 3)     56,443,926    
Shareholder service fee – Class III (Note 3)     3,344,472    
Shareholder service fee – Class IV (Note 3)     1,559,046    
Shareholder service fee – Class V (Note 3)     365,843    
Shareholder service fee – Class VI (Note 3)     1,552,941    
Custodian and fund accounting agent fees     7,291,368    
Transfer agent fees     32,568    
Audit and tax fees     72,588    
Legal fees     191,912    
Trustees fees and related expenses (Note 3)     76,885    
Registration fees     15,088    
Miscellaneous     111,503    
Total expenses     71,058,140    
Fees and expenses reimbursed by Manager (Note 3)     (332,017 )  
Net expenses     70,726,123    
Net investment income (loss)     126,883,589    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers (including foreign capital gains tax refunds of
1,468,706 $) (Note 2)		     1,513,549,008    
Investments in affiliated issuers     18,628,618    
Realized gains distributions from affiliated issuers (Note 8)     49,398    
Written options     1,514,966    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $116,203) (Note 2)		     126,233    
Net realized gain (loss)     1,533,868,223    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers (net of change in foreign capital gains tax accrual of
401,029 $) (Note 2)		     1,376,723,172    
Investments in affiliated issuers     6,064,831    
Written options     (1,365,146 )  
Foreign currency, forward contracts and foreign currency related transactions     610,620    
Net unrealized gain (loss)     1,382,033,477    
Net realized and unrealized gain (loss)     2,915,901,700    
Net increase (decrease) in net assets resulting from operations   $ 3,042,785,289    

 

See accompanying notes to the financial statements.


23


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 126,883,589     $ 232,232,829    
Net realized gain (loss)     1,533,868,223       2,466,047,655    
Change in net unrealized appreciation (depreciation)     1,382,033,477       (767,827,160 )  
Net increase (decrease) in net assets from operations     3,042,785,289       1,930,453,324    
Distributions to shareholders from:  
Net investment income  
Class III     (14,791,323 )     (105,664,375 )  
Class IV     (9,479,471 )     (68,374,071 )  
Class V     (3,118,943 )     (29,926,264 )  
Class VI     (19,017,316 )     (93,772,150 )  
Total distributions from net investment income     (46,407,053 )     (297,736,860 )  
Net realized gains  
Class III     (320,359,337 )     (908,095,602 )  
Class IV     (200,709,799 )     (590,804,170 )  
Class V     (65,873,624 )     (258,528,323 )  
Class VI     (390,899,355 )     (746,269,681 )  
Total distributions from net realized gains     (977,842,115 )     (2,503,697,776 )  
      (1,024,249,168 )     (2,801,434,636 )  
Net share transactions (Note 7):  
Class III     (1,136,049,051 )     (220,757,037 )  
Class IV     566,813,139       (274,126,590 )  
Class V     89,312,237       (689,231,191 )  
Class VI     (2,219,083 )     2,195,109,702    
Increase (decrease) in net assets resulting from net share transactions     (482,142,758 )     1,010,994,884    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     3,497,425       3,421,946    
Class IV     2,048,679       3,362,504    
Class V     748,552       1,945,943    
Class VI     4,350,831       3,682,255    
Increase in net assets resulting from purchase premiums
and redemption fees		     10,645,487       12,412,648    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (471,497,271 )     1,023,407,532    
Total increase (decrease) in net assets     1,547,038,850       152,426,220    
Net assets:  
Beginning of period     12,672,336,356       12,519,910,136    
End of period (including accumulated undistributed net investment
income of $12,099,899 and distributions in excess of
net investment income of $68,376,637, respectively)		   $ 14,219,375,206     $ 12,672,336,356    

 

See accompanying notes to the financial statements.


24



GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 20.67     $ 22.49     $ 19.05     $ 15.78     $ 8.82     $ 9.84    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.20       0.41       0.37       0.34       0.23       0.11    
Net realized and unrealized
gain (loss)		     5.00       3.00       6.24       4.40       6.97       (1.00 )  
Total from investment
operations		     5.20       3.41       6.61       4.74       7.20       (0.89 )  
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.54 )     (0.43 )     (0.32 )     (0.24 )     (0.13 )  
From net realized gains     (1.70 )     (4.69 )     (2.74 )     (1.15 )     —       —    
Total distributions     (1.78 )     (5.23 )     (3.17 )     (1.47 )     (0.24 )     (0.13 )  
Net asset value, end of period   $ 24.09     $ 20.67     $ 22.49     $ 19.05     $ 15.78     $ 8.82    
Total Return(a)      24.94 %**      17.05 %     37.99 %     31.45 %     82.10 %     (9.14 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,831,185     $ 4,276,782     $ 4,788,395     $ 4,433,098     $ 4,079,172     $ 1,215,653    
Net expenses to average daily
net assets		     1.07 %*      1.07 %     1.10 %     1.11 %     1.12 %     1.16 %  
Net investment income to
average daily net assets		     1.74 %*      1.87 %     1.88 %     2.17 %     1.85 %     1.12 %  
Portfolio turnover rate     17 %**      44 %     41 %     57 %     46 %     59 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.00 %(b)*      0.01 %     0.01 %     0.01 %     0.02 %     0.02 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.02     $ 0.02     $ 0.01     $ 0.01     $ 0.06     $ 0.05    

 

(a)  The total returns would have been lower had certain expenses not been reimbursed on the Fund and the underlying funds during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  Ratio is less than 0.01%.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


25


GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 20.62     $ 22.45     $ 19.02     $ 15.75     $ 8.81     $ 9.83    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.21       0.42       0.40       0.34       0.24       0.11    
Net realized and unrealized
gain (loss)		     4.98       2.99       6.20       4.41       6.94       (0.99 )  
Total from investment
operations		     5.19       3.41       6.60       4.75       7.18       (0.88 )  
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.55 )     (0.43 )     (0.33 )     (0.24 )     (0.14 )  
From net realized gains     (1.70 )     (4.69 )     (2.74 )     (1.15 )     —       —    
Total distributions     (1.78 )     (5.24 )     (3.17 )     (1.48 )     (0.24 )     (0.14 )  
Net asset value, end of period   $ 24.03     $ 20.62     $ 22.45     $ 19.02     $ 15.75     $ 8.81    
Total Return(a)      24.96 %**      17.10 %     38.05 %     31.59 %     81.97 %     (9.09 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,560,294     $ 2,599,002     $ 3,081,021     $ 3,255,865     $ 1,799,736     $ 1,003,594    
Net expenses to average daily
net assets		     1.02 %*      1.03 %     1.05 %     1.06 %     1.08 %     1.12 %  
Net investment income to
average daily net assets		     1.84 %*      1.94 %     2.03 %     2.13 %     2.05 %     1.16 %  
Portfolio turnover rate     17 %**      44 %     41 %     57 %     46 %     59 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.00 %(b)*      0.01 %     0.01 %     0.01 %     0.02 %     0.02 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.02     $ 0.02     $ 0.01     $ 0.00 (c)    $ 0.05     $ 0.02    

 

(a)  The total returns would have been lower had certain expenses not been reimbursed on the Fund and the underlying funds during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  Ratio is less than 0.01%.

(c)  Rounds to less than $0.01.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


26


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27


GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class V share outstanding throughout each period)

    Six Months
Ended
August 31, 2007
(Unaudited)		   Year
Ended
February 28, 2007		   Year
Ended
February 28, 2006		   Period from
February 11, 2005
(commencement of
operations) through
February 28, 2005(a) 		   Period from
March 1, 2004
through
October 26, 2004(a) 		   Period from
August 4, 2003
(commencement of
operations) through
February 29, 2004		  
Net asset value, beginning of period   $ 20.61     $ 22.44     $ 19.02     $ 17.88     $ 15.77     $ 10.81    
Income (loss) from investment operations:  
Net investment income (loss)†      0.22       0.43       0.22       (0.01 )     0.25       0.13    
Net realized and unrealized gain (loss)     4.97       2.98       6.39       1.15       (0.09 )     5.02    
Total from investment operations     5.19       3.41       6.61       1.14       0.16       5.15    
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.55 )     (0.45 )     —       (0.07 )     (0.19 )  
From net realized gains     (1.70 )     (4.69 )     (2.74 )     —       (0.00 )(b)      —    
Total distributions     (1.78 )     (5.24 )     (3.19 )     —       (0.07 )     (0.19 )  
Net asset value, end of period   $ 24.02     $ 20.61     $ 22.44     $ 19.02     $ 15.86     $ 15.77    
Total Return(c)      24.97 %**      17.11 %     38.12 %     6.38 %**      1.10 %**      47.82 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 889,721     $ 679,988     $ 1,447,059     $ 38,564     $ 116,417     $ 382,193    
Net expenses to average daily net assets     1.00 %*      1.01 %     1.04 %     1.03 %*      1.05 %*      1.07 %*   
Net investment income to average daily net assets     1.88 %*      1.97 %     1.06 %     (0.05 )%(d)**      1.70 %(d)**      1.69 %*   
Portfolio turnover rate     17 %**      44 %     41 %     57 %***      57 %***      46 %****   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.00 %(e)*      0.01 %     0.01 %     0.02 %*      0.01 %*      0.02 %*   
Purchase premiums and redemption fees
consisted of the following per share amounts:† 		   $ 0.02     $ 0.03     $ 0.02       —       —     $ 0.03    

 

(a)  The class was inactive from October 27, 2004 to February 11, 2005.

(b)  Distributions from net realized gains were less than $0.01 per share.

(c)  The total returns would have been lower had certain expenses not been reimbursed on the Fund and underlying funds during the
periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption
fees which are borne by the shareholder.

(d)  The ratio for the period has not been annualized since the Fund believes it would not be appropriate because the
Fund's dividend income is not earned ratably throughout the fiscal year.

(e)  Ratio is less than 0.01%.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2005.

****  Calculation represents portfolio turnover of the Fund for the year ended February 29, 2004.

See accompanying notes to the financial statements.


28


GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights — (Continued)
(For a Class V share outstanding throughout each period)

See accompanying notes to the financial statements.


29


GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning of period   $ 20.63     $ 22.45     $ 19.03     $ 15.76     $ 10.45    
Income (loss) from investment operations:  
Net investment income (loss)†      0.22       0.42       0.38       0.34       0.14    
Net realized and unrealized gain (loss)     4.98       3.01       6.23       4.41       5.42    
Total from investment operations     5.20       3.43       6.61       4.75       5.56    
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.56 )     (0.45 )     (0.33 )     (0.25 )  
From net realized gains     (1.70 )     (4.69 )     (2.74 )     (1.15 )     —    
Total distributions     (1.78 )     (5.25 )     (3.19 )     (1.48 )     (0.25 )  
Net asset value, end of period   $ 24.05     $ 20.63     $ 22.45     $ 19.03     $ 15.76    
Total Return(b)      25.01 %**      17.20 %     38.07 %     31.63 %     53.62 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 5,938,175     $ 5,116,565     $ 3,203,435     $ 2,083,376     $ 879,837    
Net expenses to average daily net assets     0.97 %*      0.98 %     1.00 %     1.01 %     1.04 %*   
Net investment income to average
daily net assets		     1.86 %*      1.93 %     1.94 %     2.15 %     1.54 %*   
Portfolio turnover rate     17 %**      44 %     41 %     57 %     46 %***   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.00 %(c)*      0.01 %     0.01 %     0.01 %     0.02 %*   
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.02     $ 0.02     $ 0.02     $ 0.03     $ 0.04    

 

(a)  Period from June 30, 2003 (commencement of operations) through February 29, 2004.

(b)  The total returns would have been lower had certain expenses not been reimbursed on the Fund and the underlying funds during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(c)  Ratio is less than 0.01%.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

***  Calculation represents portfolio turnover of the Fund for the year ended February 29, 2004.

See accompanying notes to the financial statements.


30



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its investment objective by outperforming the S&P/IFCI (Investable) Composite Index. The Fund typically makes equity investments in companies whose stocks are traded in the securities markets of the world's non-developed markets, which excludes countries that are included in the MSCI EAFE Index.

Throughout the period ended August 31, 2007, the Fund had four classes of shares outstanding: Class III, Class IV, Class V and Class VI. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of GMO Special Purpose Holding Fund are not publicly available for direct purchase.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which


31


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Indian regulators have alleged that the Fund violated certain conditions under which it was granted permission to operate in India and have restricted a portion of the Fund's locally held assets pending resolution of the dispute. The amount of these restricted assets represents less than 0.1% of the Fund's net assets as of August 31, 2007. The valuation of this possible claim and all matters relating to the Fund's response to these allegations are subject to supervision and control of the Trustees, and all costs in respect of this matter are being borne by the Fund.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk


32


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

if the counterparties are unable to meet the terms of the contracts or if there are movements in currency values that are unfavorable to the Fund. There were no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts at the end of the period.


33


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

For the period ended August 31, 2007, the Fund's investment activity in written options contracts was as follows:

    Principal
Amount
of Contracts		   Premiums  
Outstanding, beginning of period   $ 23,523,993     $ 1,514,966    
Options written     —       —    
Options exercised     —       —    
Options expired     (23,523,993 )     (1,514,966 )  
Options sold     —       —    
Outstanding, end of period   $ —     $ —    

 

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party with another party of their respective commitments to pay or receive interest,


34


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $23,791,366 collateralized by cash in the amount of $23,728,600, which was invested in the Bank of New York Institutional Cash Reserves Fund.


35


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States. The foreign withholding rates applicable to a Fund's investments in certain foreign jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund may 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 $501,291 for potential capital gains and repatriation taxes as of August 31, 2007. The accrual for capital gains and repatriation taxes is included in net unrealized gain (loss) in the Statement of Operations. For the period ended August 31, 2007, the Fund received $1,468,706 in foreign capital gains tax refunds which is included in net realized gain (loss) in the Statement of Operations.

The Fund is subject to a Contribuição Provisória sobre Movimentações Financiera ("CPMF") tax which is applied to foreign exchange transactions representing capital inflows or outflows to/from the Brazilian market. For the period ended August 31, 2007, the Fund incurred $116,203 in CPMF tax which is included in the net realized gain (loss) on foreign currency, forward contracts and foreign currency related transactions in the Statement of Operations.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross
Unrealized
Appreciation		   Gross
Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 8,998,404,143     $ 5,292,544,019     $ (147,578,624 )   $ 5,144,965,395    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.


36


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.80% of the amount invested or redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. 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's net assets on the share transaction date. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $338,778 and $736,259 in purchase premiums and $10,306,709 and $1 1,676,389 in redemption fees, respectively.The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.


37


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

Investments in securities of issuers in 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 in emerging countries are typically less liquid than those of developed markets. Accordingly, the Fund may not be able to realize in an actual sale amounts approximating those used to value its holdings.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.81% 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 average daily net assets of each class at the annual rate of 0.15% for Class III shares, 0.105% for Class IV shares, 0.085% for Class V shares, and 0.055% for Class VI shares.


38


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, custodial fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging t ransaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) exceed 0.81% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the GMO Special Purpose Holding Fund. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses (excluding
shareholder service fees)		   Indirect Shareholder
Service Fees		   Total Indirect
Expenses		  
< 0.001%     0.000 %   < 0.001%  

 

      

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $57,933 and $40,940, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $4,083,014,003 and $2,250,448,954, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.


39


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2007, there were no shareholders holding in excess of 10% of the Fund's outstanding shares.

As of August 31, 2007, 0.53% of the Fund's shares were held by twenty-two related parties comprised of certain GMO employee accounts, and 18.03% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     370,377     $ 7,914,698       901,800     $ 19,806,386    
Shares issued to shareholders
in reinvestment of distributions		     12,899,564       318,748,368       47,035,328       954,963,472    
Shares repurchased     (61,124,968 )     (1,462,712,117 )     (53,946,185 )     (1,195,526,895 )  
Purchase premiums and
redemption fees		     —       3,497,425       —       3,421,946    
Net increase (decrease)     (47,855,027 )   $ (1,132,551,626 )     (6,009,057 )   $ (217,335,091 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     37,245,075     $ 903,746,803       19,134,727     $ 423,961,978    
Shares issued to shareholders
in reinvestment of distributions		     8,497,625       209,381,475       32,302,833       653,579,480    
Shares repurchased     (23,612,858 )     (546,315,139 )     (62,645,477 )     (1,351,668,048 )  
Purchase premiums and
redemption fees		     —       2,048,679       —       3,362,504    
Net increase (decrease)     22,129,842     $ 568,861,818       (11,207,917 )   $ (270,764,086 )  

 


40


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class V:   Shares   Amount   Shares   Amount  
Shares sold     14,627,573     $ 342,843,691       14,260,670     $ 302,250,327    
Shares issued to shareholders
in reinvestment of distributions		     2,789,108       68,667,832       14,192,468       287,016,728    
Shares repurchased     (13,374,061 )     (322,199,286 )     (59,953,974 )     (1,278,498,246 )  
Purchase premiums and
redemption fees		     —       748,552       —       1,945,943    
Net increase (decrease)     4,042,620     $ 90,060,789       (31,500,836 )   $ (687,285,248 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     10,240,039     $ 248,449,279       92,951,864     $ 1,981,148,689    
Shares issued to shareholders
in reinvestment of distributions		     16,428,184       405,119,007       39,847,798       808,375,017    
Shares repurchased     (27,733,067 )     (655,787,369 )     (27,445,223 )     (594,414,004 )  
Purchase premiums and
redemption fees		     —       4,350,831       —       3,682,255    
Net increase (decrease)     (1,064,844 )   $ 2,131,748       105,354,439     $ 2,198,791,957    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds in GMO Trust during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Special Purpose
Holding Fund		   $ 11,371     $ —     $ —     $ —     $ 49,398     $ 11,613    
Totals   $ 11,371     $ —     $ —     $ —     $ 49,398     $ 11,613    

 


41


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

An affiliated company is a company in which the Fund has ownership of at least 5% of the voting securities. A summary of the Fund's transactions during the period with companies which are or were affiliates during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Value, end
of period		  
Biomass Korea Co Ltd   $ —     $ 7,053,102     $ —     $ —     $ 6,221,233    
Boryung Pharmaceutical Co Ltd     7,071,014       —       —       —       8,149,847    
Dae Han Pulp Industries     3,669,664       —       —       —       3,851,828    
Dimerco Express Taiwan Corp     10,538,781       —       —       248,440       17,306,039    
EnE System Inc     13,754,436       —       —       —       11,334,405    
Kolon Construction*     29,034,912       —       20,198,228       —       11,989,176    
Korea Real Estate*     14,787,117       —       —       —       25,175,525    
Les Enphants Co Ltd     10,293,616       —       —       230,214       12,261,164    
Megaworld Corp*     65,571,291       272,288       7,932,265       423,735       71,491,382    
Mbiznetworks Global Co*     2,855,881       —       3,356,490       —       —    
Nasan Co Ltd     14,147,918       —       —       —       20,844,963    
Pumyang Construction Co Ltd     9,376,861       —       —       —       16,062,027    
Robinsons Land Corp Class B     64,992,132       —       1,730,795       1,333,399       63,922,848    
SSCP Co Ltd*     31,670,938       —       8,181,067       —       26,700,696    
Star Block Co Ltd
(Foreign Registered)		     913       —       —       —       906    
Yarnapund Pcl     2,616,004       —       1,445,086       25,599       938,045    
Totals   $ 280,381,478     $ 7,325,390     $ 42,843,931     $ 2,261,387     $ 296,250,084    

 

*  No longer an affiliate as of August 31, 2007.


42



GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


43


GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


44


GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


45


GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


46


GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     1.07 %   $ 1,000.00     $ 1,249.40     $ 6.05    
2) Hypothetical     1.07 %   $ 1,000.00     $ 1,019.76     $ 5.43    
Class IV      
1) Actual     1.02 %   $ 1,000.00     $ 1,249.60     $ 5.77    
2) Hypothetical     1.02 %   $ 1,000.00     $ 1,020.01     $ 5.18    
Class V      
1) Actual     1.00 %   $ 1,000.00     $ 1,249.70     $ 5.65    
2) Hypothetical     1.00 %   $ 1,000.00     $ 1,020.11     $ 5.08    
Class VI      
1) Actual     0.97 %   $ 1,000.00     $ 1,250.10     $ 5.49    
2) Hypothetical     0.97 %   $ 1,000.00     $ 1,020.26     $ 4.93    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


47



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     98.4 %  
Loan Participations     4.8    
Options Purchased     3.4    
Loan Assignments     2.2    
Swaps     2.1    
Short-Term Investments     1.1    
Rights and Warrants     0.9    
Promissory Notes     0.5    
Futures     (0.0 )  
Forward Currency Contracts     (0.3 )  
Written Options     (0.4 )  
Reverse Repurchase Agreements     (14.4 )  
Other     1.7    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
Mexico     13.5 %  
Brazil     12.4    
Russia     11.8    
Turkey     8.5    
Venezuela     7.3    
Philippines     5.9    
Colombia     5.0    
Uruguay     4.5    
Ukraine     3.5    
Argentina     3.3    
Indonesia     2.7    
South Africa     1.6    
Ecuador     1.5    
Peru     1.5    
Vietnam     1.5    
Kazakhstan     1.4    
Iraq     1.4    
Dominican Republic     1.3    
El Salvador     1.3    
Jamaica     1.2    
Aruba     1.1    
Pakistan     1.0    
Ivory Coast     0.8    
India     0.7    
Serbia     0.7    
Egypt     0.6    
Nicaragua     0.5    
Panama     0.5    
Africa     0.5    
Malaysia     0.4    
Poland     0.4    
Chile     0.4    
Bosnia     0.3    
Thailand     0.3    
Trinidad     0.2    
Tunisia     0.2    
Guatemala     0.2    
Costa Rica     0.2    
China     0.2    
Belize     0.1    
Qatar     0.1    
Bulgaria     (0.1 )  
Lebanon     (0.1 )  
South Korea     (0.3 )  
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table includes exposure through the use of derivative contracts.


2



GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
      DEBT OBLIGATIONS — 91.8%  
      Argentina — 10.1%  
      Foreign Government Obligations  
USD     9,000,000     Province of Buenos Aires, Reg S, Step Up, Variable Rate, 2.00%, due 05/15/35     3,420,000    
USD     24,087     Republic of Argentina, 8.28%, due 12/31/33     19,366    
USD     45,719,999     Republic of Argentina Capitalization Bond, Series 2031, 12.00%,
due 06/19/31 (a) 		     16,230,600    
USD     32,000,000     Republic of Argentina Discount Bond, Series L-GL,
Variable Rate, 6 mo. LIBOR + .81%, 5.44%, due 03/31/23 (a) 		     16,000,000    
DEM     3,830,000     Republic of Argentina Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.00%, due 03/31/23 (a) 		     1,333,812    
USD     71,474     Republic of Argentina GDP Linked, Variable Rate, 0.63%, due 12/15/35 (c)      7,648    
ARS     28,000,000     Republic of Argentina GDP Linked, Variable Rate, 0.65%, due 12/15/35 (b) (c)      655,013    
EUR     214,800,000     Republic of Argentina GDP Linked, Variable Rate, 0.66%, due 12/15/35 (c)      30,431,575    
DEM     5,000,000     Republic of Argentina Global Bond, 9.00%, due 11/19/08 (a) (b)      1,079,586    
ARS     6,395,873     Republic of Argentina Global Bond, 2.00%, due 02/04/18 (a) (b)      1,961,570    
USD     26,545,000     Republic of Argentina Global Bond, 12.13%, due 02/25/19 (a)      9,290,750    
USD     6,931,000     Republic of Argentina Global Bond, 12.00%, due 02/01/20 (a)      2,425,850    
USD     13,540,000     Republic of Argentina Global Bond, 8.88%, due 03/01/29 (a)      4,739,000    
USD     31,390,000     Republic of Argentina Global Bond, EMTN, Reg. S,
Variable Rate, 3 mo. LIBOR + .58%, 11.11%, due 04/06/04 (a) 		     8,867,675    
USD     198,230     Republic of Argentina Global Bond, Series 2008, Step Up, 15.50%,
due 12/19/08 (a) 		     69,380    
USD     28,054,525     Republic of Argentina Global Bond, Series 2018, 12.25%, due 06/19/18 (a)      9,959,356    
USD     8,000,000     Republic of Argentina Global Bond, Series BT04, 9.75%, due 09/19/27 (a)      2,800,000    
DEM     20,000,000     Republic of Argentina Global Bond, Series DM, 5.87%, due 03/31/23 (a)      7,783,470    
EUR     3,500,000     Republic of Argentina Global Bond, Series FEB, Step Down, 8.00%,
due 02/26/08 (a) 		     1,591,278    
ARS     28,000,000     Republic of Argentina Global Bond, Step Up, 0.63%, due 12/31/38 (b)      2,997,076    
USD     15,000,000     Republic of Argentina Global Par Bond, Series L-GP,
Variable Rate, Step Up, 6.00%, due 03/31/23 (a) 		     7,500,000    
USD     2,000,000     Republic of Argentina Pro 4, 2.00%, due 12/28/10 (a)      322,400    
USD     7,211,000     Republic of Argentina, Series BGLO, 8.38%, due 12/20/03 (a)      2,379,630    
USD     46,000,000     Republic of Argentina, Series F, 0.00%, due 10/15/04 (a)      11,270,000    
EUR     295,000,000     Republic of Argentina, Step Up, 1.20%, due 12/31/38     149,694,247    
    Total Argentina     292,829,282    

 

See accompanying notes to the financial statements.


3


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
            Aruba — 1.2%        
            Foreign Government Obligations        
USD     5,000,000     Government of Aruba, 6.19%, due 10/30/12     4,975,000    
USD     3,500,000     Government of Aruba, 6.71%, due 10/15/13     3,465,000    
USD     3,752,000     Government of Aruba, 6.80%, due 04/02/14     3,752,000    
USD     22,500,000     Government of Aruba, Reg S, 6.40%, due 09/06/15     22,050,000    
    Total Aruba     34,242,000    
            Belize — 0.1%        
            Foreign Government Obligations        
USD     4,023,400     Government of Belize, Reg S, Step Up, 4.25%, due 02/20/29     3,037,667    
        Bosnia & Herzegovina — 0.5%  
        Foreign Government Obligations  
DEM     23,729,360     Bosnia & Herzegovina, Series A, Step Up,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.50%, due 12/11/17		     13,800,608    
        Brazil — 9.1%  
        Foreign Government Obligations  
USD     1,384,409     Brazil MYDFA Trust Certificates,
Variable Rate, 6 mo. LIBOR + .81%, 6.14%, due 09/15/07		     1,384,409    
USD     10,941,667     Brazilian Government International Exit Bonds, 6.00%, due 09/15/13     10,941,667    
USD     428,412     Brazilian Government International Exit Bonds Odd Lot, 6.00%, due 09/15/13     428,412    
USD     14,000,000     Republic of Brazil, 8.75%, due 02/04/25 (d)      17,360,000    
USD     64,000,000     Republic of Brazil, 8.25%, due 01/20/34 (d)      78,400,000    
USD     22,000,000     Republic of Brazil, 7.13%, due 01/20/37 (d)      23,925,000    
USD     99,550,000     Republic of Brazil, 11.00%, due 08/17/40 (d)      131,605,100    
    Total Brazil     264,044,588    
        China — 0.3%  
        Foreign Government Obligations  
USD     7,500,000     China Government International Bond, 6.80%, due 05/23/11     8,004,932    

 

See accompanying notes to the financial statements.


4


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Colombia — 0.5%  
        Foreign Government Obligations  
USD     8,000,000     Republic of Colombia, 8.70%, due 02/15/16     9,172,000    
USD     3,800,000     Republic of Colombia, 11.85%, due 03/09/28     4,902,000    
    Total Colombia     14,074,000    
        Costa Rica — 0.3%  
        Foreign Government Obligations  
USD     3,000,000     Republic of Costa Rica, Reg S, 8.05%, due 01/31/13     3,210,000    
USD     3,710,000     Republic of Costa Rica, Reg S, 10.00%, due 08/01/20     4,785,900    
    Total Costa Rica     7,995,900    
        Dominican Republic — 2.1%  
        Asset-Backed Securities — 0.3%  
USD     7,761,356     Autopistas Del Nordeste Ltd., Reg S, 9.39%, due 04/15/24     7,838,969    
        Foreign Government Obligations — 1.8%  
USD     1,642,629     Dominican Republic Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.25%, due 08/30/09		     1,638,522    
USD     42,557,000     Dominican Republic Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.25%, due 08/30/24		     42,450,608    
USD     9,000,000     Dominican Republic, Reg S, 8.63%, due 04/20/27     9,810,000    
      53,899,130    
    Total Dominican Republic     61,738,099    
        Ecuador — 1.5%  
        Foreign Government Obligations  
USD     2,465,357     Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.41%, due 02/27/15 (b) 		     1,366,219    
USD     2,000,000     Republic of Ecuador, Reg S, 9.38%, due 12/15/15 (d)      1,840,000    
USD     47,087,000     Republic of Ecuador, Variable Rate, Step Up, 10.00%, due 08/15/30 (d)      41,436,560    
    Total Ecuador     44,642,779    

 

See accompanying notes to the financial statements.


5


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
            Egypt — 0.1%          
            Corporate Debt          
USD     1,866,063     Petroleum Export, 144A, 5.27%, due 06/15/11     1,819,411    
        El Salvador — 1.4%  
        Foreign Government Obligations  
USD     37,000,000     Republic of El Salvador, Reg S, 7.65%, due 06/15/35     40,145,000    
        Grenada — 0.1%  
        Foreign Government Obligations  
USD     6,000,000     Government of Grenada, Reg S, Step Up, 1.00%, due 09/15/25     3,240,000    
        Guatemala — 0.3%  
        Foreign Government Obligations  
USD     6,750,000     Republic of Guatemala, Reg S, 8.13%, due 10/06/34     7,560,000    
        Indonesia — 1.5%  
        Corporate Debt — 1.0%  
USD     31,000,000     Majapahit Holding BV, 144A, 7.88%, due 06/29/37     29,450,000    
        Foreign Government Obligations — 0.5%  
USD     8,000,000     Republic of Indonesia, Reg S, 8.50%, due 10/12/35 (d)      8,980,000    
USD     5,000,000     Republic of Indonesia, Reg S, 6.63%, due 02/17/37     4,600,000    
      13,580,000    
    Total Indonesia     43,030,000    
        Iraq — 0.3%  
        Foreign Government Obligations  
USD     16,000,000     Republic of Iraq, Reg S, 5.80%, due 01/15/28     9,120,000    

 

See accompanying notes to the financial statements.


6


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Ivory Coast — 1.8%  
        Foreign Government Obligations  
FRF     37,500,000     Ivory Coast Discount Bond, Series FF,
Variable Rate, Step Up, 3.00%, due 03/31/28 (a) 		     3,231,922    
FRF     85,905,000     Ivory Coast FLIRB, Variable Rate, Step Up, 2.50%, due 03/29/18 (a)      6,065,670    
USD     69,850,000     Ivory Coast FLIRB, Variable Rate, Step Up, 2.50%, due 03/30/18 (a)      24,098,250    
FRF     256,889,500     Ivory Coast PDI, Series FF, Variable Rate, Step Up, 1.90%, due 03/30/18 (a)      18,138,723    
    Total Ivory Coast     51,534,565    
        Jamaica — 0.7%  
        Corporate Debt — 0.4%  
USD     12,000,000     Air Jamaica Ltd., Reg S, 9.38%, due 07/08/15     12,570,000    
        Foreign Government Obligations — 0.3%  
USD     9,000,000     Government of Jamaica, 8.00%, due 03/15/39     8,595,000    
    Total Jamaica     21,165,000    
        Malaysia — 1.4%  
        Corporate Debt — 1.1%  
MYR     45,000,000     Transshipment Megahub Berhad, Series C, 5.45%, due 11/03/09     14,323,419    
MYR     50,000,000     Transshipment Megahub Berhad, Series F, 6.70%, due 11/03/12     16,850,416    
      31,173,835    
        Foreign Government Obligations — 0.3%  
USD     8,000,000     Malaysia Global Bond, 7.50%, due 07/15/11     8,660,102    
    Total Malaysia     39,833,937    
        Mexico — 8.9%  
        Corporate Debt — 3.9%  
USD     20,000,000     Pemex Project Funding Master Trust, 144A, 8.63%, due 02/01/22     24,626,000    
GBP     7,689,000     Pemex Project Funding Master Trust, EMTN, 7.50%, due 12/18/13     16,006,792    
EUR     30,000,000     Pemex Project Funding Master Trust, Reg S, 6.38%, due 08/05/16     43,066,172    
EUR     13,400,000     Pemex Project Funding Master Trust, Reg S, 5.50%, due 02/24/25     17,272,077    
ITL     16,955,000,000     Petroleos Mexicanos, EMTN, Variable Rate,
12 mo. EUR LIBOR, 7.12%, due 03/04/08		     12,107,508    
      113,078,549    

 

See accompanying notes to the financial statements.


7


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Foreign Government Obligations — 5.0%  
USD     145,000     United Mexican States, 7.50%, due 01/14/12     158,630    
USD     235,000     United Mexican States, 5.88%, due 01/15/14     240,170    
USD     2,000,000     United Mexican States, 5.63%, due 01/15/17     2,000,527    
USD     47,250,000     United Mexican States, 8.30%, due 08/15/31     60,895,800    
USD     10,000,000     United Mexican States, Global Bond, 11.50%, due 05/15/26     16,213,000    
GBP     29,994,000     United Mexican States, GMTN, 6.75%, due 02/06/24     63,499,173    
      143,007,300    
    Total Mexico     256,085,849    
        Nicaragua — 0.2%  
        Foreign Government Obligations  
USD     8,186,630     Republic of Nicaragua BPI, Series E, 5.00%, due 02/01/11     7,131,046    
        Pakistan — 0.6%  
        Foreign Government Obligations  
USD     20,000,000     Islamic Republic of Pakistan, Reg S, 7.88%, due 03/31/36     17,900,000    
        Peru — 4.3%  
        Asset-Backed Securities — 0.2%  
USD     12,452,000     Peru Enhanced Pass-Through Finance Ltd., 144A, 0.00%, due 05/31/25     4,576,110    
        Foreign Government Obligations — 4.1%  
USD     20,656,500     Peru FLIRB, Series 20 Yr., Variable Rate, Step Up, 6.41%, due 03/07/17     20,656,500    
USD     25,000,000     Peru Par Bond, Series 30 Yr., Variable Rate, Step Up, 3.00%, due 03/07/27     20,000,000    
USD     4,628,698     Peru Trust II, Series 98-A LB, 0.00%, due 02/28/16     3,612,236    
USD     9,747,970     Peru Trust, Series 97-I-P, Class A3, 0.00%, due 12/31/15     6,295,044    
USD     3,265,560     Racers, Series 1998 I-P, 0.00%, due 03/10/16     2,027,129    
USD     5,000,000     Republic of Peru, 7.35%, due 07/21/25     5,500,000    
USD     40,381,000     Republic of Peru Discount Bond, Variable Rate,
6 mo. LIBOR + .81%, 6.41%, due 03/07/27		     39,977,190    
EUR     13,700,000     Republic of Peru Global Bond, 7.50%, due 10/14/14     20,435,793    
      118,503,892    
    Total Peru     123,080,002    

 

See accompanying notes to the financial statements.


8


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Philippines — 5.9%  
        Corporate Debt — 1.9%  
USD     6,000,000     National Power Corp., 9.88%, due 03/16/10     6,420,000    
USD     31,600,000     National Power Corp., 9.63%, due 05/15/28     37,288,000    
USD     8,500,000     National Power Corp., Global Bond, 8.40%, due 12/15/16     9,180,000    
      52,888,000    
        Foreign Government Obligations — 4.0%  
USD     59,501,000     Central Bank of the Philippines, Series A, 8.60%, due 06/15/27     69,318,665    
EUR     12,000,000     Republic of Philippines, 9.13%, due 02/22/10     17,455,327    
USD     27,843,000     Republic of Philippines, 8.38%, due 02/15/11     29,513,580    
      116,287,572    
    Total Philippines     169,175,572    
        Poland — 0.6%  
        Foreign Government Obligations  
USD     10,000,000     Delphes Co. No. 2 Ltd., EMTN, Reg S, 7.75%, due 05/05/09     10,397,490    
USD     6,000,000     Poland Government International Bond, 6.25%, due 07/03/12     6,307,800    
    Total Poland     16,705,290    
        Russia — 13.6%  
        Corporate Debt — 8.2%  
EUR     40,000,000     Gaz Capital (Gazprom), EMTN, 4.56%, due 12/09/12     51,983,460    
EUR     38,000,000     Gaz Capital (Gazprom), EMTN, Reg S, 5.88%, due 06/01/15     50,536,069    
EUR     21,000,000     Gaz Capital (Gazprom), Reg S, 5.44%, due 11/02/17     26,676,261    
USD     6,344,828     Gazprom International SA, Reg S, 7.20%, due 02/01/20     6,447,931    
USD     2,000,000     Gazprom OAO, Reg S, 9.63%, due 03/01/13     2,287,000    
USD     12,289,977     Gazstream SA, Reg S, 5.63%, due 07/22/13     12,009,274    
USD     50,000,000     RSHB Capital SA, 144A, 6.30%, due 05/15/17     47,325,000    
USD     14,000,000     RSHB Capital SA, Reg S, 7.18%, due 05/16/13     14,315,000    
USD     8,000,000     Sberbank Capital SA, EMTN, 6.48%, due 05/15/13     8,010,400    
USD     19,000,000     VTB Capital SA, Reg S, 6.25%, due 06/30/35     18,572,500    
      238,162,895    

 

See accompanying notes to the financial statements.


9


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Foreign Government Obligations — 5.4%  
USD     139,292,886     Russia Federation, Reg S, Variable Rate, Step Up, 7.50%, due 03/31/30     154,615,103    
    Total Russia     392,777,998    
        Serbia — 0.5%  
        Foreign Government Obligations  
USD     14,966,026     Republic of Serbia, Reg S, Step Up, 3.75%, due 11/01/24     13,768,744    
        South Africa — 1.3%  
        Foreign Government Agency — 0.1%  
ZAR     163,000,000     Eskom Holdings Ltd., 0.00%, due 12/31/32     2,854,141    
        Foreign Government Obligations — 1.2%  
USD     8,000,000     Republic of South Africa, 5.88%, due 05/30/22     7,740,000    
EUR     20,000,000     Republic of South Africa, EMTN, 4.50%, due 04/05/16     25,784,668    
      33,524,668    
    Total South Africa     36,378,809    
        Thailand — 0.2%  
        Corporate Debt  
USD     5,000,000     PTT Public Co. Ltd., 5.75%, due 08/01/14     4,988,000    
        Trinidad & Tobago — 0.5%  
        Corporate Debt  
USD     8,000,000     First Citizens St. Lucia, Reg S, 5.13%, due 02/14/11     7,922,240    
USD     7,000,000     First Citizens St. Lucia, Reg S, 5.46%, due 02/01/12     7,006,090    
    Total Trinidad & Tobago     14,928,330    
        Tunisia — 0.1%  
        Foreign Government Agency  
JPY     360,000,000     Banque Centrale De Tunisie, Series 6BR, 4.35%, due 08/15/17     3,342,258    

 

See accompanying notes to the financial statements.


10


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Turkey — 2.9%  
        Foreign Government Obligations  
USD     24,000,000     Republic of Turkey, 11.88%, due 01/15/30     36,540,000    
USD     18,000,000     Republic of Turkey, 7.38%, due 02/05/25     18,405,000    
USD     31,000,000     Republic of Turkey, 6.88%, due 03/17/36     29,062,500    
    Total Turkey     84,007,500    
        Ukraine — 3.5%  
        Foreign Government Agency — 0.6%  
USD     9,000,000     Credit Suisse First Boston, The EXIM of Ukraine, 6.80%, due 10/04/12     8,505,000    
USD     10,000,000     Dresdner Kleinwort Wasserstein for CJSC, The EXIM of Ukraine, 7.75%,
due 09/23/09		     9,950,000    
      18,455,000    
        Foreign Government Obligations — 2.9%  
CHF     100,000,000     Ukraine Government, 3.50%, due 09/15/18     82,719,828    
    Total Ukraine     101,174,828    
        United Kingdom — 0.0%  
        Asset-Backed Securities  
GBP     163,060     RMAC, Series 03-NS1A, Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .45%, 6.29%, due 06/12/35		     329,231    
GBP     497,831     RMAC, Series 03-NS2A, Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 6.24%, due 09/12/35		     1,003,550    
    Total United Kingdom     1,332,781    
        United States — 2.1%  
        Asset-Backed Securities — 0.7%  
USD     4,000,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 6.09%, due 05/15/24		     2,760,000    
USD     333,566     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .34%, 5.85%, due 10/25/34		     328,222    
USD     1,611,204     CHYPS CBO, Series 97-1A, Class A2A, 144A, 6.72%, due 01/15/10     303,341    
USD     2,304,871     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .44%, 5.95%, due 10/25/30		     2,290,195    

 

See accompanying notes to the financial statements.


11


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        United States — continued  
USD     1,701,231     Golden Securities Corp., Series 03-A, Class A1, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 5.97%, due 12/02/13		     1,698,867    
USD     10,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 5.81%, due 12/20/09		     10,035,000    
USD     270,859     Quest Trust, Series 03-X4A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 5.94%, due 12/25/33		     265,856    
USD     4,121,813     SHYPPCO Finance Co., Series 1I, Class A2B, 6.64%, due 06/15/10     3,998,158    
      21,679,639    
        U.S. Government — 1.4%  
USD     39,977,290     U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (c) (d) (e)      39,858,607    
    Total United States     61,538,246    
        Uruguay — 5.5%  
        Foreign Government Obligations  
USD     1,045,000     Republic of Uruguay, 8.38%, due 09/26/11     1,111,180    
USD     350,000     Republic of Uruguay, 7.63%, due 01/20/12     360,500    
EUR     2,000,000     Republic of Uruguay, 7.00%, due 06/28/19     2,881,159    
USD     11,500,000     Republic of Uruguay, 8.00%, due 11/18/22     12,420,000    
USD     83,651,571     Republic of Uruguay, 7.63%, due 03/21/36     87,750,498    
USD     21,745,700     Republic of Uruguay, PIK, 7.88%, due 01/15/33     23,485,356    
EUR     3,850,000     Republica Orient Uruguay, 7.00%, due 09/26/12     5,454,449    
USD     400,000     Republica Orient Uruguay, 7.25%, due 05/04/14     400,440    
EUR     10,000,000     Republica Orient Uruguay, 6.88%, due 01/19/16     14,167,400    
JPY     1,483,200,000     Republica Orient Uruguay, Series 3BR, Step Up, 2.50%, due 03/14/11     12,072,856    
    Total Uruguay     160,103,838    
        Venezuela — 6.9%  
        Foreign Government Obligations  
EUR     32,000,000     Republic of Venezuela, 11.00%, due 03/05/08     44,027,920    
EUR     8,400,000     Republic of Venezuela, 11.13%, due 07/25/11     12,381,218    
EUR     12,000,000     Republic of Venezuela, 7.00%, due 03/16/15     14,875,770    
USD     87,100,000     Republic of Venezuela, 7.65%, due 04/21/25     75,123,750    
USD     26,000,000     Republic of Venezuela, 9.38%, due 01/13/34     25,805,000    

 

See accompanying notes to the financial statements.


12


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Venezuela — continued  
USD     103,136     Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/07 (b) 		     99,679    
USD     2,152,174     Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/08		     2,152,174    
USD     2,177,700     Republic of Venezuela Global Bond, Series DL,
Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/07		     2,171,167    
DEM     30,190,000     Republic of Venezuela Global Bond, Step Down, 7.38%, due 10/29/08     21,342,971    
    Total Venezuela     197,979,649    
        Vietnam — 0.9%  
        Foreign Government Obligations  
USD     4,000,000     Socialist Republic of Vietnam, Series 30 Yr., Variable Rate, 6.13%, due 03/13/28     3,880,000    
USD     19,750,000     Vietnam Par Bond, Series 30 Yr., Variable Rate, Step Up, 4.00%, due 03/12/28     16,590,000    
USD     4,695,652     Vietnam PDI, Series 18 Yr., Variable Rate, Step Up, 6.13%, due 03/12/16     4,648,696    
    Total Vietnam     25,118,696    
    TOTAL DEBT OBLIGATIONS (COST $2,588,453,376)     2,649,375,204    
        LOAN ASSIGNMENTS — 2.2%  
        Congo Republic (Brazzaville) — 0.5%  
EUR     4,976,732     Republic of Congo Loan Agreement *      1,449,130    
EUR     14,565,612     Republic of Congo Loan Agreement *      4,241,229    
FRF     102,097,963     Republic of Congo Loan Agreement *      4,532,154    
USD     8,496,466     Republic of Congo Loan Agreement *      1,816,120    
EUR     6,987,247     Republic of Congo Loan Agreement *      2,034,553    
    Total Congo Republic (Brazzaville)     14,073,186    
        Indonesia — 1.0%  
JPY     193,320,002     Republic of Indonesia Loan Agreement, 6 mo. JPY LIBOR + .88%, (1.31%),
due 03/28/13		     1,640,357    
USD     4,112,621     Republic of Indonesia Loan Agreement, dated January 1, 1994,
3 mo. LIBOR + .88%, (6.25%), due 03/29/13		     4,030,368    
USD     3,790,800     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     3,582,306    

 

See accompanying notes to the financial statements.


13


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Indonesia — continued  
USD     3,790,800     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     3,582,306    
USD     5,054,400     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     4,776,408    
USD     3,098,276     Republic of Indonesia Loan Agreement, dated September 29, 1994, 7.24%,
due 12/01/19		     2,881,397    
USD     1,280,950     Republic of Indonesia Loan Agreement, dated September 29, 1994, 7.83%,
due 12/01/19		     1,191,283    
USD     2,777,114     Republic of Indonesia Loan Agreement, dated September 29, 1994,
Variable Rate, 6.31%, due 12/01/19		     2,582,716    
EUR     3,363,442     Republic of Indonesia, Indonesia Paris Club Debt,
with rates varying from 3.50%-12.41%, due 06/01/21 * 		     3,573,842    
    Total Indonesia     27,840,983    
        Russia — 0.2%  
USD     3,955,201     Russia Foreign Trade Obligations * (b)      5,373,383    
DEM     45,916     Russia Foreign Trade Obligations * (b)      32,406    
FIM     1,740,000     Russia Foreign Trade Obligations * (b)      426,790    
GBP     14,162     Russia Foreign Trade Obligations * (b)      36,142    
USD     265,723     Russia Foreign Trade Obligations * (b)      354,518    
USD     80,572     Russia Foreign Trade Obligations * (b)      105,759    
    Total Russia     6,328,998    
        Vietnam — 0.5%  
USD     16,000,000     Vietnam Shipbuilding Industry Group Loan Agreement,
6 mo. LIBOR + .15%, (6.89%), due 06/26/15		     15,920,000    
    TOTAL LOAN ASSIGNMENTS (COST $51,501,636)     64,163,167    
        LOAN PARTICIPATIONS — 4.8%  
        Egypt — 0.1%  
CHF     5,889,818     Paris Club Loan (Participation with Standard Chartered Bank), 0.00%,
due 01/03/24 * 		     3,213,874    

 

See accompanying notes to the financial statements.


14


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        Indonesia — 1.8%  
USD     466,560     Republic of Indonesia Loan Agreement (Participation with Citi/Solomon),
dated June 14, 1995, 3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     440,899    
USD     466,560     Republic of Indonesia Loan Agreement (Participation with Citi/Solomon),
dated June 14, 1995, 3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     440,899    
USD     622,080     Republic of Indonesia Loan Agreement (Participation with Citi/Solomon),
dated June 14, 1995, 3 mo. LIBOR + .88%, (6.25%), due 12/14/19		     587,866    
USD     24,920,834     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
3 mo. LIBOR + 1.25%, (6.61%), due 02/12/13		     23,020,620    
JPY     1,142,910,801     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
dated March 28, 1994, 3 mo. LIBOR + 0.88%, (1.56%), due 03/29/13		     9,673,137    
USD     20,012,277     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
dated September 29, 1995, 3 mo. LIBOR + .88%, (6.23%), due 09/29/19		     18,211,172    
    Total Indonesia     52,374,593    
        Iraq — 1.0%  
JPY     4,926,803,587     Republic of Iraq Paris Club Loan (Participation with Deutsche Bank),
due 01/01/28		     25,856,890    
JPY     643,772,123     Republic of Iraq Paris Club Loan, T Chatani (Participation with Deutsche Bank),
due 01/01/28		     3,313,100    
    Total Iraq     29,169,990    
        Poland — 0.4%  
JPY     1,300,000,001     Poland Paris Club Debt (Participation with Deutsche Bank), 2.22%,
due 03/31/09		     11,381,035    
        Russia — 0.6%  
EUR     57,042,402     Russia Foreign Trade Obligations (GML International Limited) * (b)      17,796,128    
        Vietnam — 0.9%  
JPY     3,146,325,035     Socialist Republic of Vietnam Loan Agreement
(Participation with Deutsche Bank), Variable Rate,
6 mo. JPY LIBOR + .71%, 1.31%, due 09/01/17		     24,455,415    
    TOTAL LOAN PARTICIPATIONS (COST $133,654,785)     138,391,035    

 

See accompanying notes to the financial statements.


15


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Principal Amount		   Description   Value ($)  
        PROMISSORY NOTES — 0.5%  
        Dominican Republic — 0.1%  
USD     1,186,200     Dominican Republic Promissory Notes, 0.00%, due 3/15/2008     1,129,855    
USD     1,089,012     Dominican Republic Promissory Notes, 0.00%, due 9/15/2009     906,058    
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 9/15/2010     621,926    
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 9/15/2011     569,623    
    Total Dominican Republic     3,227,462    
        Ghana — 0.2%  
USD     5,312,500     Republic of Ghana Promissory Notes, 0.00%, due 8/9/2007 (f)      4,250,000    
        Nigeria — 0.2%  
USD     33,450,000     Central Bank of Nigeria Promissory Notes, Series RC, 5.09%, due 1/5/2010     6,021,000    
    TOTAL PROMISSORY NOTES (COST $27,846,103)     13,498,462    
        OPTIONS PURCHASED — 3.3%  
        Currency Options — 2.7%  
EUR     50,000,000     EUR Put/TRY Call, Expires 01/15/09, Strike 2.44     12,525,199    
EUR     45,000,000     EUR Put/TRY Call, Expires 05/02/08, Strike 2.10     6,029,259    
EUR     23,000,000     EUR Put/TRY Call, Expires 12/12/08, Strike 2.49     6,663,412    
EUR     45,000,000     EUR Put/TRY Put, Expires 10/31/08, Strike 2.46     12,932,821    
EUR     210,000,000     EUR Put/USD Call, Expires 01/22/08, Strike 1.39     6,949,885    
TRY     44,000,000     TRY Call/CZK Put, Expires 04/23/08, Strike 13.32     3,144,943    
USD     25,000,000     USD Call,/KRW Put, Expires 02/22/08, Strike 932.00     366,147    
USD     70,000,000     USD Call/BRL Put, Expires 04/30/08, Strike 2.44     16,962,794    
USD     50,000,000     USD Call/KRW Put, Expires 02/25/08, Strike 931.00     764,946    
USD     45,000,000     USD Put/BRL Call, Expires 12/09/08, Strike 2.40     10,151,999    
USD     25,000,000     USD Put/KRW Call, Expires 02/22/08, Strike 932.00     235,354    
USD     50,000,000     USD Put/KRW Call, Expires 02/25/08, Strike 931.00     451,516    
    Total Currency Options     77,178,275    

 

See accompanying notes to the financial statements.


16


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Principal Amount /
Shares		   Description   Value ($)  
        Options on Bonds — 0.0%  
USD     11,000,000     Republic of Indonesia 6.63% of 02/17/37 Put, Expires 09/10/07, Strike 95.25     255,124    
USD     22,000,000     Republic of Turkey 11.88% of 01/15/30 Put, Expires 09/13/07, Strike 153.25     211,367    
USD     10,000,000     State of Qatar 9.75% of 06/12/30 Call, Expires 11/08/07, Strike 147.00     85,010    
USD     10,000,000     State of Qatar 9.75% of 06/12/30 Put, Expires 11/8/07, Strike 143.00     100,548    
    Total Options on Bonds     652,049    
        Options on Interest Rates — 0.0%  
TWD     1,849,200,000     TWD Interest Rate Cap Call Option, Expires 03/16/10, Strike 2.19%     473,543    
TWD     1,849,200,000     TWD Interest Rate Floor Call Option, Expires 03/16/10, Strike 2.19%     174,897    
    Total Options on Interest Rates     648,440    
        Options on Interest Rate Swaps — 0.6%  
KRW     72,000,000,000     KRW Swaption Call, Expires 02/24/09, Strike 6.05%     2,232,000    
KRW     50,000,000,000     KRW Swaption Call, Expires 03/21/11, Strike 5.64%     882,500    
KRW     72,000,000,000     KRW Swaption Call, Expires 04/08/09, Strike 6.20%     2,603,520    
KRW     90,000,000,000     KRW Swaption Call, Expires 04/27/09, Strike 5.42%     1,339,200    
KRW     72,000,000,000     KRW Swaption Put, Expires 02/24/09, Strike 6.05%     221,760    
KRW     50,000,000,000     KRW Swaption Put, Expires 03/21/11, Strike 5.64%     668,000    
KRW     72,000,000,000     KRW Swaption Put, Expires 04/08/09, Strike 6.20%     174,960    
KRW     90,000,000,000     KRW Swaption Put, Expires 04/27/09, Strike 5.42%     1,404,000    
USD     210,000,000     USD Swaption Call, Expires 10/19/07, Strike 5.72%     8,201,294    
USD     210,000,000     USD Swaption Put, Expires 10/19/07, Strike 5.72%     137,361    
    Total Options on Interest Rate Swaps     17,864,595    
    TOTAL OPTIONS PURCHASED (COST $55,392,449)     96,343,359    
        MUTUAL FUNDS — 6.9%  
        United States — 6.9%  
        Affiliated Issuers  
      5,714,741     GMO Short-Duration Collateral Fund     147,554,621    
      21,409     GMO Special Purpose Holding Fund (b) (g)      30,829    
      1,933,999     GMO World Opportunity Overlay Fund     50,980,209    
    Total United States     198,565,659    
    TOTAL MUTUAL FUNDS (COST $195,550,469)     198,565,659    

 

See accompanying notes to the financial statements.


17


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        RIGHTS AND WARRANTS — 0.9%  
        Mexico — 0.1%  
    2,942,000     United Mexican States Value Recovery Rights, Series F, Expires 06/30/08 **      80,905    
    85,582     United Mexican States Warrants, Expires 09/24/07 **      2,909,788    
    Total Mexico     2,990,693    
        Nigeria — 0.2%  
    25,000     Central Bank of Nigeria Warrants, Expires 11/15/20 **      6,375,000    
        Uruguay — 0.0%  
    4,000,000     Banco Central Del Uruguay Value Recovery Rights, VRRB, Expires 01/02/21 **      —    
        Venezuela — 0.6%  
    164,215     Republic of Venezuela Bond Warrants, Expires 04/18/20 **      6,075,955    
    262,360     Republic of Venezuela Recovery Warrants, Expires 04/15/20 **      9,707,320    
    Total Venezuela     15,783,275    
    TOTAL RIGHTS AND WARRANTS (COST $5,220,502)     25,148,968    
        SHORT-TERM INVESTMENTS — 0.8%  
        Money Market Funds — 0.8%  
    22,056,462     Merrimac Cash Series-Premium Class     22,056,462    
    TOTAL SHORT-TERM INVESTMENTS (COST $22,056,462)     22,056,462    
    TOTAL INVESTMENTS — 111.2%
(Cost $3,079,675,782)		     3,207,542,316    
            Other Assets and Liabilities (net) — (11.2%)     (323,126,823 )  
    TOTAL NET ASSETS — 100.0%   $ 2,884,415,493    

 

See accompanying notes to the financial statements.


18


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation (Depreciation)		  
Buys  
9/25/07   EUR     105,000,000     $ 143,173,688     $ (2,022,937 )  
9/04/07   GBP     40,000,000       80,650,000       222,000    
                $ 223,823,688     $ (1,800,937 )  
Sales  
9/11/07   CHF     103,000,000     $ 85,257,045     $ (1,517,208 )  
9/25/07   EUR     189,200,000       257,985,350       3,098,986    
9/04/07   GBP     40,000,000       80,650,000       (1,949,480 )  
11/06/07   GBP     40,000,000       80,551,131       (231,131 )  
11/01/07   HKD     190,000,000       24,395,431       302,346    
10/02/07   JPY     13,000,000,000       112,718,317       (5,262,540 )  
                $ 641,557,274     $ (5,559,027 )  

 

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD     19,227,354     Deutsche Bank, 5.15%, dated 04/12/07, to be repurchased on
demand at face value plus accrued interest.		   $ (19,606,934 )  
USD     31,787,917     Deutsche Bank, 5.10%, dated 04/24/07, to be repurchased
on demand at face value plus accrued interest.		     (32,364,338 )  
USD     2,035,280     Lehman Brothers, 5.35%, dated 05/01/07, to be repurchased on
demand at face value plus accrued interest.		     (2,071,878 )  
USD     26,257,083     Deutsche Bank, 5.25%, dated 05/11/07, to be repurchased on
demand at face value plus accrued interest.		     (26,674,462 )  
USD     48,431,250     Deutsche Bank, 5.10%, dated 05/15/07, to be repurchased
on demand at face value plus accrued interest.		     (49,165,387 )  
USD     27,681,990     Lehman Brothers, 5.25%, dated 05/21/07, to be repurchased on
demand at face value plus accrued interest.		     (28,089,723 )  

 

See accompanying notes to the financial statements.


19


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Reverse Repurchase Agreements — continued

Face Value   Description   Market Value  
USD     55,948,457     Lehman Brothers, 5.25%, dated 05/23/07, to be repurchased
on demand at face value plus accrued interest.		   $ (56,756,213 )  
USD     16,866,460     Lehman Brothers, 5.25%, dated 06/05/07, to be repurchased on
demand at face value plus accrued interest.		     (17,080,453 )  
USD     18,869,625     Deutsche Bank, 5.25%, dated 06/07/07, to be repurchased
on demand at face value plus accrued interest.		     (19,095,274 )  
USD     19,326,389     Deutsche Bank, 5.15%, dated 06/15/07, to be repurchased on
demand at face value plus accrued interest.		     (19,530,980 )  
USD     40,195,413     Chase Manhattan Bank, 5.28%, dated 07/10/07, to be
repurchased on demand at face value plus accrued interest.		     (40,496,075 )  
USD     67,125,188     Chase Manhattan Bank, 5.25%, dated 07/26/07, to be
repurchased on demand at face value plus accrued interest.		     (67,448,227 )  
USD     36,806,400     Lehman Brothers, 0.25%, dated 08/29/07, to be repurchased on
demand at face value plus accrued interest.		     (36,806,656 )  
    $ (415,186,600 )  

 

Average balance outstanding   $ (340,894,541 )  
Average interest rate     2.59 %  
Maximum balance outstanding   $ (475,156,622 )  
Average shares outstanding     269,322,442    
Average balance per share outstanding   $ (1.27 )  

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements.

See accompanying notes to the financial statements.


20


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2007 is as follows:

Currency Options

Principal
Amount		   Expiration
Date		   Description   Premiums   Market Value  
$ 45,000,000     USD   12/09/2008   BRL Call/USD      
 
      Put Currency Option, Strike 2.14   $ (590,625 )   $ (5,021,988 )  
  70,000,000
  USD
  04/30/2008
 		  BRL Call/USD
Put Currency Option, Strike 2.07		     (1,470,000 )     (5,388,630 )  
    $ (2,060,625 )   $ (10,410,618 )  

 

Index Options

Principal
Amount		   Expiration
Date		   Description   Premiums   Market Value  
$ 50,000,000     USD   09/10/2007   Reference Security within CDX            
   
          Index, Strike 97.50   $ (700,000 )   $ (584,474 )  
  35,000,000
  USD
  10/01/2007
 		  Reference Security within CDX
Index, Strike 98.15		     (350,000 )     (350,000 )  
  50,000,000
  USD
  09/13/2007
 		  Reference Security within CDX
Index, Strike 97.60		     (400,000 )     (420,892 )  
    $ (1,450,000 )   $ (1,355,366 )  

 

See accompanying notes to the financial statements.


21


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  15,000,000     USD   9/27/2007   JP Morgan   (Pay)     0.33 %   HSBC Bank Plc    
   
                Chase Bank                   $ (11,238 )  
  10,000,000     USD   10/10/2007   JP Morgan
Chase Bank		   (Pay)     0.70 %   Banco Bilbao
Vizcaya Argentaria SA		     (16,481 )  
  8,000,000     USD   10/19/2007   Deutsche
Bank AG		   (Pay)     15.00 %   Republic of Venezuela     (577,861 )  
  5,000,000     USD   10/22/2007   JP Morgan
Chase Bank		   (Pay)     0.54 %   Banco Bilbao
Vizcaya Argentaria SA		     (5,929 )  
  5,000,000     USD   10/23/2007   JP Morgan
Chase Bank		   (Pay)     0.48 %   Banco Bilbao
Vizcaya Argentaria SA		     (5,226 )  
  5,000,000     USD   10/30/2007   Deutsche
Bank AG		   (Pay)     0.44 %   Banco Bilbao
Vizcaya Argentaria SA		     (4,600 )  
  10,000,000     USD   11/23/2007   Deutsche
Bank AG		   (Pay)     1.15 %   Endesa SA Spain     (28,209 )  
  15,000,000     USD   11/27/2007   JP Morgan
Chase Bank		   (Pay)     1.10 %   Endesa SA Spain     (38,970 )  
  30,000,000     USD   12/23/2007   Deutsche
Bank AG		   (Pay)     2.35 %   Gazprom Loan Facility     (275,553 )  
  15,000,000     USD   2/20/2008   JP Morgan
Chase Bank		   (Pay)     1.70 %   Republic of Ecuador     437,816    
  6,500,000     USD   3/20/2008   JP Morgan
Chase Bank		   (Pay)     0.44 %   Petroleos Mexicanos     (18,613 )  
  100,000,000     USD   4/20/2008   JP Morgan
Chase Bank		   (Pay)     0.32 %   United Mexican States     (186,461 )  
  50,000,000     USD   5/4/2008   Deutsche
Bank AG		   (Pay)     1.80 %   Government of Ukraine     (626,827 )  
  5,000,000     USD   5/30/2008   JP Morgan
Chase Bank		   Receive     8.65 %   Republic of Turkey     402,677    
  2,000,000     USD   9/20/2008   UBS AG   Receive     9.20 %   Dominican Republic     252,661    
  10,000,000     USD   9/20/2008   Morgan Stanley   Receive     5.15 %   Republic of Colombia     705,495    
  18,000,000     USD   11/20/2008   Deutsche
Bank AG		   Receive     1.50 %   Credit of Uttam
Galva Steels Limited		     83,267    

 

See accompanying notes to the financial statements.


22


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  500,000,000     RUB   11/20/2008   JP Morgan   Receive     0.75 %   Red Square CDO    
   
                Chase Bank                   $ 27,008    
  9,000,000     USD   11/20/2008   Deutsche
Bank AG		   Receive     4.77 %   Republic of Colombia     561,256    
  14,000,000     USD   12/20/2008
Bank AG		   Deutsche   (Pay)     0.79 %   Korean Deposit
Insurance Corporation		     (134,602 )  
  5,000,000     USD   3/20/2009   JP Morgan
Chase Bank		   Receive     2.85 %   Republic of Peru     245,698    
  10,000,000     USD   3/20/2009   JP Morgan
Chase Bank		   Receive     4.30 %   Republic
of Philippines		     592,839    
  20,000,000     USD   4/20/2009   JP Morgan
Chase Bank		   (Pay)     0.43 %   Republic of Brazil     7,686    
  9,531,789     USD   6/6/2009   Deutsche
Bank AG		   Receive     1.85 %   Deutsche Bank
Loan to Ukrnafta		     54,108    
  815,999,515     THB   6/30/2009   Deutsche
Bank AG		   Receive     2.50 %   Deutsche Bank Loan
to CAT Telecom Public
Company Limited		     227,341    
  7,000,000     USD   8/5/2009   Deutsche
Bank AG		   Receive     4.85 %   Government
of Ukraine		     484,208    
  100,000,000     CHF   9/20/2009   Morgan
Stanley		   (Pay)     0.78 %   Government
of Ukraine		     423,936    
  849,572,575     RUB   11/5/2009   Deutsche
Bank AG		   Receive     1.45 %   Russia Post Office     (127,176 )  
  10,000,000     USD   11/20/2009   JP Morgan
Chase Bank		   (Pay)     0.90 %   United Mexican States     (139,062 )  
  10,000,000     USD   11/20/2009   JP Morgan
Chase Bank		   (Pay)     0.88 %   United Mexican States     (134,299 )  
  25,000,000     USD   12/29/2009   Deutsche
Bank AG		   Receive     2.25 %   Videocon Loan Facility     211,821    
  7,000,000     USD   2/5/2010   Deutsche
Bank AG		   Receive     4.85 %   Government
of Ukraine		     559,971    
  12,000,000     USD   3/5/2010   Deutsche
Bank AG		   Receive     9.10 %   Republic of Turkey     2,761,159    
  18,000,000     USD   3/20/2010   Morgan Stanley   Receive     0.75 %   United Mexican States     211,607    

 

See accompanying notes to the financial statements.


23


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  3,000,000     USD   3/29/2010   JP Morgan   Receive     4.70 %   Arab Republic    
   
                Chase Bank               of Egypt   $ 363,787    
  85,000,000     USD   6/20/2010   Deutsche
Bank AG		   (Pay)     2.10 %   Reference security
within CDX Index		     (2,932,500 )  
  36,000,000     USD   6/20/2010   Lehman Brothers   (Pay)     2.10 %   Reference security
within CDX Index		     (1,242,000 )  
  12,000,000     USD   6/20/2010   JP Morgan
Chase Bank		   (Pay)     4.00 %   Republic of Argentina     (150,824 )  
  12,000,000     USD   6/20/2010   JP Morgan
Chase Bank		   (Pay)     3.87 %   Republic of Argentina     (109,076 )  
  150,000,000     USD   6/20/2010   Deutsche
Bank AG		   (Pay)     1.47 %   Republic of Brazil     (3,449,301 )  
  10,000,000     USD   7/20/2010   Deutsche
Bank AG		   (Pay)     3.77 %   Republic of Argentina     (22,187 )  
  6,000,000     USD   7/20/2010   Deutsche
Bank AG		   (Pay)     3.80 %   Republic of Argentina     (18,091 )  
  140,000,000     USD   7/20/2010   UBS AG   (Pay)     0.89 %   Republic of Turkey     1,346,139    
  5,000,000     USD   7/23/2010   Deutsche
Bank AG		   Receive     4.56 %   Government
of Ukraine		     413,565    
  7,000,000     USD   8/5/2010   Deutsche
Bank AG		   Receive     4.90 %   Government
of Ukraine		     635,898    
  3,000,000     USD   8/25/2010   Deutsche
Bank AG		   Receive     3.40 %   Deutsche Bank
Loan to Ukrtelekom		     33,846    
  35,000,000     USD   9/20/2010   JP Morgan
Chase Bank		   (Pay)     0.70 %   Republic of Philippines     514,402    
  5,000,000     USD   10/25/2010   Deutsche
Bank AG		   Receive     4.60 %   Government
of Ukraine		     493,963    
  10,000,000     USD   12/20/2010   JP Morgan
Chase Bank		   (Pay)     3.57 %   Republic of Argentina     70,731    
  5,000,000     USD   12/20/2010   JP Morgan
Chase Bank		   (Pay)     3.43 %   Republic of Argentina     56,672    
  5,000,000     USD   1/25/2011   Deutsche
Bank AG		   Receive     4.63 %   Government
of Ukraine		     455,011    

 

See accompanying notes to the financial statements.


24


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  7,000,000     USD   2/7/2011   Deutsche   Receive     4.95 %   Government    
   
                Bank AG               of Ukraine   $ 698,606    
  5,000,000     USD   2/20/2011   Morgan Stanley   (Pay)     2.80 %   Republic of Argentina     195,754    
  3,000,000     USD   2/25/2011   Deutsche
Bank AG		   Receive     3.50 %   Deutsche Bank
Loan to Ukrtelekom		     27,100    
  8,000,000     USD   3/20/2011   Citigroup   (Pay)     3.70 %   Republic of Iraq     571,556    
  8,000,000     USD   3/20/2011   UBS AG   (Pay)     3.55 %   Republic of Iraq     504,845    
  5,000,000     USD   4/26/2011   Deutsche
Bank AG		   Receive     4.66 %   Government
of Ukraine		     532,050    
  10,000,000     USD   6/20/2011   Deutsche
Bank AG		   (Pay)     1.89 %   Islamic Republic
of Pakistan		     685,674    
  34,000,000     USD   6/20/2011   Deutsche
Bank AG		   (Pay)     1.35 %   Reference security
within CDX index		     (40,800 )  
  11,000,000     USD   6/20/2011   JP Morgan
Chase Bank		   (Pay)     1.35 %   Reference security
within CDX Index		     (13,200 )  
  5,000,000     USD   6/20/2011   Lehman Brothers   Receive     1.35 %   Reference security
within CDX index		     6,000    
  20,000,000     USD   6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX index		     (24,000 )  
  10,000,000     USD   6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX index		     (12,000 )  
  11,000,000     USD   6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX Index		     (13,200 )  
  150,000,000     USD   6/20/2011   Deutsche
Bank AG		   Receive     1.86 %   Republic of Brazil     5,699,830    
  9,000,000     USD   7/17/2011   UBS AG   Receive     5.05 %   Government
of Ukraine		     1,008,209    
  5,000,000     USD   7/25/2011   Deutsche
Bank AG		   Receive     4.68 %   Government
of Ukraine		     490,779    
  7,000,000     USD   8/5/2011   Deutsche
Bank AG		   Receive     5.00 %   Government
of Ukraine		     757,324    
  20,000,000     USD   8/20/2011   Deutsche
Bank AG		   (Pay)     0.57 %   United Mexican States     (42,283 )  
  620,000,000     MXN   8/20/2011   Deutsche
Bank AG		   Receive     0.40 %   United Mexican States     34,316    

 

See accompanying notes to the financial statements.


25


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  3,000,000     USD   8/25/2011   Deutsche   Receive     3.60 %   Deutsche Bank    
   
                Bank AG               Loan to Ukrtelekom   $ 23,085    
  7,000,000     USD   10/20/2011   JP Morgan
Chase Bank		   (Pay)     2.75 %   Republic of Argentina     328,532    
  13,500,000     USD   10/20/2011   Lehman Brothers   (Pay)     5.02 %   Republic of Ecuador     936,681    
  5,000,000     USD   10/25/2011   Deutsche
Bank AG		   Receive     4.70 %   Government
of Ukraine		     566,719    
  19,000,000     USD   10/30/2011   Deutsche
Bank AG		   Receive     4.00 %   Naftofaz Ukraine     100,073    
  8,000,000     USD   11/20/2011   JP Morgan
Chase Bank		   (Pay)     2.16 %   Republic of Argentina     586,641    
  5,000,000     USD   12/20/2011   JP Morgan
Chase Bank		   (Pay)     0.66 %   Petroleos Mexicanos     (6,722 )  
  65,000,000     USD   12/20/2011   JP Morgan
Chase Bank		   (Pay)     1.40 %   Reference security
within CDX index		     273,000    
  9,270,880     USD   12/20/2011   Deutsche
Bank AG		   Receive     1.60 %   Stemcor UK Ltd.     97,085    
  19,000,000     EUR   1/20/2012   Duetsche
Bank AG		   (Pay)     0.42 %   Republic
of Kazakhstan		     360,771    
  8,600,000,000     KZT   1/20/2012   Deutsche
Bank AG		   Receive     0.32 %   Republic
of Kazakhstan		     (662,143 )  
  25,000,000     USD   2/20/2012   JP Morgan
Chase Bank		   (Pay)     0.96 %   Republic of Brazil     (3,144 )  
  3,000,000     USD   2/25/2012   Deutsche
Bank AG		   Receive     3.68 %   Deutsche Bank
Loan to Ukrtelekom		     16,100    
  19,000,000     USD   5/5/2012   Deutsche
Bank AG		   Receive     4.00 %   Naftofaz Ukraine     4,277    
  10,000,000     USD   6/20/2012   Morgan Stanley   Receive     2.10 %   Republic of Panama     415,841    
  5,000,000     USD   7/30/2012   JP Morgan
Chase Bank		   Receive     3.05 %   Republic of Chile     629,514    
  5,000,000     USD   8/20/2012   Bear Stearns   Receive     3.50 %   Republic of Jamaica     (127,769 )  
  3,000,000     USD   8/28/2012   Deutsche
Bank AG		   Receive     3.75 %   Deutsche Bank
Loan to Ukrtelekom		     9,161    

 

See accompanying notes to the financial statements.


26


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  10,000,000     USD   10/4/2012   JP Morgan   Receive     2.95 %   Republic of Chile    
   
                Chase Bank                   $ 1,347,282    
  5,000,000     USD   11/5/2012   Deutsche
Bank AG		   Receive     6.50 %   Republic of Jamaica     581,165    
  10,000,000     USD   1/8/2013   Deutsche
Bank AG		   Receive     7.15 %   Republic of Colombia     2,676,217    
  10,000,000     USD   1/9/2013   Deutsche
Bank AG		   Receive     8.25 %   Republic of Turkey     2,898,994    
  7,000,000     USD   1/10/2013   JP Morgan
Chase Bank		   Receive     7.50 %   Republic of Colombia     1,987,995    
  10,000,000     USD   2/7/2013   JP Morgan
Chase Bank		   Receive     8.30 %   Republic of Colombia     3,183,113    
  15,000,000     USD   2/11/2013   JP Morgan
Chase Bank		   Receive     3.05 %   United Mexican States     1,742,075    
  9,529,292     EUR   6/24/2013   JP Morgan
Chase Bank		   Receive     1.37 %   VTB Leasing     (142,489 )  
  12,927,437     EUR   6/24/2013   JP Morgan
Chase Bank		   Receive     1.37 %   VTB Leasing     (193,301 )  
  130,000,000     USD   10/20/2013   Deutsche
Bank AG		   Receive     3.30 %   Republic of Brazil     15,127,717    
  80,000,000     USD   10/20/2013   Deutsche
Bank AG		   Receive     4.05 %   Republic of Brazil     12,535,307    
  14,025,000,000     JPY   10/20/2013   Deutsche
Bank AG		   (Pay)     3.20 %   Republic of Brazil     (14,182,366 )  
  8,415,000,000     JPY   10/20/2013   Deutsche
Bank AG		   (Pay)     3.95 %   Republic of Brazil     (11,458,185 )  
  10,000,000     USD   12/20/2013   Deutsche
Bank AG		   Receive     10.50 %   Republic of Ecuador     985,703    
  10,000,000     USD   12/24/2013   JP Morgan
Chase Bank		   Receive     3.80 %   Republic of Turkey     836,980    
  10,000,000     USD   1/20/2014   Citigroup   Receive     4.94 %   Republic of Colombia     1,817,986    
  10,000,000     USD   1/20/2014   Deutsche
Bank AG		   Receive     1.77 %   United Mexican States     623,878    
  5,000,000     USD   3/20/2014   JP Morgan
Chase Bank		   Receive     4.90 %   Republic of Colombia     995,372    

 

See accompanying notes to the financial statements.


27


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  20,000,000     USD   4/20/2014   Goldman Sachs   Receive     1.59 %   United Mexican States   $ 1,154,645    
  20,000,000     USD   4/20/2014   Lehman Brothers   Receive     1.58 %   United Mexican States     1,142,814    
  10,000,000     USD   5/14/2014   Deutsche
Bank AG		   Receive     6.64 %   Republic of Turkey     2,474,040    
  5,000,000     USD   5/19/2014   Deutsche
Bank AG		   Receive     6.42 %   Republic of Turkey     1,169,745    
  7,000,000     USD   5/20/2014   JP Morgan
Chase Bank		   Receive     6.25 %   Republic of Turkey     1,570,978    
  5,000,000     USD   5/20/2014   Deutsche
Bank AG		   Receive     2.03 %   United Mexican States     413,266    
  10,000,000     USD   5/20/2014   JP Morgan
Chase Bank		   Receive     2.10 %   United Mexican States     867,723    
  10,000,000     USD   5/20/2014   JP Morgan
Chase Bank		   Receive     2.10 %   United Mexican States     867,723    
  10,000,000     USD   5/20/2014   UBS AG   Receive     2.10 %   United Mexican States     867,723    
  10,000,000     USD   6/16/2014   Deutsche
Bank AG		   Receive     6.22 %   Republic of Turkey     2,187,880    
  10,000,000     USD   6/20/2014   JP Morgan
Chase Bank		   Receive     2.10 %   United Mexican States     857,250    
  10,000,000     USD   6/20/2014   JP Morgan
Chase Bank		   Receive     2.15 %   United Mexican States     886,540    
  10,000,000     USD   7/20/2014   JP Morgan
Chase Bank		   Receive     2.00 %   United Mexican States     788,266    
  35,000,000     USD   7/20/2014   JP Morgan
Chase Bank		   Receive     2.01 %   United Mexican States     2,779,334    
  2,000,000     USD   8/24/2014   Deutsche
Bank AG		   (Pay)     4.25 %   Lebanese Republic     118,339    
  600,000,000     EUR   3/20/2015   Deutsche
Bank AG		   (Pay)     3.72 %   Bolivarian
Republic of Venezuela		     29,721,871    
  800,000,000     USD   3/20/2015   Deutsche
Bank AG		   Receive     3.80 %   Bolivarian
Republic of Venezuela		     (27,951,020 )  
  412,500,000     USD   4/20/2015   Deutsche
Bank AG		   Receive     4.40 %   Bolivarian
Republic of Venezuela		     (3,186,635 )  
  300,000,000     EUR   4/20/2015   Deutsche
Bank AG		   (Pay)     4.32 %   Bolivarian
Republic of Venezuela		     3,469,145    

 

See accompanying notes to the financial statements.


28


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  10,000,000     USD   4/20/2015   JP Morgan   Receive     4.65 %   Republic of Colombia    
   
                Chase Bank                   $ 1,947,235    
  15,000,000     USD   5/20/2015   Deutsche
Bank AG		   Receive     3.85 %   Republic of Turkey     1,325,729    
  56,950,000,000     COP   11/20/2015   Citigroup   Receive     1.81 %   Republic of Colombia     876,154    
  15,000,000     USD   2/20/2016   Citigroup   (Pay)     2.16 %   Republic of Colombia     (406,423 )  
  56,700,000,000     COP   2/20/2016   Citigroup   Receive     1.46 %   Republic of Colombia     270,706    
  25,000,000     USD   4/20/2016   Citigroup   (Pay)     1.90 %   Republic of Colombia     (399,401 )  
  114,800,000,000     COP   4/20/2016   Citigroup   Receive     1.33 %   Republic of Colombia     399,225    
  22,000,000     USD   8/20/2016   JP Morgan   Receive     1.99 %   Republic of Brazil
Chase Bank		     914,584    
  40,000,000     USD   8/20/2016   Lehman Brothers   Receive     1.98 %   Republic of Brazil     1,649,189    
  20,000,000     USD   8/20/2016   Citigroup   (Pay)     2.15 %   Republic of Colombia     (495,080 )  
  97,680,000,000     COP   8/20/2016   Citigroup   Receive     1.51 %   Republic of Colombia     526,928    
  20,000,000     USD   8/20/2016   Deutsche
Bank AG		   (Pay)     0.87 %   United Mexican States     (204,008 )  
  620,000,000     MXN   8/20/2016   Deutsche   Receive     0.61 %   United Mexican States
Bank AG		     230,919    
  87,500,000     USD   2/20/2017   Deutsche
Bank AG		   Receive     2.43 %   Bolivarian
Republic of Venezuela		     (13,253,021 )  
  350,000,000     USD   2/20/2017   Deutsche
Bank AG		   (Pay)     7.66 %   Bolivarian
Republic of Venezuela		     5,550,121    
  50,000,000     USD   3/20/2017   Lehman Brothers   Receive     1.41 %   Republic of Brazil     333,990    
  2,500,000     USD   5/20/2017   Deutsche
Bank AG		   (Pay)     1.05 %   Republic of Peru     66,514    
  32,000,000     USD   5/20/2017   Deutsche
Bank AG		   Receive     0.79 %   Republic of Peru     (189,740 )  
  70,000,000     USD   7/20/2017   Lehman Brothers   Receive     3.15 %   Bolivarian
Republic of Venezuela		     (7,754,360 )  
  4,500,000     USD   7/20/2017   Bear Stearns   Receive     3.30 %   Republic of Jamaica     (245,867 )  
  15,000,000     USD   7/20/2017   Lehman Brothers   Receive     1.04 %   Republic of Panama     (617,849 )  
  70,000,000     USD   7/20/2017   Lehman Brothers   Receive     2.20 %   Republic of Turkey     (2,613,498 )  
  35,000,000     USD   7/20/2017   Lehman Brothers   Receive     2.26 %   Republic of Turkey     (1,169,664 )  
  35,000,000     USD   7/20/2017   UBS AG   Receive     2.26 %   Republic of Turkey     (1,169,664 )  

 

See accompanying notes to the financial statements.


29


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Annual
Premium		   Deliverable
On Default		   Market
Value		  
  8,000,000     USD   8/20/2017   JP Morgan   Receive     2.20 %   Republic of Colombia    
   
                Chase Bank                   $ 209,219    
  17,000,000     USD   9/20/2017   JP Morgan
Chase Bank		   Receive     1.74 %   Republic of Philippines     (874,146 )  
  30,000,000     USD   9/20/2017   JP Morgan
Chase Bank		   Receive     1.77 %   Republic of Philippines     (1,494,611 )  
  10,000,000     USD   10/7/2017   JP Morgan
Chase Bank		   Receive     4.20 %   United Mexican States     2,800,344    
  20,000,000     USD   3/20/2019   JP Morgan
Chase Bank		   Receive     1.90 %   United Mexican States     2,034,748    
  30,000,000     USD   8/15/2031   Goldman Sachs   (Pay)     1.84 %   United Mexican States     (3,512,184 )  
  20,000,000     USD   8/15/2031   Goldman Sachs   (Pay)     1.89 %   United Mexican States     (2,464,614 )  
    Premiums to (Pay) Receive   $ 1,615,016     $ 40,828,289    

 

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  2,700,000,000     MXN   7/29/2008   JP Morgan   (Pay)     7.92 %   28-Day TIIE    
   
                Chase Bank                   $ (152,595 )  
  1,303,557     USD   12/1/2008   Citigroup   (Pay)     7.10 %   6 month LIBOR     (28,825 )  
  20,000,000     USD   1/4/2010   JP Morgan
Chase Bank		   (Pay)     5.11 %   6 month LIBOR     (24,762 )  
  20,000,000     USD   1/4/2010   JP Morgan
Chase Bank		   Receive     5.62 %   Floating USD rate     (423,781 )  
  90,000,000,000     KRW   5/29/2010   Merrill Lynch   (Pay)     4.79 %   3 month KRW LIBOR     1,108,359    
  900,000,000     TWD   5/23/2011   JP Morgan
Chase Bank		   (Pay)     2.49 %   90 Day
TWD-BA-TELERATE		     (49,666 )  
  2,500,000,000     TWD   6/12/2011   JP Morgan
Chase Bank		   (Pay)     2.35 %   90 Day
TWD-BA-TELERATE		     252,178    
  3,000,000,000     TWD   7/5/2011   JP Morgan
Chase Bank		   (Pay)     2.32 %   90 Day
TWD-BA-TELERATE		     448,058    
  2,500,000,000     TWD   8/1/2011   JP Morgan
Chase Bank		   (Pay)     2.29 %   90 Day
TWD-BA-TELERATE		     463,257    

 

See accompanying notes to the financial statements.


30


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Interest Rate Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  4,500,000,000     TWD   9/26/2011   JP Morgan
Chase Bank		   (Pay)     2.09 %   90 Day
TWD-BA-TELERATE		   $ 2,030,138    
  3,098,310     USD   12/1/2011   Citigroup   (Pay)     6.32 %   6 month LIBOR     (170,076 )  
  36,000,000,000     KRW   3/16/2014   Deutsche
Bank AG		   (Pay)     4.80 %   Korean bond rate for
91 day certificates
of deposit		     518,804    
  36,000,000,000     KRW   3/16/2014   Deutsche
Bank AG		   (Pay)     5.03 %   Korean bond rate for
91 day certificates
 of deposit		     874,502    
  20,000,000     USD   10/3/2015   JP Morgan
Chase Bank		   Receive     4.64 %   3 month LIBOR     (789,263 )  
  100,000,000     USD   4/25/2016   Deutsche
Bank AG		   Receive     5.56 %   3 month USD LIBOR     2,716,627    
  1,400,000,000     TWD   11/24/2016   JP Morgan
Chase Bank		   (Pay)     2.15 %   90 Day
TWD-BA-TELERATE		     1,709,508    
  87,500,000     USD   2/14/2017   Deutsche
Bank AG		   Receive     5.31 %   3 month LIBOR     713,495    
  135,000,000     USD   7/26/2017   JP Morgan
Chase Bank		   (Pay)     5.30 %   3 month LIBOR     (911,890 )  
  25,000,000     USD   12/2/2023   JP Morgan
Chase Bank		   Receive     5.34 %   3 month LIBOR     (163,895 )  
  70,000,000     EUR   9/4/2026   JP Morgan
Chase Bank		   (Pay)     4.28 %   6 month EUR LIBOR     6,151,449    
  100,000,000     USD   7/20/2027   JP Morgan
Chase Bank		   Receive     5.87 %   3 month LIBOR     5,212,382    
    Premiums to (Pay) Receive   $ (2,793,657 )   $ 19,484,004    

 

See accompanying notes to the financial statements.


31


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  223,800,000     RUB   12/5/2007   JP Morgan   3 month   Return on    
   
                Chase Bank   LIBOR + 0.25%   Russian Railways   $ 780,443    
  50,000,000     USD   1/7/2008   JP Morgan
Chase Bank		   3 month
LIBOR - 0.50%		   EMBI +
Total Return		     (207,091 )  
  45,335,905     USD   12/19/2011   JP Morgan
Chase Bank		   CER Index +
1.24%		   3 month LIBOR     6,343,659    
  45,797,706     USD   12/19/2011   JP Morgan
Chase Bank		   3 month
LIBOR + 0.35%		   Return on
Prestamos
Garatizados		     (5,284,435 )  
  300,000,000     RUB   3/26/2017   Morgan Stanley   3 month
LIBOR + 0.25%		   Return on Sukhol     (76,314 )  
    Premiums to (Pay) Receive   $ —     $ 1,556,262    

 

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.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

BPI - Indemnification payment bonds

CBO - Collateralized Bond Obligation

CDO - Collateralized Debt Obligation

DCB - Debt Conversion Bond

EMBI - Emerging Markets Bond Index

EMTN - Euromarket Medium Term Note

FLIRB - Front Loaded Interest Reduction Bond

GDP - Gross Domestic Product

GMTN - Global Medium Term Note

LIBOR - London Interbank Offered Rate

MYDFA - Multi-Year Deposit Facility Agreement

PDI - Past Due Interest

PIK - Payment In Kind

RMAC - Residential Mortgage Acceptance Corp.

See accompanying notes to the financial statements.


32


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

TIIE - Interbank Equilibrium Interest Rate

Variable, step up and step down rates - The rates shown on variable, step up and step down rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security, including varying reset dates.

VRRB - Variable Rate Reduction Bond

*  Non-performing. Borrower not currently paying interest.

* *  Non-income producing security.

(a)  Security is in default.

(b)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

(c)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(d)  All or a portion of this security has been segregated to cover collateral requirements on reverse repurchase agreements (Note 2).

(e)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(f)  Past due maturity payment.

(g)  Bankrupt issuer.

Currency Abbreviations:

ARS - Argentine Peso
BRL - Brazilian Real
CHF - Swiss Franc
COP - Colombia Pesos
C ZK - Czech Koruna
DEM - German Mark
EUR - Euro
FIM - Finnish Markka		   FRF - French Franc
GBP - British Pound
HKD - Hong Kong Dollar
ITL - Italian Lira
JPY - Japanese Yen
KRW - South Korean Won
KZT - Kazakhstan Tenge
MXN - Mexican Peso		   MYR - Malaysian Ringgit
RUB - Russian Ruble
THB - Thai Baht
TRY - Turkish Lira
TWD - Taiwan Dollar
USD - United States Dollar
ZAR - South African Rand		  

 

See accompanying notes to the financial statements.


33



GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $2,884,125,313) (Note 2)   $ 3,008,976,657    
Investments in affiliated issuers, at value (cost $195,550,469) (Notes 2 and 8)     198,565,659    
Cash     476,046    
Foreign currency, at value (cost $1,004,661) (Note 2)     936,123    
Receivable for Fund shares sold     1,035,000    
Interest receivable     48,226,799    
Unrealized appreciation on open forward currency contracts (Note 2)     3,623,332    
Receivable for open swap contracts (Note 2)     175,329,621    
Receivable for option premiums     363,750    
Total assets     3,437,532,987    
Liabilities:  
Written options outstanding, at value (premiums $3,510,625) (Note 2)     11,765,984    
Payable to affiliate for (Note 3):  
Management fee     851,131    
Shareholder service fee     278,731    
Trustees and Chief Compliance Officer of GMO Trust fees     5,659    
Unrealized depreciation on open forward currency contracts (Note 2)     10,983,296    
Payable for open swap contracts (Note 2)     113,461,066    
Payable for reverse repurchase agreements (Note 2)     415,186,600    
Accrued expenses     585,027    
Total liabilities     553,117,494    
Net assets   $ 2,884,415,493    

 

See accompanying notes to the financial statements.


34


GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 2,652,803,165    
Accumulated undistributed net investment income     22,381,036    
Accumulated net realized gain     39,564,067    
Net unrealized appreciation     169,667,225    
    $ 2,884,415,493    
Net assets attributable to:  
Class III shares   $ 844,050,234    
Class IV shares   $ 2,040,365,259    
Shares outstanding:  
Class III     81,137,807    
Class IV     196,105,999    
Net asset value per share:  
Class III   $ 10.40    
Class IV   $ 10.40    

 

See accompanying notes to the financial statements.


35


GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 98,771,488    
Dividends from affiliated issuers (Note 8)     1,090,852    
Total investment income     99,862,340    
Expenses:  
Management fee (Note 3)     5,133,783    
Shareholder service fee – Class III (Note 3)     673,865    
Shareholder service fee – Class IV (Note 3)     1,017,552    
Custodian, fund accounting agent and transfer agent fees     874,552    
Audit and tax fees     62,560    
Legal fees     60,996    
Trustees fees and related expenses (Note 3)     16,653    
Registration fees     8,464    
Interest expense (Note 2)     8,836,269    
Miscellaneous     18,768    
Total expenses     16,703,462    
Net investment income (loss)     83,158,878    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     13,126,231    
Investments in affiliated issuers     153,846    
Realized gains distributions from affiliated issuers (Note 8)     131,142    
Closed futures contracts     (21,730 )  
Closed swap contracts     32,822,956    
Written options     675,000    
Foreign currency, forward contracts and foreign currency related transactions     (4,706,779 )  
Net realized gain (loss)     42,180,666    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (66,568,869 )  
Investments in affiliated issuers     1,382,208    
Open futures contracts     54,821    
Open swap contracts     (18,934,306 )  
Written options     (8,433,677 )  
Foreign currency, forward contracts and foreign currency related transactions     (3,611,287 )  
Net unrealized gain (loss)     (96,111,110 )  
Net realized and unrealized gain (loss)     (53,930,444 )  
Net increase (decrease) in net assets resulting from operations   $ 29,228,434    

 

See accompanying notes to the financial statements.


36


GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 83,158,878     $ 217,900,287    
Net realized gain (loss)     42,180,666       218,285,881    
Change in net unrealized appreciation (depreciation)     (96,111,110 )     (153,138,794 )  
Net increase (decrease) in net assets from operations     29,228,434       283,047,374    
Distributions to shareholders from:  
Net investment income  
Class III     (12,271,889 )     (66,047,926 )  
Class IV     (27,400,621 )     (157,264,308 )  
Total distributions from net investment income     (39,672,510 )     (223,312,234 )  
Net realized gains  
Class III     (24,353,837 )     (57,834,451 )  
Class IV     (54,085,964 )     (130,680,560 )  
Total distributions from net realized gains     (78,439,801 )     (188,515,011 )  
      (118,112,311 )     (411,827,245 )  
Net share transactions (Note 7):  
Class III     (4,732,794 )     (106,571,551 )  
Class IV     104,900,458       286,023,978    
Increase (decrease) in net assets resulting from net share
transactions		     100,167,664       179,452,427    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     224,875       1,172,520    
Class IV     78,385       215,318    
Increase in net assets resulting from purchase premiums
and redemption fees		     303,260       1,387,838    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     100,470,924       180,840,265    
Total increase (decrease) in net assets     11,587,047       52,060,394    
Net assets:  
Beginning of period     2,872,828,446       2,820,768,052    
End of period (including accumulated undistributed net investment
income of $22,381,036 and distributions in excess of
net investment income of $21,105,332, respectively)		   $ 2,884,415,493     $ 2,872,828,446    

 

See accompanying notes to the financial statements.


37


GMO Emerging Countries Debt Fund

(A Series of GMO Trust)


Statement of Cash Flows For the Six Months Ended August 31, 2007 (Unaudited)

Cash flows from operating activities:  
Net investment income   $ 83,158,878    
Net accretion of investments     (12,257,715 )  
      70,901,163    
Investments purchased     (976,019,858 )  
Investments sold     676,564,366    
Short term investments, net     20,033,299    
Other gains:  
Swaps     29,805,399    
Futures     33,091    
Written options     2,125,000    
Foreign currency and forward contracts     (4,164 )  
      (247,462,867 )  
Realized gain distributions from affiliated issuers     131,142    
Changes in assets and liabilities:  
(Increase) decrease in interest receivable     (1,525,809 )  
(Increase) decrease in receivable for closed swap contracts     331,634    
(Increase) decrease in option premiums     (292,950 )  
Increase (decrease) in payable due to custodian     (343,032 )  
Increase (decrease) in payable to affiliate for:  
Management fee     84,510    
Trustees and Chief Compliance Officer of GMO Trust fees     (2,669 )  
Shareholder service fee     26,282    
Increase (decrease) in accrued expenses     35,297    
Net cash provided (used in) operating activities     (178,117,299 )  
Cash flows from financing activities*  
Proceeds from shares sold     186,583,870    
Shares repurchased     (204,640,093 )  
Cash distributions paid     (997,029 )  
Purchase premiums and redemption fees     303,260    
Increase (decrease) in payable for reverse repurchase agreements     197,491,678    
Net cash provided (used in) financing activities     178,741,686    
Net increase in cash     624,387    
Cash and cash equivalents, beginning of period     787,782    
Cash and cash equivalents, end of period   $ 1,412,169    
*Supplemental disclosure of cash flow information:  
Reinvestment of dividends and distributions   $ 117,115,282    

 

See accompanying notes to the financial statements.


38



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.51     $ 9.30    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.31       0.86       0.88       0.89       1.01       0.90    
Net realized and unrealized
gain (loss)		     (0.20 )     0.30       1.14       1.16       1.81       0.49    
Total from investment
operations		     0.11       1.16       2.02       2.05       2.82       1.39    
Less distributions to shareholders:  
From net investment income     (0.15 )     (0.94 )     (1.26 )     (1.18 )     (1.06 )     (0.99 )  
From net realized gains     (0.29 )     (0.79 )     (0.55 )     (0.29 )     (0.76 )     (0.19 )  
Total distributions     (0.44 )     (1.73 )     (1.81 )     (1.47 )     (1.82 )     (1.18 )  
Net asset value, end of period   $ 10.40     $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.51    
Total Return(a)      0.97 %**      10.98 %     19.50 %     20.58 %     30.46 %     15.94 %(b)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 844,050     $ 876,598     $ 1,020,976     $ 1,088,609     $ 925,517     $ 822,080    
Net operating expenses to average
daily net assets(c) 		     0.57 %*      0.57 %     0.57 %     0.57 %     0.57 %     0.57 %  
Interest expense to average daily
net assets(d) 		     0.60 %*      0.48 %     0.22 %     0.08 %     0.08 %     0.08 %  
Total net expenses to average daily
net assets		     1.17 %*      1.05 %     0.79 %     0.65 %     0.65 %     0.65 %  
Net investment income to average
daily net assets		     5.62 %*      7.91 %     7.75 %     8.22 %     9.44 %     9.78 %  
Portfolio turnover rate     23 %**      83 %     144 %     121 %     119 %     121 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:(e) 		     —       —       —       —       —       0.01 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts:† 		   $ 0.00 (f)    $ 0.01     $ 0.01     $ 0.01     $ 0.03     $ 0.01    

 

(a)  Calculation excludes purchase premiums and redemption fees which are borne by shareholders and assumes the effect of reinvested distributions.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(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)  Effective June 30, 2002, the advisor ceased reimbursing any Fund fees or expenses (See Note 3).

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


39


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.52     $ 9.29    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.31       0.87       0.88       0.90       1.06       0.91    
Net realized and unrealized
gain (loss)		     (0.20 )     0.29       1.15       1.16       1.75       0.50    
Total from investment
operations		     0.11       1.16       2.03       2.06       2.81       1.41    
Less distributions to shareholders:  
From net investment income     (0.15 )     (0.94 )     (1.27 )     (1.19 )     (1.06 )     (0.99 )  
From net realized gains     (0.29 )     (0.79 )     (0.55 )     (0.29 )     (0.76 )     (0.19 )  
Total distributions     (0.44 )     (1.73 )     (1.82 )     (1.48 )     (1.82 )     (1.18 )  
Net asset value, end of period   $ 10.40     $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.52    
Total Return(a)      0.98 %**      11.06 %     19.57 %     20.64 %     30.38 %     16.25 %(b)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,040,365     $ 1,996,230     $ 1,799,792     $ 1,550,402     $ 1,238,209     $ 616,174    
Net operating expenses to
average daily net assets(c) 		     0.52 %*      0.52 %     0.52 %     0.52 %     0.52 %     0.52 %  
Interest expense to average
daily net assets(d) 		     0.60 %*      0.48 %     0.22 %     0.08 %     0.08 %     0.08 %  
Total net expenses to average
daily net assets 		    1.12 %*      1.00 %     0.74 %     0.60 %     0.60 %     0.60 %  
Net investment income to
average daily net assets		     5.69 %*      7.97 %     7.75 %     8.29 %     9.95 %     9.89 %  
Portfolio turnover rate     23 %**      83 %     144 %     121 %     119 %     121 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:(e) 		     —       —       —       —       —       0.01 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.00 (f)    $ 0.01     $ 0.00 (f)    $ 0.01     $ 0.04     $ 0.01    

 

(a)  Calculation excludes purchase premiums and redemption fees which are borne by shareholders and assumes the effect of reinvested distributions.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown.

(c)  Net expenses exclude expenses incurred indirectly through invesment in the underlying funds (See Note 3).

(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)  Effective June 30, 2002, the advisor ceased reimbursing any Fund fees or expenses (See Note 3).

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


40



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of its benchmark, the JPMorgan Emerging Markets Bond Index Global. The Fund invests primarily in sovereign debt of emerging countries. In addition, the Fund may invest a portion of its assets in debt investments issued by companies tied economically to emerging countries and other fixed income securities, including asset-backed securities issued by foreign governments and foreign and domestic private issuers. A substantial portion of the Fund's holdings are typically below investment grade. Generally, at least 75% of the Fund's assets are denominated in, or hedged into, U.S. dollars.

Throughout the period ended August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of GMO Short-Duration Collateral Fund, GMO Special Purpose Holding Fund and GMO World Opportunity Overlay Fund are not publicly available for direct purchase.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported


41


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $131,142 in conjunction with a settlement agreement related to the default of those asset-backed securities

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


42


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund


43


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

For the period ended August 31, 2007, the Fund's investment activity in written options contracts was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Premiums   Principal
Amount
of Contracts		   Premiums  
Outstanding, beginning of period   $ —     $ —     $ 115,000,000     $ (2,060,625 )  
Options written     —       —       —       —    
Options exercised     —       —       —       —    
Options expired     —       —       (240,000,000 )     675,000    
Options sold     —       —       375,000,000       (2,125,000 )  
Outstanding, end of period   $ —     $ —     $ 250,000,000     $ (3,510,625 )  

 

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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


44


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. Loan agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate quotations from market makers and the change in value, if any, is recorded as unrealized gain or loss in the Statement of Operations.


45


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Payments received or made on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. As of August 31, 2007, the Fund had entered into reverse repurchase agreements amounting to $415,186,600 plus accrued interest, collateralized by securities with a market value of $418,173,046. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.


46


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. There were no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.


47


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,099,154,978     $ 259,255,143     $ (150,867,805 )   $ 108,387,338    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases of Fund shares was 0.50% of the amount invested. In the case of cash redemptions, the fee is currently 0.25% of the amount redeemed. If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption


48


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in-capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $176,271 and $550,262 in purchase premiums and $126,989 and $837,576 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

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 typically less liquid than those of developed markets.

The Fund owns loans and bonds representing significant exposure to the risk of default in many countries, but has the most sizable of such positions relating to Russia, Mexico and Brazil. The Fund's financial position would be substantially adversely affected in the case of a default by these countries on obligations held by the Fund, or on obligations issued by those countries generally. The Fund has purchased default protection in the form of credit default swap agreements with respect to debt associated with those countries, which may offset some of the losses that the Fund might experience in the case of a default on bonds issued by such countries; however the Fund as of August 31, 2007, has sold more of such default protection than it has purchased. In addition, it is important to note that (i) such protection would not cover losses due to defaults on loan assignments or participations, (ii) such protection will generally n ot be sufficient to cover all of the Fund's losses in the case of default, and (iii) due to the privately negotiated nature of such instruments, under some circumstances, the protection offered by such instruments may not be realized, even if the Fund incurs substantial losses due to weakening of the credit or virtual default by the countries.


49


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Other matters

In July 2005, the Fund entered into litigation against the Government of Argentina ("Argentina") related to Argentina's failure to make payments on certain sovereign debt. The applicable defaulted sovereign debt, which continues to be valued according to the Fund's valuation policy, represented 1.93% of the net assets of the Fund as of August 31, 2007. The outcome of this litigation cannot be predicted. Costs associated with this action will be borne by the Fund.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.35% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net assets of each class at the annual rate of 0.15% for Class III shares and 0.10% for Class IV shares.


50


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
< 0.001%     0.000 %     0.003 %     0.003 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and Chief Compliance Officer ("CCO") during the period ended August 31, 2007 was $12,513 and $8,832, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $909,426,273 and $713,021,839, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 43.32% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's shares outstanding. Investment activities of these shareholders may have a material effect on the Fund.


51


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, 0.26% of the Fund's shares were held by twenty-one related parties comprised of certain GMO employee accounts, and 16.69% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007		   Year Ended
(Unaudited)		   February 28, 2007  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     10,582,216     $ 114,694,476       21,552,542     $ 234,728,807    
Shares issued to shareholders
in reinvestment of distributions		     3,387,288       36,006,874       11,326,112       119,220,771    
Shares repurchased     (14,542,300 )     (155,434,144 )     (41,491,222 )     (460,521,129 )  
Purchase premiums and
redemption fees		     —       224,875       —       1,172,520    
Net increase (decrease)     (572,796 )   $ (4,507,919 )     (8,612,568 )   $ (105,399,031 )  
    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     6,945,413     $ 72,924,210       9,748,445     $ 108,322,206    
Shares issued to shareholders
in reinvestment of distributions		     7,630,142       81,108,408       27,144,668       285,672,482    
Shares repurchased     (4,552,996 )     (49,132,160 )     (10,016,728 )     (107,970,710 )  
Purchase premiums and
redemption fees		     —       78,385       —       215,318    
Net increase (decrease)     10,022,559     $ 104,978,843       26,876,385     $ 286,239,296    

 


52


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains 		  Value,
end of
period		  
GMO Short-Duration
Collateral Fund		   $ 141,294,024     $ 5,390,852     $ —     $ 1,090,852     $ —     $ 147,554,621    
GMO Special Purpose
Holding Fund		     30,187       —       —       —       131,142       30,829    
GMO World Opportunity
Overlay Fund		     52,014,542       2,300,000       4,000,000       —       —       50,980,209    
Totals   $ 193,338,753     $ 7,690,852     $ 4,000,000     $ 1,090,852     $ 131,142     $ 198,565,659    

 


53



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


54


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, and the reputation of the Fund's other service providers.


55


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


56


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     1.17 %   $ 1,000.00     $ 1,009.70     $ 5.91    
2) Hypothetical     1.17 %   $ 1,000.00     $ 1,019.25     $ 5.94    
Class IV      
1) Actual     1.12 %   $ 1,000.00     $ 1,009.80     $ 5.66    
2) Hypothetical     1.12 %   $ 1,000.00     $ 1,019.51     $ 5.69    

 

*  Expenses are calculated using each Class's annualized expense ratio (including interest expense and indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


57



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     87.8 %  
Short-Term Investments     5.5    
Debt Obligations     4.9    
Cash and Cash Equivalents     2.3    
Preferred Stocks     1.5    
Private Equity Securities     0.1    
Investment Funds     0.0    
Options Purchased     0.0    
Loan Participations     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Promissory Notes     0.0    
Written Options     (0.0 )  
Reverse Repurchase Agreements     (0.1 )  
Forward Currency Contracts     (0.1 )  
Futures     (1.0 )  
Swaps     (1.2 )  
Other     0.3    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
United States     59.5 %  
Euro Region     10.7    
United Kingdom     5.2    
Japan     5.1    
Korea     2.8    
Taiwan     2.4    
Sweden     2.0    
Brazil     1.9    
Australia     1.6    
Switzerland     1.6    
China     1.2    
Singapore     0.7    
Hong Kong     0.6    
Mexico     0.6    
Malaysia     0.5    
Russia     0.4    
Thailand     0.4    
Canada     0.3    
Denmark     0.3    
India     0.3    
Norway     0.3    
Philippines     0.3    
Poland     0.3    
South Africa     0.3    
Israel     0.2    
Turkey     0.2    
Chile     0.1    
Hungary     0.1    
Indonesia     0.1    
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


2



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        AFFILIATED ISSUERS — 100.0%        
        Mutual Funds — 100.0%        
  838,729     GMO Alpha Only Fund, Class IV     9,116,989    
  1,801,153     GMO Currency Hedged International Equity Fund, Class III     13,400,577    
  455,996     GMO Emerging Countries Fund, Class III     8,057,446    
  157,240     GMO Emerging Country Debt Fund, Class IV     1,635,301    
  1,482,165     GMO Emerging Markets Fund, Class VI     35,646,058    
  533,416     GMO Inflation Indexed Plus Bond Fund, Class VI     13,532,765    
  1,390,877     GMO International Growth Equity Fund, Class IV     45,300,876    
  1,211,812     GMO International Intrinsic Value Fund, Class IV     44,206,893    
  15,245     GMO Short-Duration Investment Fund, Class III     137,661    
  161,042     GMO Strategic Fixed Income Fund, Class VI     4,069,524    
  10,759,882     GMO U.S. Core Equity Fund, Class VI     153,973,909    
  1,114     GMO U.S. Growth Fund, Class III     19,758    
  2,163,724     GMO U.S. Quality Equity Fund, Class VI     48,251,042    
  2,689     GMO U.S. Value Fund, Class III     28,265    
      377,377,064    
        Private Investment Fund — 0.0%        
  175     GMO SPV I, LLC (a) (b)      68    
    TOTAL AFFILIATED ISSUERS (COST $333,842,911)     377,377,132    

 

See accompanying notes to the financial statements.


3


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 0.0%    
  37,471     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $37,489 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Note with a rate
of 8.75%, maturity date of 05/15/17 and a market value, including
accrued interest, of $39,869.		     37,471    
    TOTAL SHORT-TERM INVESTMENTS (COST $37,471)     37,471    
    TOTAL INVESTMENTS — 100.0%
(Cost $333,880,382)		     377,414,603    
    Other Assets and Liabilities (net) — 0.0%     (26,038 )  
    TOTAL NET ASSETS — 100.0%   $ 377,388,565    

 

Notes to Schedule of Investments:

(a)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust.

(b)  Bankrupt issuer.

As of August 31, 2007, 32.41% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


4



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $37,471) (Note 2)   $ 37,471    
Investments in affiliated issuers, at value (cost $333,842,911) (Notes 2 and 8)     377,377,132    
Receivable for expenses reimbursed by Manager (Note 3)     7,165    
Total assets     377,421,768    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     653    
Accrued expenses     32,550    
Total liabilities     33,203    
Net assets   $ 377,388,565    
Net assets consist of:  
Paid-in capital   $ 303,794,259    
Accumulated undistributed net investment income     1,838,720    
Accumulated net realized gain     28,221,365    
Net unrealized appreciation     43,534,221    
    $ 377,388,565    
Net assets attributable to:  
Class III shares   $ 377,388,565    
Shares outstanding:  
Class III     30,868,913    
Net asset value per share:  
Class III   $ 12.23    

 

See accompanying notes to the financial statements.


5


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,840,352    
Interest     1,462    
Total investment income     1,841,814    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     19,044    
Audit and tax fees     14,444    
Legal fees     4,232    
Trustees fees and related expenses (Note 3)     1,996    
Registration fees     1,104    
Miscellaneous     2,392    
Total expenses     43,212    
Fees and expenses reimbursed by Manager (Note 3)     (40,112 )  
Net expenses     3,100    
Net investment income (loss)     1,838,714    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     13,198,558    
Realized gains distributions from affiliated issuers (Note 8)     15,150,597    
Net realized gain (loss)     28,349,155    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (5,651,862 )  
Net realized and unrealized gain (loss)     22,697,293    
Net increase (decrease) in net assets resulting from operations   $ 24,536,007    

 

See accompanying notes to the financial statements.


6


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,838,714     $ 6,254,375    
Net realized gain (loss)     28,349,155       37,302,929    
Change in net unrealized appreciation (depreciation)     (5,651,862 )     (6,654,177 )  
Net increase (decrease) in net assets from operations     24,536,007       36,903,127    
Distributions to shareholders from:  
Net investment income  
Class III     —       (10,728,384 )  
Net realized gains  
Class III     (17,345,732 )     (23,345,939 )  
      (17,345,732 )     (34,074,323 )  
Net share transactions (Note 7):  
Class III     15,947,185       25,348,028    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     14,854       27,852    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     15,962,039       25,375,880    
Total increase (decrease) in net assets     23,152,314       28,204,684    
Net assets:  
Beginning of period     354,236,251       326,031,567    
End of period (including accumulated undistributed net investment
income of $1,838,720 and $6, respectively)		   $ 377,388,565     $ 354,236,251    

 

See accompanying notes to the financial statements.


7



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 11.96     $ 11.89     $ 11.63     $ 10.86     $ 7.51     $ 8.66    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)      0.06 †      0.23 †      0.23 †      0.23 †      0.14       0.15    
Net realized and unrealized
gain (loss)		     0.80       1.08       1.32       1.23       3.55       (1.07 )  
Total from investment
operations		     0.86       1.31       1.55       1.46       3.69       (0.92 )  
Less distributions to shareholders:  
From net investment income     —       (0.38 )     (0.34 )     (0.27 )     (0.21 )     (0.23 )  
From net realized gains     (0.59 )     (0.86 )     (0.95 )     (0.42 )     (0.13 )     —    
Total distributions     (0.59 )     (1.24 )     (1.29 )     (0.69 )     (0.34 )     (0.23 )  
Net asset value, end of period   $ 12.23     $ 11.96     $ 11.89     $ 11.63     $ 10.86     $ 7.51    
Total Return(b)      6.98 %(c)**      11.56 %(c)      13.91 %(c)      13.70 %(c)      49.63 %(c)      (10.84 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 377,389     $ 354,236     $ 326,032     $ 335,819     $ 222,856     $ 79,736    
Net expenses to average daily
net assets(d)(e) 		     0.00 %*      0.00 %     0.00 %     0.00 %     0.00 %     0.00 %  
Net investment income to average
daily net assets(a) 		     0.98 %*      1.90 %     1.99 %     2.11 %     1.99 %     3.06 %  
Portfolio turnover rate     11 %**      15 %     20 %     17 %     73 %     30 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.02 %*      0.02 %     0.02 %     0.04 %     0.05 %     0.07 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.01       —    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Calculations exclude purchase premiums and redemption fees which are borne by the shareholders.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the GMO Global Equity Index. The GMO Global Equity Index is a composite index computed by GMO consisting of: (i) the S&P 500 Index and (ii) the MSCI ACWI (All Country World Index) ex-U.S. Index in the following proportions: 75% (S&P 500) and 25% (MSCI ACWI (All Country World Index) ex-U.S. Index). The Fund is a fund of funds and invests primarily in shares of the GMO International Equity Funds (which may include one or more of the GMO Emerging Markets Funds) and the GMO U.S. Equity Funds. The Fund may also invest in shares of other GMO Funds, including the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect).

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally


9


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value pric es based on models to the extent that these fair value prices are available.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are


10


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 333,903,103     $ 44,438,264     $ (926,764 )   $ 43,511,500    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchase and redemption of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.10% of the amount invested or redeemed. The redemption fee is only applicable to shares acquired on or after June 30, 2003. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash


11


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $8,976 and $27,330 in purchase premiums and $5,878 and $522 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the trans fer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.


12


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  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 directly charge an advisory fee or shareholder service fee, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect
Interest
Expense		   Total Indirect
Expenses		  
  0.467 %     0.071 %     0.004 %     0.542 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $1,536 and $1,104, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


13


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $57,438,856 and $41,847,590, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 36.58% 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 may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by one related party comprised of a certain GMO employee account.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     704,981     $ 8,967,126       2,417,813     $ 28,924,136    
Shares issued to shareholders
in reinvestment of distributions		     1,288,205       16,321,564       2,435,155       28,397,989    
Shares repurchased     (745,626 )     (9,341,505 )     (2,652,478 )     (31,974,097 )  
Purchase premiums and redemption fees     —       14,854       —       27,852    
Net increase (decrease)     1,247,560     $ 15,962,039       2,200,490     $ 25,375,880    

 


14


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Alpha Only Fund,
Class IV		   $ 15,041,292     $ —     $ 6,493,850     $ —     $ —     $ 9,116,989    
GMO Currency Hedged
International Equity
Fund, Class III		     13,289,885       706,050       566,603       —       706,050       13,400,577    
GMO Emerging Countries
Fund, Class III		     6,461,494       953,151       —       16,114       937,037       8,057,446    
GMO Emerging Country
Debt Fund, Class IV		     1,619,501       67,059       —       22,549       44,510       1,635,301    
GMO Emerging Markets
Fund, Class VI		     41,750,149       3,306,161       16,380,194       153,357       3,152,805       35,646,058    
GMO Inflation Indexed
Plus Bond Fund, Class VI		     4,216,442       10,493,849       1,179,087       —       —       13,532,765    
GMO International Growth
Equity Fund, Class IV		     47,402,591       1,989,147       5,863,000       —       1,854,147       45,300,876    
GMO International Intrinsic
Value Fund, Class IV		     47,550,628       1,294,934       6,273,052       —       1,159,408       44,206,893    
GMO International Small
Companies Fund, Class III		     543,039       18,798       540,138       —       18,798       —    
GMO Short-Duration
Investment Fund, Class III		     135,401       745       —       745       —       137,661    
GMO SPV I, LLC     67       —       —       —       602       68    
GMO Strategic Fixed Income
Fund, Class VI		     7,989,820       —       4,000,000       —       —       4,069,524    
GMO U.S. Core Equity Fund,
Class VI		     135,437,254       23,552,605       335,000       1,338,156       6,964,450       153,973,909    
GMO U.S. Growth Fund,
Class III		     43,339       279       25,000       174       104       19,758    
GMO U.S. Quality Equity
Fund, Class VI		     32,542,645       15,054,401       —       308,964       311,302       48,251,042    
GMO U.S. Value Fund,
Class III		     215,623       1,677       191,666       293       1,384       28,265    
Totals   $ 354,239,170     $ 57,438,856     $ 41,847,590     $ 1,840,352     $ 15,150,597     $ 377,377,132    

 


15



GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears


16


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory f ees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


17


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


18


GMO Global (U.S.+) Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.54 %   $ 1,000.00     $ 1,069.80     $ 2.81    
2) Hypothetical     0.54 %   $ 1,000.00     $ 1,022.42     $ 2.75    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


19



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov Information regarding how the Fund votes proxies relating to portfolio securities during the most recent 12-month period ended June 30 is or will be available at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which will be available on the Commission's website at www.sec.gov. The Fund's Form N-Q (when available) may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     92.6 %  
Short-Term Investments     3.8    
Preferred Stocks     1.1    
Futures     0.1    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.3 )  
Other     2.7    
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region     35.5 %  
Japan     20.0    
United Kingdom     19.1    
Australia     4.1    
Sweden     3.8    
Switzerland     3.7    
Singapore     2.6    
Hong Kong     2.3    
Korea     1.1    
Norway     1.0    
China     0.9    
Denmark     0.9    
Brazil     0.8    
Taiwan     0.8    
Canada     0.7    
Russia     0.6    
South Africa     0.5    
India     0.4    
Mexico     0.4    
Israel     0.2    
Chile     0.1    
Hungary     0.1    
Indonesia     0.1    
Malaysia     0.1    
Poland     0.1    
Thailand     0.1    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    3,334,996     GMO Emerging Markets Opportunities Fund, Class VI     44,788,990    
    9,529,101     GMO International Growth Equity Fund, Class IV     310,362,833    
    8,468,910     GMO International Intrinsic Value Fund, Class IV     308,945,845    
    TOTAL MUTUAL FUNDS (COST $641,690,527)     664,097,668    
        SHORT-TERM INVESTMENTS — 0.0%  
    33,438     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $33,454 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.13%,
maturity date of 08/15/19 and a market value, including accrued interest,
of $35,687.		     33,438    
    TOTAL SHORT-TERM INVESTMENTS (COST $33,438)     33,438    
    TOTAL INVESTMENTS — 100.0%
(Cost $641,723,965)		     664,131,106    
          Other Assets and Liabilities (net) — 0.0%     (20,341 )  
    TOTAL NET ASSETS — 100.0%   $ 664,110,765    

 

Notes to Schedule of Investments:

As of August 31, 2007, 84.74% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


2



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $33,438) (Note 2)   $ 33,438    
Investments in affiliated issuers, at value (cost $641,690,527) (Notes 2 and 8)     664,097,668    
Receivable for Fund shares sold     66,493    
Receivable for expenses reimbursed by Manager (Note 3)     9,796    
Total assets     664,207,395    
Liabilities:  
Payable for investments purchased     66,489    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     947    
Accrued expenses     29,194    
Total liabilities     96,630    
Net assets   $ 664,110,765    
Net assets consist of:  
Paid-in capital   $ 621,042,482    
Accumulated undistributed net investment income     64,283    
Accumulated net realized gain     20,596,859    
Net unrealized appreciation     22,407,141    
    $ 664,110,765    
Net assets attributable to:  
Class III shares   $ 664,110,765    
Shares outstanding:  
Class III     28,619,518    
Net asset value per share:  
Class III   $ 23.20    

 

See accompanying notes to the financial statements.


3


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 50,973    
Interest     29,339    
Total investment income     80,312    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     22,540    
Audit and tax fees     14,444    
Legal fees     5,980    
Trustees fees and related expenses (Note 3)     2,948    
Registration fees     368    
Miscellaneous     3,312    
Total expenses     49,592    
Fees and expenses reimbursed by Manager (Note 3)     (45,080 )  
Net expenses     4,512    
Net investment income (loss)     75,800    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     1,281,974    
Realized gains distributions from affiliated issuers (Note 8)     19,323,329    
Net realized gain (loss)     20,605,303    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     16,955,184    
Net realized and unrealized gain (loss)     37,560,487    
Net increase (decrease) in net assets resulting from operations   $ 37,636,287    

 

See accompanying notes to the financial statements.


4


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

   
Six Months Ended
August 31, 2007
(Unaudited)		   Period from
June 5, 2006
(commencement
of operations)
through
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 75,800     $ 5,620,257    
Net realized gain (loss)     20,605,303       26,438,804    
Change in net unrealized appreciation (depreciation)     16,955,184       5,451,957    
Net increase (decrease) in net assets from operations     37,636,287       37,511,018    
Distributions to shareholders from:  
Net investment income  
Class III     (15,808 )     (12,345,406 )  
Net realized gains  
Class III     (18,074,037 )     (1,643,771 )  
      (18,089,845 )     (13,989,177 )  
Net share transactions (Note 7):  
Class III     204,069,660       416,780,789    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     63,166       128,867    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     204,132,826       416,909,656    
Total increase (decrease) in net assets     223,679,268       440,431,497    
Net assets:  
Beginning of period     440,431,497       —    
End of period (including accumulated undistributed net investment
income of $64,283 and $4,291, respectively)		   $ 664,110,765     $ 440,431,497    

 

See accompanying notes to the financial statements.


5



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
June 5, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 22.16     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.00 (b)      0.53    
Net realized and unrealized gain (loss)     1.73       2.45    
Total from investment operations     1.73       2.98    
Less distributions to shareholders:  
From net investment income     (0.00 )(c)      (0.72 )  
From net realized gains     (0.69 )     (0.10 )  
Total distributions     (0.69 )     (0.82 )  
Net asset value, end of period   $ 23.20     $ 22.16    
Total Return(d)      7.66 %**      14.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 664,111     $ 440,431    
Net expenses to average daily net assets(e)(f)      0.00 %*      0.00 %*   
Net investment income to average daily net assets(a)      0.03 %*      3.32 %*   
Portfolio turnover rate     2 %**      1 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.03 %*   
Purchase premiums and redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (g)    $ 0.01    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Net investment income was less than $0.01 per share.

(c)  Distributions from net investment income was less than $0.01 per share.

(d)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(g)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO International Opportunities 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the MSCI EAFE Index (Europe, Australasia, and Far East). The Fund is a fund of funds and invests primarily in shares of the GMO International Equity Funds (which may include one or more of the GMO Emerging Markets Funds). The Fund may also invest in shares of other GMO Funds, including the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies


7


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.


8


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 641,724,614     $ 22,406,492     $ —     $ 22,406,492    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares are each 0.03% of the amount invested. The Fund's purchase premium or redemption fee are approximately equal to the weighted average of the purchase premiums and redemptions fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the period ended February 28, 2007, the Fund received $59,528 and $128,627


9


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

in purchase premiums and $3,638 and $240 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is


10


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  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 directly charge a management fee or shareholder service fee from the Fund, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder
service fees)		   Indirect
Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.533 %     0.088 %     0.621 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $2,212 and $1,564, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $217,827,644 and $12,387,503, respectively.


11


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 26.68% 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 may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties.

7.  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
August 31, 2007
(Unaudited)		   Period from June 5, 2006
(commencement of operations)
through February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     8,538,908     $ 198,903,799       19,331,326     $ 404,772,482    
Shares issued to shareholders in
reinvestment of distributions		     733,724       17,800,172       583,800       12,808,557    
Shares repurchased     (531,865 )     (12,634,311 )     (36,375 )     (800,250 )  
Purchase premiums and
redemption fees		     —       63,166       —       128,867    
Net increase (decrease)     8,740,767     $ 204,132,826       19,878,751     $ 416,909,656    

 


12


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		  
Value, end
of period		  
GMO Emerging Markets
Opportunities Fund,
Class VI		   $ 30,555,475     $ 9,988,586     $ 2,081,340     $ 50,973     $ 982,500     $ 44,788,990    
GMO International Growth
Equity Fund, Class IV		     204,814,359       105,953,388       6,903,046       —       11,246,880       310,362,833    
GMO International Intrinsic
Value Fund, Class IV		     205,050,535       101,885,670       3,403,117       —       7,093,949       308,945,845    
Totals   $ 440,420,369     $ 217,827,644     $ 12,387,503     $ 50,973     $ 19,323,329     $ 664,097,668    

 


13



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed the Fund's performance since inception in 2006, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also


14


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory fees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


15


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


16


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.62 %   $ 1,000.00     $ 1,076.60     $ 3.24    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.02     $ 3.15    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


17



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     66.0 %  
Debt Obligations     22.0    
Cash and Cash Equivalents     6.0    
Short-Term Investments     4.4    
Preferred Stocks     1.1    
Options Purchased     0.1    
Loan Participations     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Investment Fund     0.0    
Private Equity Securities     0.0    
Promissory Notes     0.0    
Written Options     (0.0 )  
Reverse Repurchase Agreements     (0.1 )  
Forward Currency Contracts     (0.1 )  
Futures     (2.8 )  
Swaps     (3.1 )  
Other     6.5    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
United States     39.6 %  
Euro Region     19.1    
United Kingdom     6.8    
Sweden     6.2    
Japan     5.2    
Switzerland     4.0    
Australia     3.9    
Korea     1.8    
China     1.5    
Brazil     1.4    
Singapore     1.3    
Taiwan     1.3    
Russia     1.1    
Hong Kong     1.0    
Mexico     0.8    
South Africa     0.8    
Canada     0.7    
India     0.7    
Denmark     0.5    
Norway     0.5    
Israel     0.2    
Malaysia     0.2    
Philippines     0.2    
Poland     0.2    
Turkey     0.2    
Argentina     0.1    
Chile     0.1    
Hungary     0.1    
Indonesia     0.1    
Thailand     0.1    
Ukraine     0.1    
Uruguay     0.1    
Venezuela     0.1    
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


2



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuer — 100.0%  
    5,972,032     GMO Alpha Only Fund, Class IV     64,915,983    
    2,704,747     GMO Core Plus Bond Fund, Class IV     26,831,095    
    169,332     GMO Emerging Country Debt Fund, Class IV     1,761,057    
    7,077,948     GMO Emerging Markets Opportunities Fund, Class VI     95,056,845    
    5,316,203     GMO Inflation Indexed Plus Bond Fund, Class VI     134,872,066    
    549,525     GMO International Bond Fund, Class III     5,182,018    
    6,094,432     GMO International Growth Equity Fund, Class IV     198,495,665    
    5,428,117     GMO International Intrinsic Value Fund, Class IV     198,017,721    
    2,517,961     GMO Special Situations Fund, Class VI     51,870,000    
    2,606,409     GMO Strategic Fixed Income Fund, Class VI     65,863,960    
    5,126,345     GMO U.S. Core Equity Fund, Class VI     73,358,000    
    4,590,068     GMO U.S. Quality Equity Fund, Class VI     102,358,515    
    TOTAL MUTUAL FUNDS (COST $973,500,016)     1,018,582,925    
        SHORT-TERM INVESTMENTS — 0.0%  
    40,217     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $40,236 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.00%,
maturity date of 11/15/21, and a market value, including accrued interest,
of $42,550.		     40,217    
    TOTAL SHORT-TERM INVESTMENTS (COST $40,217)     40,217    
    TOTAL INVESTMENTS — 100.0%
(Cost $973,540,233)		     1,018,623,142    
          Other Assets and Liabilities (net) — 0.0%     (39,123 )  
    TOTAL NET ASSETS — 100.0%   $ 1,018,584,019    

 

Notes to Schedule of Investments:

As of August 31, 2007, 42.03% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


3



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $40,217) (Note 2)   $ 40,217    
Investments in affiliated issuers, at value (cost $973,500,016) (Notes 2 and 8)     1,018,582,925    
Receivable for Fund shares sold     456,079,663    
Receivable for expenses reimbursed by Manager (Note 3)     7,502    
Total assets     1,474,710,307    
Liabilities:  
Payable for investments purchased     449,980,964    
Payable for Fund shares repurchased     6,098,699    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,094    
Accrued expenses     45,531    
Total liabilities     456,126,288    
Net assets   $ 1,018,584,019    
Net assets consist of:  
Paid-in capital   $ 957,890,113    
Accumulated undistributed net investment income     2,266,360    
Accumulated net realized gain     13,344,637    
Net unrealized appreciation     45,082,909    
    $ 1,018,584,019    
Net assets attributable to:  
Class III shares   $ 1,018,584,019    
Shares outstanding:  
Class III     41,660,011    
Net asset value per share:  
Class III   $ 24.45    

 

See accompanying notes to the financial statements.


4


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,276,685    
Interest     2,963    
Total investment income     2,279,648    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     24,104    
Audit and tax fees     13,984    
Legal fees     6,440    
Trustees fees and related expenses (Note 3)     3,222    
Registration fees     368    
Miscellaneous     3,496    
Total expenses     51,614    
Fees and expenses reimbursed by Manager (Note 3)     (46,736 )  
Net expenses     4,878    
Net investment income (loss)     2,274,770    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     2,814,230    
Realized gains distributions from affiliated issuers (Note 8)     10,790,756    
Net realized gain (loss)     13,604,986    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     12,302,937    
Net realized and unrealized gain (loss)     25,907,923    
Net increase (decrease) in net assets resulting from operations   $ 28,182,693    

 

See accompanying notes to the financial statements.


5


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,274,770     $ 13,179,426    
Net realized gain (loss)     13,604,986       23,150,965    
Change in net unrealized appreciation (depreciation)     12,302,937       19,527,296    
Net increase (decrease) in net assets from operations     28,182,693       55,857,687    
Distributions to shareholders from:  
Net investment income  
Class III     (18,330 )     (18,854,874 )  
Net realized gains  
Class III     (12,111,776 )     (12,242,706 )  
      (12,130,106 )     (31,097,580 )  
Net share transactions (Note 7):  
Class III     472,965,264       137,932,946    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     191,752       59,034    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     473,157,016       137,991,980    
Total increase (decrease) in net assets     489,209,603       162,752,087    
Net assets:  
Beginning of period     529,374,416       366,622,329    
End of period (including accumulated undistributed net investment
income of $2,266,360 and $9,920, respectively)		   $ 1,018,584,019     $ 529,374,416    

 

See accompanying notes to the financial statements.


6



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007		   Year Ended February 28,  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 23.71     $ 22.37     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.10       0.69       0.52    
Net realized and unrealized gain (loss)     1.17       2.17       2.34    
Total from investment operations     1.27       2.86       2.86    
Less distributions to shareholders:  
From net investment income     (0.00 )(c)      (0.90 )     (0.47 )  
From net realized gains     (0.53 )     (0.62 )     (0.02 )  
Total distributions     (0.53 )     (1.52 )     (0.49 )  
Net asset value, end of period   $ 24.45     $ 23.71     $ 22.37    
Total Return(d)      5.30 %**      12.98 %     14.42 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,018,584     $ 529,374     $ 366,622    
Net expenses to average daily net assets(e)(f)      0.00 %*      0.00 %     0.00 %*   
Net investment income to average daily net assets(b)      0.81 %*      2.98 %     3.22 %*   
Portfolio turnover rate     27 %**      23 %     10 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.02 %     0.06 %*   
Purchase premiums and redemption fees consisted of the
following per share amounts:† 		   $ 0.01     $ 0.00 (g)    $ 0.02    

 

(a)  Period from May 31, 2005 (commencement of operations) through February 28, 2006.

(b)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(c)  Distribution from net investment income was less than $0.01.

(d)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(e)  Net expenses exclude expenses incurred indirectly through investments in the underlying funds (See Note 3).

(f)  Net expenses to average daily net assets were less than 0.01%.

(g)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Strategic Opportunities Allocation Fund (the "Fund"), which commenced operations on May 31, 2005, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of its benchmark, the GMO Strategic Opportunities Allocation Index. The GMO Strategic Opportunities Allocation Index is a composite index computed by GMO consisting of: (i) the MSCI World Index and (ii) the Lehman Brothers U.S. Aggregate Index in the following proportions: 75% (MSCI World Index) and 25% (Lehman Brothers U.S. Aggregate Index). The Fund is a fund of funds and invests in shares of other GMO Funds ("underlying funds"), which may include the GMO U.S. Equity Funds, the GMO International Equity Funds (including one or more of the GMO Emerging Markets Funds), the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund.

The financial statements of the underlying funds in which the Fund invests should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where


8


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


9


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 973,717,713     $ 46,178,070     $ (1,272,641 )   $ 44,905,429    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.04% of the amount invested or redeemed. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund


10


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $189,991 and $57,043 in purchase premiums and $1,761 and $1,991 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value


11


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

The Manager determines the allocation of the assets of the Fund among the designated underlying funds. The Manager does not directly charge a management fee or shareholder service fee, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes).

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.403 %     0.072 %     0.015 %     0.490 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $2,394 and $1,656, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $639,709,631 and $165,620,244, respectively.


12


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 37.24% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the outstanding shares of the Fund. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by two related parties comprised of certain GMO employee accounts, and 99.96% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     19,281,419     $ 471,478,740       5,179,484     $ 120,067,340    
Shares issued to shareholders
in reinvestment of distributions		     483,433       12,129,332       1,296,097       30,296,691    
Shares repurchased     (433,884 )     (10,642,808 )     (532,650 )     (12,431,085 )  
Purchase premiums and
redemption fees		     —       191,752       —       59,034    
Net increase (decrease)     19,330,968     $ 473,157,016       5,942,931     $ 137,991,980    

 


13


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Alpha Only Fund,
Class IV		   $ —     $ 64,980,964     $ —     $ —     $ —     $ 64,915,983    
GMO Core Plus Bond Fund,
Class IV		     56,198,149       12,155,113       40,000,000       1,155,114       —       26,831,095    
GMO Emerging Country
Debt Fund, Class IV		     1,744,041       72,216       —       24,283       47,933       1,761,057    
GMO Emerging Markets
Opportunities Fund,
Class VI		     49,013,342       43,256,109       4,984,641       61,954       1,194,155       95,056,845    
GMO Inflation Indexed
Plus Bond Fund, Class VI		     74,922,001       110,326,479       50,255,000       —       —       134,872,066    
GMO International
Bond Fund, Class III		     4,154,505       1,186,029       —       186,029       —       5,182,018    
GMO International
Growth Equity Fund,
Class IV		     103,554,411       91,371,761       263,680       —       4,274,839       198,495,665    
GMO International
Intrinsic Value Fund,
Class IV		     105,015,610       89,688,567       220,000       —       2,688,568       198,017,721    
GMO International
Small Companies Fund,
Class III		     700,667       24,254       696,923       —       24,254       —    
GMO Special Situations
Fund, Class VI		     —       51,000,000       —       —       —       51,870,000    
GMO Strategic
Fixed Income Fund,
Class VI		     45,257,955       88,222,826       69,000,000       —       —       65,863,960    
GMO U.S.
Core Equity Fund, Class VI		     42,352,407       32,544,284       200,000       411,874       2,132,410       73,358,000    
GMO U.S.
Quality Equity Fund,
Class VI		     46,463,280       54,881,029       —       437,431       428,597       102,358,515    
Totals   $ 529,376,368     $ 639,709,631     $ 165,620,244     $ 2,276,685     $ 10,790,756     $ 1,018,582,925    

 


14



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish


15


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory fees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


16


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.49 %   $ 1,000.00     $ 1,053.00     $ 2.53    
2) Hypothetical     0.49 %   $ 1,000.00     $ 1,022.67     $ 2.49    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


17



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     95.0 %  
Short-Term Investments     7.2    
Futures     0.0    
Right and Warrants     0.0    
Other     (2.2 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    6,578,817     GMO U.S. Core Equity Fund, Class VI     94,142,872    
    1,121,990     GMO U.S. Quality Equity Fund, Class VI     25,020,374    
    205,015     GMO U.S. Small/Mid Cap Growth Fund, Class III     3,805,076    
    392,317     GMO U.S. Small/Mid Cap Value Fund, Class III     3,562,238    
    TOTAL MUTUAL FUNDS (COST $125,597,760)     126,530,560    
        SHORT-TERM INVESTMENTS — 0.0%  
    12,337     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $12,343 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.75%,
maturity date of 05/15/17 and a market value, including accrued
interest, of $13,748.		     12,337    
    TOTAL SHORT-TERM INVESTMENTS (COST $12,337)     12,337    
    TOTAL INVESTMENTS — 100.0%
(Cost $125,610,097)		     126,542,897    
          Other Assets and Liabilities (net) — 0.0%     (3,133 )  
    TOTAL NET ASSETS — 100.0%   $ 126,539,764    

 

See accompanying notes to the financial statements.


2



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $12,337) (Note 2)   $ 12,337    
Investments in affiliated issuers, at value (cost $125,597,760) (Notes 2 and 8)     126,530,560    
Receivable for investments sold     20,000    
Receivable for expenses reimbursed by Manager (Note 3)     4,340    
Total assets     126,567,237    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     343    
Accrued expenses     27,130    
Total liabilities     27,473    
Net assets   $ 126,539,764    
Net assets consist of:  
Paid-in capital   $ 117,094,889    
Accumulated undistributed net investment income     1,248,692    
Accumulated net realized gain     7,263,383    
Net unrealized appreciation     932,800    
    $ 126,539,764    
Net assets attributable to:  
Class III shares   $ 126,539,764    
Shares outstanding:  
Class III     19,979,672    
Net asset value per share:  
Class III   $ 6.33    

 

See accompanying notes to the financial statements.


3


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,261,094    
Interest     507    
Total investment income     1,261,601    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     8,556    
Audit and tax fees     14,536    
Legal fees     1,748    
Trustees fees and related expenses (Note 3)     832    
Registration fees     920    
Miscellaneous     1,012    
Total expenses     27,604    
Fees and expenses reimbursed by Manager (Note 3)     (26,312 )  
Net expenses     1,292    
Net investment income (loss)     1,260,309    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     1,953,076    
Realized gains distributions from affiliated issuers (Note 8)     5,905,862    
Net realized gain (loss)     7,858,938    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (4,650,375 )  
Net realized and unrealized gain (loss)     3,208,563    
Net increase (decrease) in net assets resulting from operations   $ 4,468,872    

 

See accompanying notes to the financial statements.


4


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,260,309     $ 2,844,809    
Net realized gain (loss)     7,858,938       12,470,796    
Change in net unrealized appreciation (depreciation)     (4,650,375 )     (6,163,706 )  
Net increase (decrease) in net assets from operations     4,468,872       9,151,899    
Distributions to shareholders from:  
Net investment income  
Class III     (39,385 )     (4,188,192 )  
Net realized gains  
Class III     (4,740,728 )     (12,182,820 )  
      (4,780,113 )     (16,371,012 )  
Net share transactions (Note 7):  
Class III     (22,470,585 )     (16,661,519 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     9,527       46,222    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (22,461,058 )     (16,615,297 )  
Total increase (decrease) in net assets     (22,772,299 )     (23,834,410 )  
Net assets:  
Beginning of period     149,312,063       173,146,473    
End of period (including accumulated undistributed net investment
income of $1,248,692 and $27,768, respectively)		   $ 126,539,764     $ 149,312,063    

 

See accompanying notes to the financial statements.


5



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 6.38     $ 6.56     $ 6.41     $ 6.40     $ 4.53     $ 5.45    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.06       0.10       0.10       0.11       0.08       0.09    
Net realized and unrealized
gain (loss)		     0.12       0.28       0.31       0.34       1.89       (1.00 )  
Total from investment
operations		     0.18       0.38       0.41       0.45       1.97       (0.91 )  
Less distributions to shareholders:  
From net investment income     (0.00 )(b)      (0.15 )     (0.12 )     (0.14 )     (0.02 )     (0.01 )  
From net realized gains     (0.23 )     (0.41 )     (0.14 )     (0.30 )     (0.08 )     —    
Total distributions     (0.23 )     (0.56 )     (0.26 )     (0.44 )     (0.10 )     (0.01 )  
Net asset value, end of period   $ 6.33     $ 6.38     $ 6.56     $ 6.41     $ 6.40     $ 4.53    
Total Return(c)      2.68 %**(d)      6.48 %(d)      6.45 %(d)      7.18 %(d)      43.72 %(d)      (16.78 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 126,540     $ 149,312     $ 173,146     $ 151,378     $ 73,342     $ 13,144    
Net expenses to average daily
net assets(e) 		     0.00 %*(f)      0.04 %     0.01 %     0.00 %(f)      0.00 %(f)      0.02 %  
Net investment income
to average daily net assets(a) 		     1.78 %*      1.63 %     1.52 %     1.75 %     1.43 %     1.93 %  
Portfolio turnover rate     7 %**      35 %     13 %     16 %     17 %     24 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.04 %*      0.18 %     0.51 %     0.54 %     0.58 %     0.88 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)      —    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  Distributions from net investment income were less than $0.01 per share.

(c)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(d)  Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(e)  Net expenses exclude expenses incurred indirectly through investments in the underlying funds (See Note 3).

(f)  Net expenses were less than 0.01%.

(g)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO 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, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the Russell 3000 Index. The Fund is a fund of funds and invests primarily in shares of the GMO U.S. Equity Funds ("underlying funds"). The Fund seeks exposure to the securities in the Wilshire 5000 Stock Index through its investments in each of the underlying funds.

The financial statements of the underlying funds should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to p rocedures approved by the Trustees.


7


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $358,912 expiring in 2012. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 125,880,993     $ 1,763,789     $ (1,101,885 )   $ 661,904    

 


8


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemption of Fund shares were each 0.03% of the amount invested or redeemed. The redemption fee is only applicable to shares acquired on or after June 30, 2003. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that po rtion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $676 and $21,021 in purchase premiums and $8,851 and $25,201 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.


9


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  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 directly charge an advisory fee or shareholder service fee, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes).


10


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net Expenses
(excluding shareholder
service fees)		   Indirect
Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.315 %     0.060 %     0.375 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $648 and $460, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $9,551,006 and $29,633,840, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 56.70% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's shares outstanding. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by one related party comprised of a certain GMO employee account.


11


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  Share transactions

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     361,697     $ 2,253,373       8,058,092     $ 52,537,795    
Shares issued to shareholders
in reinvestment of distributions		     723,164       4,780,113       2,677,850       16,371,012    
Shares repurchased     (4,515,003 )     (29,504,071 )     (13,702,053 )     (85,570,326 )  
Purchase premiums and
redemption fees		     —       9,527       —       46,222    
Net increase (decrease)     (3,430,142 )   $ (22,461,058 )     (2,966,111 )   $ (16,615,297 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains 		  Value,
end of
period		  
GMO U.S. Core Equity
Fund, Class VI		   $ 111,984,114     $ 7,771,582     $ 22,694,379     $ 1,009,806     $ 5,407,727     $ 94,142,872    
GMO U.S. Quality Equity
Fund, Class VI		     27,544,376       1,464,318       4,649,461       224,690       209,627       25,020,374    
GMO U.S. Small/Mid Cap
Growth Fund, Class III		     4,712,790       140,669       980,000       4,778       135,891       3,805,076    
GMO U.S. Small/Mid Cap
Value Fund, Class III		     5,069,978       174,437       1,310,000       21,820       152,617       3,562,238    
Totals   $ 149,311,258     $ 9,551,006     $ 29,633,840     $ 1,261,094     $ 5,905,862     $ 126,530,560    

 


12



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears


13


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory f ees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


14


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


15


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.38 %   $ 1,000.00     $ 1,026.80     $ 1.94    
2) Hypothetical     0.38 %   $ 1,000.00     $ 1,023.23     $ 1.93    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


16



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     93.1 %  
Short-Term Investments     4.8    
Preferred Stocks     0.9    
Futures     0.0    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.2 )  
Other     1.4    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     37.3 %  
Euro Region     21.0    
Japan     12.0    
United Kingdom     11.5    
Australia     2.5    
Sweden     2.3    
Switzerland     2.1    
Singapore     1.5    
Hong Kong     1.3    
Korea     1.3    
China     1.0    
Taiwan     0.9    
Brazil     0.8    
Russia     0.7    
Denmark     0.6    
Norway     0.6    
India     0.5    
South Africa     0.5    
Canada     0.4    
Mexico     0.4    
Israel     0.2    
Chile     0.1    
Hungary     0.1    
Indonesia     0.1    
Malaysia     0.1    
Poland     0.1    
Thailand     0.1    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
      8,418,704     GMO Currency Hedged International Equity Fund, Class III     62,635,156    
      5,218,143     GMO Emerging Markets Opportunities Fund, Class VI     70,079,663    
      7,053,508     GMO International Growth Equity Fund, Class IV     229,732,762    
      6,207,689     GMO International Intrinsic Value Fund, Class IV     226,456,486    
      16,557,421     GMO U.S. Core Equity Fund, Class VI     236,936,698    
      4,703,287     GMO U.S. Quality Equity Fund, Class VI     104,883,307    
    TOTAL MUTUAL FUNDS (COST $884,559,959)     930,724,072    
        SHORT-TERM INVESTMENTS — 0.0%  
      31,316     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $31,331 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Bond with a rate
of 8.00%, maturity date of 11/15/21 and a market value, including
accrued interest, of $32,942.		     31,316    
    TOTAL SHORT-TERM INVESTMENTS (COST $31,316)     31,316    
    TOTAL INVESTMENTS — 100.0%
(Cost $884,591,275)		     930,755,388    
          Other Assets and Liabilities (net) — (0.0%)     (35,738 )  
    TOTAL NET ASSETS — 100.0%   $ 930,719,650    

 

Notes to Schedule of Investments:

As of August 31, 2007, 52.60% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


2



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $31,316) (Note 2)   $ 31,316    
Investments in affiliated issuers, at value (cost $884,559,959) (Notes 2 and 8)     930,724,072    
Receivable for expenses reimbursed by Manager (Note 3)     9,052    
Total assets     930,764,440    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,790    
Accrued expenses     43,000    
Total liabilities     44,790    
Net assets   $ 930,719,650    
Net assets consist of:  
Paid-in capital   $ 838,110,849    
Accumulated undistributed net investment income     2,940,394    
Accumulated net realized gain     43,504,294    
Net unrealized appreciation     46,164,113    
    $ 930,719,650    
Net assets attributable to:  
Class III shares   $ 930,719,650    
Shares outstanding:  
Class III     37,213,118    
Net asset value per share:  
Class III   $ 25.01    

 

See accompanying notes to the financial statements.


3


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,942,802    
Interest     5,774    
Total investment income     2,948,576    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,644    
Audit and tax fees     14,444    
Legal fees     10,948    
Trustees fees and related expenses (Note 3)     5,330    
Registration fees     644    
Miscellaneous     6,072    
Total expenses     61,082    
Fees and expenses reimbursed by Manager (Note 3)     (52,900 )  
Net expenses     8,182    
Net investment income (loss)     2,940,394    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     11,972,149    
Realized gains distributions from affiliated issuers (Note 8)     32,290,848    
Net realized gain (loss)     44,262,997    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     11,003,961    
Net realized and unrealized gain (loss)     55,266,958    
Net increase (decrease) in net assets resulting from operations   $ 58,207,352    

 

See accompanying notes to the financial statements.


4


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,940,394     $ 10,502,950    
Net realized gain (loss)     44,262,997       61,556,022    
Change in net unrealized appreciation (depreciation)     11,003,961       18,645,399    
Net increase (decrease) in net assets from operations     58,207,352       90,704,371    
Distributions to shareholders from:  
Net investment income  
Class III     —       (21,344,408 )  
Net realized gains  
Class III     (30,959,244 )     (23,787,413 )  
      (30,959,244 )     (45,131,821 )  
Net share transactions (Note 7):  
Class III     1,129,831       449,303,347    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     17,721       217,986    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     1,147,552       449,521,333    
Total increase (decrease) in net assets     28,395,660       495,093,883    
Net assets:  
Beginning of period     902,323,990       407,230,107    
End of period (including accumulated undistributed net investment
income of $2,940,394 and $0, respectively)		   $ 930,719,650     $ 902,323,990    

 

See accompanying notes to the financial statements.


5



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended
February 28,		  
    (Unaudited)   2007   2006(a)   
Net asset value, beginning of period   $ 24.25     $ 22.49     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.08       0.40       0.37    
Net realized and unrealized gain (loss)     1.52       2.93       2.78    
Total from investment operations     1.60       3.33       3.15    
Less distributions to shareholders:  
From net investment income     —       (0.73 )     (0.46 )  
From net realized gains     (0.84 )     (0.84 )     (0.20 )  
Total distributions     (0.84 )     (1.57 )     (0.66 )  
Net asset value, end of period   $ 25.01     $ 24.25     $ 22.49    
Total Return(c)      6.46 %**      14.94 %     15.90 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 930,720     $ 902,324     $ 407,230    
Net expenses to average daily net assets(d)(e)      0.00 %*      0.00 %     0.00 %*   
Net investment income to average daily net assets(b)      0.61 %*      1.68 %     2.42 %*   
Portfolio turnover rate     8 %**      12 %     5 %**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.01 %*      0.02 %     0.06 %*   
Purchase premiums and redemption fees consisted of the following
per share amounts:† 		   $ 0.00 (f)    $ 0.01     $ 0.02    

 

(a)  Period from June 16, 2005 (commencement of operations) through February 28, 2006.

(b)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(c)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholders.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO World Opportunities 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the MSCI World Index. The Fund is a fund of funds and invests primarily in shares of the GMO International Equity Funds (which may include one or more of the GMO Emerging Markets Funds) and the GMO U.S. Equity Funds. The Fund may also invest in shares of other GMO Funds, including the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to p rocedures approved by the Trustees.


7


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross
Unrealized
Appreciation		   Gross
Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 885,898,720     $ 51,669,619     $ (6,812,951 )   $ 44,856,668    

 


8


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.04% of the amount invested or redeemed. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $2,900 and $189,823 in purchase premiums and $14,821 and $28,163 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.


9


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  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 directly charge a management fee or shareholder service fee, but receives management and shareholder service fees from the underlying funds in which the Fund invests.


10


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder
service fees)		   Indirect
Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.460 %     0.080 %     0.540 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007, was $4,042 and $2,852, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $78,962,431 and $73,549,805, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote;


11


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 14.97% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, less than 0.01% of the Fund's shares were held by one related party, comprised of a certain GMO employee account, and 9.91% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     302,706     $ 7,297,462       20,252,428     $ 474,986,993    
Shares issued to shareholders
in reinvestment of distributions		     1,187,087       30,959,244       1,875,834       45,131,675    
Shares repurchased     (1,491,391 )     (37,126,875 )     (3,022,181 )     (70,815,321 )  
Purchase premiums and
redemption fees		     —       17,721       —       217,986    
Net increase (decrease)     (1,598 )   $ 1,147,552       19,106,081     $ 449,521,333    

 


12


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Currency Hedged
International Equity
Fund, Class III		   $ 62,894,979     $ 3,446,474     $ 3,420,000     $ —     $ 3,446,474     $ 62,635,156    
GMO Emerging Markets
Opportunities Fund,
Class VI		     65,830,487       2,583,636       10,086,613       90,438       1,743,198       70,079,663    
GMO International Growth
Equity Fund, Class IV		     235,863,517       11,560,506       26,296,000       —       9,456,126       229,732,762    
GMO International Intrinsic
Value Fund, Class IV		     237,203,364       8,032,353       26,819,946       —       5,944,393       226,456,486    
GMO International Small
Companies Fund,
Class III		     127,930       4,428       127,246       —       4,428       —    
GMO U.S. Core Equity Fund,
Class VI		     217,211,140       33,044,804       6,300,000       2,112,057       10,985,906       236,936,698    
GMO U.S. Quality Equity
Fund, Class VI		     83,203,919       20,290,230       500,000       740,307       710,323       104,883,307    
Totals   $ 902,335,336     $ 78,962,431     $ 73,549,805     $ 2,942,802     $ 32,290,848     $ 930,724,072    

 


13



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of t he Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a


14


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory fees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have si milar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


15


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.54 %   $ 1,000.00     $ 1,064.60     $ 2.80    
2) Hypothetical     0.54 %   $ 1,000.00     $ 1,022.42     $ 2.75    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


16



GMO Alpha Only Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Alpha Only Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Cash and Cash Equivalents     94.4 %  
Common Stocks     84.3    
Short-Term Investments     10.4    
Preferred Stocks     1.5    
Private Equity Securities     0.1    
Investment Funds     0.0    
Debt Obligations     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Forward Currency Contracts     (0.2 )  
Futures     (43.2 )  
Swaps     (48.3 )  
Other     1.0    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds"). Swaps and futures concentrations assume the notional value of the respective contracts.


1



GMO Alpha Only Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 91.1%  
        United States — 91.1%  
        Affiliated Issuers  
    7,409,329     GMO Emerging Markets Fund, Class VI     178,194,365    
    12,295,819     GMO International Growth Equity Fund, Class IV     400,474,824    
    10,973,964     GMO International Intrinsic Value Fund, Class IV     400,330,209    
    29,369,304     GMO U.S. Core Equity Fund, Class VI     420,274,741    
    10,115,342     GMO U.S. Quality Equity Fund, Class VI     225,572,129    
      1,624,846,268    
    TOTAL MUTUAL FUNDS (COST $1,539,019,698)     1,624,846,268    
        SHORT-TERM INVESTMENTS — 6.0%  
    13,000,000     Dresdner Bank Time Deposit, 4.75%, due 09/04/07     13,000,000    
    85,400,000     ING Bank Time Deposit, 5.32%, due 09/04/07     85,400,000    
    7,700,000     Societe Generale Time Deposit, 5.28%, due 09/04/07     7,700,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $106,100,000)     106,100,000    
    TOTAL INVESTMENTS — 97.1%
(Cost $1,645,119,698)		     1,730,946,268    
          Other Assets and Liabilities (net) — 2.9%     51,962,905    
    TOTAL NET ASSETS — 100.0%   $ 1,782,909,173    

 

See accompanying notes to the financial statements.


2


GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Sales                      
11/20/07   AUD     847,404     $ 691,916     $ (15,366 )  
11/20/07   AUD     847,404       691,916       (15,145 )  
11/20/07   AUD     873,083       712,883       (18,039 )  
11/20/07   AUD     2,022,000       1,650,988       (5,080 )  
11/20/07   AUD     3,071,000       2,507,509       (51,698 )  
11/20/07   AUD     5,821,000       4,752,918       129,073    
11/20/07   CHF     718,483       598,179       781    
11/20/07   CHF     718,483       598,179       1,422    
11/20/07   CHF     1,973,000       1,642,636       2,970    
11/20/07   CHF     2,961,483       2,465,605       (11,665 )  
11/20/07   CHF     3,944,000       3,283,607       18,956    
11/20/07   CHF     4,265,483       3,551,261       6,767    
11/20/07   DKK     1,665,218       305,502       (3,383 )  
11/20/07   DKK     2,531,000       464,338       1,128    
11/20/07   DKK     3,288,000       603,218       (7,161 )  
11/20/07   EUR     1,306,791       1,785,277       (18,733 )  
11/20/07   EUR     1,306,791       1,785,277       (19,000 )  
11/20/07   EUR     1,306,791       1,785,277       (20,378 )  
11/20/07   EUR     1,306,791       1,785,277       (21,110 )  
11/20/07   EUR     7,454,791       10,184,394       (10,217 )  
11/20/07   EUR     14,324,791       19,569,871       39,662    
11/20/07   EUR     19,774,791       27,015,411       (312,693 )  
11/20/07   GBP     578,893       1,165,328       (17,044 )  
11/20/07   GBP     578,893       1,165,328       (18,147 )  
11/20/07   GBP     578,893       1,165,328       (18,843 )  
11/20/07   GBP     578,893       1,165,328       (18,830 )  
11/20/07   GBP     3,186,893       6,415,303       (17,312 )  
11/20/07   GBP     6,109,893       12,299,384       51,721    
11/20/07   GBP     8,623,893       17,360,134       (261,695 )  
11/20/07   HKD     3,582,000       460,100       (1,172 )  
11/20/07   HKD     10,121,000       1,300,019       (1,746 )  
11/20/07   HKD     12,651,242       1,625,023       (4,079 )  
11/20/07   JPY     128,472,022       1,121,364       9,154    

 

See accompanying notes to the financial statements.


3


GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
11/20/07   JPY     128,472,022     $ 1,121,364     $ 7,112    
11/20/07   JPY     128,472,022       1,121,364       7,207    
11/20/07   JPY     128,472,022       1,121,364       10,349    
11/20/07   JPY     713,035,022       6,223,704       (43,602 )  
11/20/07   JPY     1,276,855,022       11,144,989       131,696    
11/20/07   JPY     1,868,471,022       16,308,891       (228,899 )  
11/20/07   NOK     2,201,823       378,129       (6,362 )  
11/20/07   NOK     3,077,000       528,426       (1,698 )  
11/20/07   NOK     3,847,000       660,662       (11,408 )  
11/20/07   NZD     75,868       52,911       (590 )  
11/20/07   SEK     7,866,043       1,144,588       (7,404 )  
11/20/07   SEK     9,014,000       1,311,627       25,049    
11/20/07   SEK     14,770,043       2,149,189       (8,177 )  
11/20/07   SGD     870,000       574,062       2,931    
11/20/07   SGD     1,659,611       1,095,081       (2,469 )  
    $ 178,610,429     $ (753,167 )  

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales      
  312     CAC 40   September 2007   $ 24,113,623     $ (1,046,847 )  
  77     DAX   September 2007     20,064,777       (252,873 )  
  425     FTSE 100   September 2007     54,117,914       (291,372 )  
  30     HANG SENG   September 2007     4,588,690       (180,117 )  
  50     IBEX 35   September 2007     9,874,269       (106,056 )  
  342     OMXS 30   September 2007     6,030,161       (115,585 )  
  370     Russell 2000   September 2007     147,038,000       6,201,070    
  1,165     S&P 500   September 2007     430,088,875       8,517,102    
  33     S&P/MIB   September 2007     9,047,043       (50,866 )  
  117     SPI 200   September 2007     14,988,632       (454,071 )  
  373     TOPIX   September 2007     51,912,039       804,128    
    $ 771,864,023     $ 13,024,513    

 

See accompanying notes to the financial statements.


4


GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Swap Agreements

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  162,763,811     USD   3/7/2008   Citi Group   S&P   3 month  
 
                Mid Cap Index   LIBOR -0.70%   $ 6,357,758    
  699,996,446     USD   6/16/2008   Deutsche Bank   MSCI EAFE
Equity Index		   3 month
LIBOR -0.70%		     28,318,441    
    Premiums to (Pay) Receive   $ —     $ 34,676,199    

 

As of August 31, 2007, for the futures contracts held, the Fund had sufficient cash and/or securities to cover any commitments or margin requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

LIBOR - London Interbank Offered Rate

As of August 31, 2007, 45.63% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

USD - United States Dollar

See accompanying notes to the financial statements.


5



GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $106,100,000) (Note 2)   $ 106,100,000    
Investments in affiliated issuers, at value (cost $1,539,019,698) (Notes 2 and 8)     1,624,846,268    
Foreign currency, at value (cost $722) (Note 2)     722    
Receivable for Fund shares sold     64,980,964    
Unrealized appreciation on open forward currency contracts (Note 2)     445,978    
Receivable for collateral on open futures contracts (Note 2)     24,364,018    
Receivable for open swap contracts (Note 2)     34,676,199    
Receivable for expenses reimbursed by Manager (Note 3)     689,444    
Total assets     1,856,103,593    
Liabilities:  
Due to custodian     3,560,785    
Payable for investments purchased     58,300,000    
Payable to affiliate for (Note 3):  
Management fee     675,174    
Shareholder service fee     140,650    
Trustees and Chief Compliance Officer of GMO Trust fees     3,665    
Unrealized depreciation on open forward currency contracts (Note 2)     1,199,145    
Payable for variation margin on open futures contracts (Note 2)     9,195,965    
Accrued expenses     119,036    
Total liabilities     73,194,420    
Net assets   $ 1,782,909,173    
Net assets consist of:  
Paid-in capital   $ 1,707,108,981    
Accumulated undistributed net investment income     10,094,093    
Accumulated net realized loss     (67,068,016 )  
Net unrealized appreciation     132,774,115    
    $ 1,782,909,173    
Net assets attributable to:  
Class III shares   $ 142,569,207    
Class IV shares   $ 1,640,339,966    
Shares outstanding:  
Class III     13,127,762    
Class IV     151,058,736    
Net asset value per share:  
Class III   $ 10.86    
Class IV   $ 10.86    

 

See accompanying notes to the financial statements.


6


GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 6,320,542    
Interest     5,163,705    
Total investment income     11,484,247    
Expenses:  
Management fee (Note 3)     4,455,110    
Shareholder service fee – Class III (Note 3)     115,505    
Shareholder service fee – Class IV (Note 3)     814,018    
Custodian and fund accounting agent fees     102,028    
Transfer agent fees     21,160    
Audit and tax fees     31,556    
Legal fees     21,712    
Trustees fees and related expenses (Note 3)     10,707    
Registration fees     2,208    
Miscellaneous     12,054    
Total expenses     5,586,058    
Fees and expenses reimbursed by Manager (Note 3)     (185,012 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (3,828,306 )  
Shareholder service fee waived (Note 3)     (576,379 )  
Net expenses     996,361    
Net investment income (loss)     10,487,886    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     77,384,127    
Realized gains distributions from affiliated issuers (Note 8)     56,247,228    
Closed futures contracts     (39,264,598 )  
Closed swap contracts     (78,024,069 )  
Foreign currency, forward contracts and foreign currency related transactions     (3,719,494 )  
Net realized gain (loss)     12,623,194    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (48,409 )  
Open futures contracts     7,384,594    
Open swap contracts     43,860,988    
Foreign currency, forward contracts and foreign currency related transactions     275,164    
Net unrealized gain (loss)     51,472,337    
Net realized and unrealized gain (loss)     64,095,531    
Net increase (decrease) in net assets resulting from operations   $ 74,583,417    

 

See accompanying notes to the financial statements.


7


GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months
Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,487,886     $ 33,573,903    
Net realized gain (loss)     12,623,194       (31,773,569 )  
Change in net unrealized appreciation (depreciation)     51,472,337       44,611,020    
Net increase (decrease) in net assets from operations     74,583,417       46,411,354    
Distributions to shareholders from:  
Net investment income  
Class III     —       (3,116,898 )  
Class IV     —       (35,538,281 )  
Total distributions from net investment income     —       (38,655,179 )  
Net share transactions (Note 7):  
Class III     (30,443,024 )     (1,295,354,534 )  
Class IV     (122,296,263 )     1,687,179,844    
Increase (decrease) in net assets resulting from net share
transactions		     (152,739,287 )     391,825,310    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     84,331       121,944    
Class IV     562,104       553,818    
Increase in net assets resulting from purchase premiums
and redemption fees		     646,435       675,762    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (152,092,852 )     392,501,072    
Total increase (decrease) in net assets     (77,509,435 )     400,257,247    
Net assets:  
Beginning of period     1,860,418,608       1,460,161,361    
End of period (including accumulated undistributed net investment
income of $10,094,093 and distributions in excess of
net investment income of $393,793, respectively)		   $ 1,782,909,173     $ 1,860,418,608    

 

See accompanying notes to the financial statements.


8



GMO Alpha Only Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning of period   $ 10.42     $ 10.36     $ 10.26     $ 9.99     $ 9.63     $ 9.23    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.06       0.17       0.16       0.19       0.17       0.20    
Net realized and unrealized gain (loss)     0.38       0.10       0.31       0.08       0.19       0.49    
Total from investment operations     0.44       0.27       0.47       0.27       0.36       0.69    
Less distributions to shareholders:  
From net investment income     —       (0.21 )     (0.37 )     —       —       (0.29 )  
Total distributions     —       (0.21 )     (0.37 )     —       —       (0.29 )  
Net asset value, end of period   $ 10.86     $ 10.42     $ 10.36     $ 10.26     $ 9.99     $ 9.63    
Total Return(b)      4.22 %**      2.64 %     4.63 %     2.70 %     3.74 %     7.61 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 142,569     $ 166,626     $ 1,460,161     $ 179,488     $ 74,841     $ 26,329    
Net expenses to average
daily net assets(c) 		     0.16 %*      0.15 %     0.10 %     0.18 %     0.26 %     0.64 %  
Net investment income to average
daily net assets(a) 		     1.14 %*      1.66 %     1.52 %     1.94 %     1.72 %     2.06 %  
Portfolio turnover rate     33 %**      22 %     40 %     19 %     11 %     111 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.51 %*      0.53 %     0.59 %     0.62 %     0.72 %     0.94 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.01     $ 0.01     $ 0.02     $ 0.01     $ 0.01       —    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9


GMO Alpha Only Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
March 2, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 10.41     $ 10.37    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.06       0.20    
Net realized and unrealized gain (loss)     0.39       0.06    
Total from investment operations     0.45       0.26    
Less distributions to shareholders:  
From net investment income     —       (0.22 )  
Total distributions     —       (0.22 )  
Net asset value, end of period   $ 10.86     $ 10.41    
Total Return(b)      4.32 %**      2.54 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,640,340     $ 1,693,793    
Net expenses to average daily net assets(c)      0.11 %*      0.10 %*   
Net investment income to average daily net assets(a)      1.18 %*      1.93 %*   
Portfolio turnover rate     33 %**      22 %††   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.52 %*      0.53 %*   
Purchase premiums and redemption fees consisted of the following per
share amounts:†(d) 		   $ 0.00     $ 0.00    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(c)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(d)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents porfolio turnover of the Fund for the year ended February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Alpha Only 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks to outperform the Citigroup 3-Month Treasury Bill Index. The Fund invests primarily in shares of the GMO U.S. Equity Funds and the GMO International Equity Funds (which may include one or more of the GMO Emerging Markets Funds). The Fund also may invest in shares of GMO Emerging Country Debt Fund ("ECDF"). In addition, the Fund may invest directly in securities of the type in which the underlying funds invest. The Fund invests directly or indirectly in sub-asset classes that it expects to outperform the relevant broader asset class, and seeks to hedge some or all of the expected return (and foreign currency exposure) of the broader asset class. To the extent that the Fund's hedges are effective, the performance of the Fund's portfolio is expected to have a low correlation to the performance of the broader global asset classes in which the Fund directly or indirectly invests. Instead, the Fund is expected to produc e returns more like a short-term fixed income fund, with variation in return (alpha) resulting from aggregate outperformance or underperformance of the underlying funds and/or securities as well as the sub-asset classes in which the Fund invests relative to the relevant broader asset classes.

As of August 31, 2007, the Fund had two classes of shares outstanding: Class III and Class IV. Class IV shares commenced operations on March 2, 2006. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


11


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Shares of the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to p rocedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


12


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.


13


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Ther e were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the


14


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $6,598,186, $2,024,420, $23,713,990 and $38,646,828 expiring in 2012, 2013, 2014 and 2015, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October currency losses of $1,407,725.

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,645,315,637     $ 85,630,631     $ —     $ 85,630,631    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.


15


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.10% of the amount invested or redeemed. The redemption fee is only applicable to shares acquired on or after June 30, 2003. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007 and the estimated transaction costs of investing directly in securities. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e. changes in the percentage of Fund assets allocated to each underlying fund and direct investments). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchas e premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $260,140 and $501,997 in purchase premiums and $386,295 and $173,765 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. H owever, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.


16


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.50% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net assets at the annual rate of 0.15% for Class III shares and 0.10% for Class IV shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by a class of


17


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

shares of the Fund exceeds 0.15% for Class III shares and 0.10% for Class IV shares; provided, however, that the amount of this waiver will not exceed the respective Class' shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.50% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in underlying funds (excluding these Funds' Excluded Fund Fees and Expenses and, in the case of ECDF, excluding ECDF's fees and expenses of the independent trustees of the Trust, fees for legal services not procured or provided by the Manager for the Trust, compensation and expenses of the Trust's CCO (excluding any employee benefits), and investment-related expenses such as brokerage commissions, hedging transaction fees, securities lending fees and expenses, interest expense and transfer taxes), exceeds 0.50% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.50% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder
service fees)		   Indirect
Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.442 %     0.065 %     0.507 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $8,039 and $5,704, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


18


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchase and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $521,720,770 and $557,628,000, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 81.02% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Two of the shareholders are other funds of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 1.12% of the Fund's shares were held by eight related parties comprised of certain GMO employee accounts, and 98.74% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,665,651     $ 28,752,302       11,398,240     $ 118,203,482    
Shares issued to shareholders
in reinvestment of distributions		     —       —       233,076       2,410,625    
Shares repurchased     (5,530,861 )     (59,195,326 )     (136,539,471 )     (1,415,968,641 )  
Purchase premiums and
redemption fees		     —       84,331       —       121,944    
Net increase (decrease)     (2,865,210 )   $ (30,358,693 )     (124,908,155 )   $ (1,295,232,590 )  

 


19


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from March 2, 2006
(commencement of operations)
through February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     21,526,904     $ 232,044,638       177,462,267     $ 1,840,405,225    
Shares issued to shareholders
in reinvestment of distributions		     —       —       3,436,637       35,538,033    
Shares repurchased     (33,113,289 )     (354,340,901 )     (18,253,783 )     (188,763,414 )  
Purchase premiums and
redemption fees		     —       562,104       —       553,818    
Net increase (decrease)     (11,586,385 )   $ (121,734,159 )     162,645,121     $ 1,687,733,662    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging Markets
Fund, Class VI		   $ 194,843,664     $ 65,250,838     $ 114,694,000     $ 535,555     $ 11,010,283     $ 178,194,365    
GMO International Growth
Equity Fund, Class IV		     397,932,659       119,018,063       122,229,000       —       13,629,063       400,474,824    
GMO International Intrinsic
Value Fund, Class IV		     399,488,346       116,889,591       120,427,000       —       8,544,591       400,330,209    
GMO U.S. Core
Equity Fund, Class VI		     421,080,896       152,291,666       130,466,000       3,887,968       21,390,698       420,274,741    
GMO U.S. Quality
Equity Fund, Class VI		     228,372,215       68,270,612       69,812,000       1,897,019       1,672,593       225,572,129    
Totals   $ 1,641,717,780     $ 521,720,770     $ 557,628,000     $ 6,320,542     $ 56,247,228     $ 1,624,846,268    

 


20



GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees observed that the usefulness of the comparative data provided by the third-party data services was limited because the peer groups they used for the Fund included funds with investment programs that were substantially differ ent from that of the Fund. As a result, the Trustees gave more weight to the Fund's performance relative to its benchmark than to some of the additional comparative data. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those


21


GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subjec t. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Mana ger that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures,


22


GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the execution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


23


GMO Alpha Only Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.67 %   $ 1,000.00     $ 1,043.20     $ 3.44    
2) Hypothetical     0.67 %   $ 1,000.00     $ 1,021.77     $ 3.40    
Class IV      
1) Actual     0.62 %   $ 1,000.00     $ 1,044.20     $ 3.19    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.02     $ 3.15    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


24



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.5 %  
Short-Term Investments     3.8    
Options Purchased     0.5    
Loan Participations     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Swaps     (0.1 )  
Written Options     (0.2 )  
Futures     (0.2 )  
Reverse Repurchase Agreements     (0.4 )  
Forward Currency Contracts     (0.6 )  
Other     1.5    
      100.0 %  
Country/Region Summary**   % of Investments  
United States     73.3 %  
Sweden     19.9    
Euro Region     11.4    
Switzerland     10.1    
Australia     9.5    
Emerging     2.9    
Canada     1.2    
United Kingdom     (9.5 )  
Japan     (18.8 )  
      100.0 %  

 

*   The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**   The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds.The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($) /
Principal Amount		   Description   Value ($)  
        DEBT OBLIGATIONS — 10.9%  
        Corporate Debt — 0.4%  
    13,850,000     JP Morgan & Co. Series MTN, Variable Rate,
CPI + 4.00%, (10.48%), due 02/15/12		     15,265,608    
        U.S. Government — 10.5%  
    5,322,744     U.S. Treasury Inflation Indexed Bond, 3.88%, due 04/15/29 (a)      6,643,450    
    62,890,263     U.S. Treasury Inflation Indexed Bond, 2.38%, due 01/15/25 (a)      62,497,199    
    44,086,980     U.S. Treasury Inflation Indexed Bond, 2.00%, due 01/15/26 (a)      41,393,541    
    22,042,440     U.S. Treasury Inflation Indexed Note, 2.38%, due 04/15/11 (a) (b)      22,007,999    
    20,534,000     U.S. Treasury Inflation Indexed Note, 2.00%, due 04/15/12 (a)      20,229,198    
    10,147,770     U.S. Treasury Inflation Indexed Note, 2.00%, due 01/15/14 (a)      9,917,860    
    100,980,178     U.S. Treasury Inflation Indexed Note, 2.00%, due 01/15/16 (a) (b)      98,029,663    
    21,822,600     U.S. Treasury Inflation Indexed Note, 1.63%, due 01/15/15 (a)      20,690,553    
    118,770,840     U.S. Treasury Inflation Indexed Note, 0.88%, due 04/15/10 (a)      113,611,732    
    Total U.S. Government     395,021,195    
    TOTAL DEBT OBLIGATIONS (COST $409,404,064)     410,286,803    
        OPTIONS PURCHASED — 0.1%  
        Currency Options — 0.1%  
EUR     76,500,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     3,776,377    
JPY     26,210,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     343,351    
    Total Currency Options     4,119,728    
    TOTAL OPTIONS PURCHASED (COST $3,649,654)     4,119,728    

 

See accompanying notes to the financial statements.


2


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 89.2%  
        Affiliated Issuers — 89.2%  
    10,482,749     GMO Emerging Country Debt Fund, Class III     109,020,592    
    96,461,373     GMO Short-Duration Collateral Fund     2,490,632,663    
    28,918     GMO Special Purpose Holding Fund (c) (d)      41,642    
    28,547,796     GMO World Opportunity Overlay Fund     752,519,892    
    TOTAL MUTUAL FUNDS (COST $3,360,346,918)     3,352,214,789    
        SHORT-TERM INVESTMENTS — 0.1%  
        Money Market Funds — 0.1%  
    3,501,598     Merrimac Cash Series-Premium Class     3,501,598    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,501,598)     3,501,598    
    TOTAL INVESTMENTS — 100.3%
(Cost $3,776,902,234)		     3,770,122,918    
            Other Assets and Liabilities (net) — (0.3%)     (12,002,842 )  
    TOTAL NET ASSETS — 100.0%   $ 3,758,120,076    

 

See accompanying notes to the financial statements.


3


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
9/11/07   CHF     589,500,000     $ 487,951,727     $ (1,139,375 )  
9/11/07   CHF     255,500,000       211,487,135       (1,692,498 )  
9/11/07   CHF     139,200,000       115,221,171       158,581    
9/11/07   CHF     63,500,000       52,561,382       26,556    
9/11/07   CHF     46,500,000       38,489,831       (405,703 )  
9/25/07   EUR     106,700,000       145,491,738       (574,284 )  
9/04/07   GBP     77,300,000       155,856,125       3,767,370    
9/04/07   GBP     53,800,000       108,474,250       1,369,748    
9/04/07   GBP     13,500,000       27,219,375       (141,304 )  
11/06/07   GBP     63,800,000       128,479,054       368,654    
10/02/07   JPY     16,252,500,000       140,919,573       3,400,436    
10/02/07   JPY     18,960,000,000       164,395,330       (1,081,040 )  
10/02/07   JPY     220,000,000       1,907,541       46,980    
10/02/07   JPY     7,700,000,000       66,763,927       (811,366 )  
9/18/07   NZD     190,200,000       133,368,883       (11,045,437 )  
9/18/07   NZD     44,900,000       31,484,032       (4,456,757 )  
                $ 2,010,071,074     $ (12,209,439 )  
Sales  
10/16/07   AUD     140,200,000     $ 114,611,217     $ 5,399,983    
10/16/07   AUD     30,400,000       24,851,505       934,991    
10/16/07   AUD     47,500,000       38,830,477       1,170,223    
10/23/07   CAD     90,700,000       85,969,221       159,906    
9/11/07   CHF     20,300,000       16,803,087       61,974    
9/11/07   CHF     29,400,000       24,335,506       128,613    
9/25/07   EUR     586,400,000       799,590,957       8,812,022    
9/25/07   EUR     24,400,000       33,270,838       236,218    
9/25/07   EUR     48,500,000       66,132,608       335,866    
9/25/07   EUR     24,900,000       33,952,617       (360,649 )  
9/04/07   GBP     47,200,000       95,167,000       745,751    
9/04/07   GBP     25,400,000       51,212,750       371,922    
9/04/07   GBP     8,200,000       16,533,250       22,140    
9/04/07   GBP     63,800,000       128,636,750       (354,090 )  
10/02/07   JPY     101,400,000,000       879,202,877       (41,047,810 )  

 

See accompanying notes to the financial statements.


4


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
10/02/07   JPY     3,770,000,000     $ 32,688,312     $ (1,081,743 )  
9/18/07   NZD     14,700,000       10,307,690       1,123,986    
9/18/07   NZD     17,100,000       11,990,578       1,353,920    
9/18/07   NZD     33,400,000       23,420,193       2,689,088    
9/18/07   NZD     141,100,000       98,939,797       8,502,743    
                $ 2,586,447,230     $ (10,794,946 )  

 

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
10/09/07   EUR     5,900,000     NOK     47,037,750     $ 26,248    
10/09/07   EUR     191,900,000     NOK     1,534,950,530       1,716,954    
10/30/07   SEK     307,008,000     EUR     32,800,000       147,867    
    $ 1,891,069    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  1,115     Australian Government Bond 10 Yr.   September 2007   $ 91,733,903     $ 1,959,577    
  2,793     Australian Government Bond 3 Yr.   September 2007     227,389,602       1,524,564    
  424     Canadian Government Bond 10 Yr.   December 2007     44,797,045       (177,939 )  
  854     Euro BOBL   September 2007     125,672,126       2,293,601    
  1,820     Euro Bund   September 2007     282,069,392       7,679,899    
    $ 13,279,702    
Sales      
  548     Japanese Government Bond
10 Yr. (TSE) 		  September 2007   $ 640,571,725     $ (17,236,220 )  
  1,497     U.S. Long Bond (CBT)   December 2007     167,009,062       (1,338,505 )  
  1,806     U.S. Treasury Note 10 Yr.   December 2007     196,938,656       (1,290,274 )  
  2,981     U.S. Treasury Note 2 Yr. (CBT)   December 2007     614,551,781       (1,133,642 )  

 

See accompanying notes to the financial statements.


5


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
  980     U.S. Treasury Note 5 Yr. (CBT)   December 2007   $ 104,569,063     $ (646,555 )  
  2,060     UK Gilt Long Bond   December 2007     444,629,499       (1,210,688 )  
    $ (22,855,884 )  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  344,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month    
   
                                SEK STIBOR   $ (473,289 )  
  121,000,000     SEK   9/19/2012   Barclays Bank PLC   Receive     4.15 %   3 month
SEK STIBOR		     (409,748 )  
  243,000,000     SEK   9/19/2012   Citigroup   Receive     4.15 %   3 month
SEK STIBOR		     (822,883 )  
  827,000,000     SEK   9/19/2012   Deutsche Bank AG   Receive     4.15 %   3 month
SEK STIBOR		    
(2,800,510)		    
  590,000,000     SEK   9/19/2012   JP Morgan
Chase Bank		   Receive     4.15 %   3 month
SEK STIBOR		     (1,997,946 )  
  13,400,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month
CHF LIBOR		     (240,743 )  
  204,700,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month
CHF LIBOR		     (3,677,613 )  
  251,200,000     CHF   9/19/2012   JP Morgan
Chase Bank		   Receive     2.70 %   6 month
CHF LIBOR		     (4,513,025 )  
  111,000,000     SEK   9/19/2014   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (459,135 )  
  54,100,000     AUD   9/17/2017   JP Morgan
Chase Bank		   Receive     6.83 %   6 month
AUD BBSW		     633,772    
  190,200,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month
SEK STIBOR		     (1,138,069 )  
  154,600,000     SEK   9/19/2017   JP Morgan Chase
Bank		   Receive     4.25 %   3 month
SEK STIBOR		     (925,055 )  
  Premiums to (Pay) Receive   $ 14,366,784     $ (16,824,244 )  

 

See accompanying notes to the financial statements.


6


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Pay   Receive   Market
Value		  
  259,006,106     USD   9/28/2007   Barclays   1 month   Barclays TIPS Index    
   
                Bank PLC   LIBOR -0.05%   Total Return   $ 1,308,850    
  1,032,176,798     USD   12/31/2007   Barclays
Bank PLC		   1 month
LIBOR -0.05%		   Barclays TIPS Index
Total Return		     5,215,957    
  10,000,000     USD   12/31/2007   Lehman
Brothers		   1 month
LIBOR -0.04%		   Lehman Brothers
1-10 Year TIPS Index		     59,399    
  1,025,911,048     USD   1/31/2008   Barclays
Bank PLC		   1 month
LIBOR -0.05%		   Barclays TIPS Index
Total Return		     5,184,294    
  255,854,582     USD   1/31/2008   Deutsche
Bank AG		   1 month
LIBOR -0.05%		   Deutsche TIPS
Index Total Return		     1,490,841    
  206,000,000     USD   2/29/2008   Barclays
Bank PLC		   1 month
LIBOR -0.05%		   Barclays TIPS Index
Total Return		     1,040,991    
  550,000,000     USD   2/29/2008   Barclays
Bank PLC		   1 month
LIBOR -0.30%		   Barclays TIPS Index
Total Return		     —    
  6,000,000     USD   2/29/2008   JPMorgan
Chase Bank		   1 month
LIBOR -0.20%		   Lehman Brothers
1-10 Year TIPS Index		     —    
    Premiums to (Pay) Receive   $ —     $ 14,300,332    

 

Notes to Schedule of Investments:

BBSW - Bank Bill Swap Reference Rate

CPI - Consumer Price Index

LIBOR - London Interbank Offered Rate

MTN - Medium Term Note

STIBOR - Stockholm Interbank Offered Rate

TIPS - Treasury Inflation Protected Securities

See accompanying notes to the financial statements.


7


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

(a)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(b)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(c)  Bankrupt issuer.

(d)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - B ritish Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar		  

 

See accompanying notes to the financial statements.


8



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $416,555,316) (Note 2)   $ 417,908,129    
Investments in affiliated issuers, at value (cost $3,360,346,918) (Notes 2 and 8)     3,352,214,789    
Receivable for Fund shares sold     60,000,000    
Interest receivable     1,517,857    
Unrealized appreciation on open forward currency contracts (Note 2)     43,078,740    
Receivable for variation margin on open futures contracts (Note 2)     5,235,842    
Receivable for open swap contracts (Note 2)     14,934,104    
Receivable for closed swap contracts (Note 2)     2,552,414    
Receivable for expenses reimbursed by Manager (Note 3)     105,006    
Total assets     3,897,546,881    
Liabilities:  
Payable for investments purchased     52,732,818    
Payable for Fund shares repurchased     2,782,412    
Foreign currency due to custodian     1,036,107    
Payable to affiliate for (Note 3):  
Management fee     784,402    
Shareholder service fee     205,645    
Trustees and Chief Compliance Officer of GMO Trust fees     3,453    
Unrealized depreciation on open forward currency contracts (Note 2)     64,192,056    
Payable for open swap contracts (Note 2)     17,458,016    
Accrued expenses     231,896    
Total liabilities     139,426,805    
Net assets   $ 3,758,120,076    

 

See accompanying notes to the financial statements.


9


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 3,751,738,803    
Accumulated undistributed net investment income     23,205,129    
Accumulated net realized gain     8,753,160    
Net unrealized depreciation     (25,577,016 )  
    $ 3,758,120,076    
Net assets attributable to:  
Class III shares   $ 275,385,612    
Class IV shares   $ 281,296,357    
Class VI shares   $ 3,201,438,107    
Shares outstanding:  
Class III     10,861,703    
Class IV     11,091,944    
Class VI     126,191,223    
Net asset value per share:  
Class III   $ 25.35    
Class IV   $ 25.36    
Class VI   $ 25.37    

 

See accompanying notes to the financial statements.


10


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 15,626,641    
Dividends from affiliated issuers (Note 8)     13,200,594    
Total investment income     28,827,235    
Expenses:  
Management fee (Note 3)     2,932,250    
Shareholder service fee – Class III (Note 3)     193,818    
Shareholder service fee – Class IV (Note 3)     79,332    
Shareholder service fee – Class VI (Note 3)     530,396    
Custodian, fund accounting agent and transfer agent fees     303,692    
Audit and tax fees     32,660    
Legal fees     20,700    
Trustees fees and related expenses (Note 3)     10,241    
Registration fees     3,588    
Miscellaneous     11,500    
Total expenses     4,118,177    
Fees and expenses reimbursed by Manager (Note 3)     (365,792 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (147,762 )  
Shareholder service fee waived (Note 3)     (52,984 )  
Net expenses     3,551,639    
Net investment income (loss)     25,275,596    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (5,160,711 )  
Investments in affiliated issuers     (419,640 )  
Realized gains distributions from affiliated issuers (Note 8)     2,227,867    
Closed futures contracts     (34,054,570 )  
Closed swap contracts     76,059,120    
Foreign currency, forward contracts and foreign currency related transactions     (9,932,577 )  
Net realized gain (loss)     28,719,489    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (2,650,277 )  
Investments in affiliated issuers     (7,088,689 )  
Open futures contracts     (690,037 )  
Open swap contracts     (21,177,219 )  
Foreign currency, forward contracts and foreign currency related transactions     (26,617,826 )  
Net unrealized gain (loss)     (58,224,048 )  
Net realized and unrealized gain (loss)     (29,504,559 )  
Net increase (decrease) in net assets resulting from operations   $ (4,228,963 )  

 

See accompanying notes to the financial statements.


11


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
May 31, 2006
(commencement of
operations) through
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 25,275,596     $ 54,489,316    
Net realized gain (loss)     28,719,489       942,418    
Change in net unrealized appreciation (depreciation)     (58,224,048 )     32,647,032    
Net increase (decrease) in net assets from operations     (4,228,963 )     88,078,766    
Distributions to shareholders from:  
Net investment income  
Class III     —       (9,719,161 )  
Class IV     —       (5,271,677 )  
Class VI     —       (58,674,899 )  
Total distributions from net investment income     —       (73,665,737 )  
Net realized gains  
Class III     —       (511,535 )  
Class IV     —       (275,565 )  
Class VI     —       (3,015,693 )  
Total distributions from net realized gains     —       (3,802,793 )  
      —       (77,468,530 )  
Net share transactions (Note 7):  
Class III     15,679,873       258,555,425    
Class IV     187,211,804       94,165,574    
Class VI     1,329,627,840       1,866,498,287    
Increase (decrease) in net assets resulting from net share transactions     1,532,519,517       2,219,219,286    
Total increase (decrease) in net assets     1,528,290,554       2,229,829,522    
Net assets:  
Beginning of period     2,229,829,522       —    
End of period (including accumulated undistributed
net investment income of $23,205,129 and distributions
in excess of net investment income of $2,070,467, respectively)		   $ 3,758,120,076     $ 2,229,829,522    

 

See accompanying notes to the financial statements.


12



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
June 29, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.47     $ 24.96    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.28       0.75    
Net realized and unrealized gain (loss)     (0.40 )     0.68    
Total from investment operations     (0.12 )     1.43    
Less distributions to shareholders:  
From net investment income     —       (0.87 )  
From net realized gains     —       (0.05 )  
Total distributions     —       (0.92 )  
Net asset value, end of period   $ 25.35     $ 25.47    
Total Return(b)      (0.47 )%**      5.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 275,386     $ 260,205    
Net expenses to average daily net assets(c)      0.38 %*      0.39 %*   
Net investment income to average daily net assets(a)      2.17 %*      4.37 %*   
Portfolio turnover rate     37 %**      37 %††   
Fees and expenses reimbursed by the Manager to
average daily net assets:		     0.05 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the period from May 31, 2006 (commencement of operations) through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


13


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class IV share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
July 18, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.48     $ 25.07    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.27       0.65    
Net realized and unrealized gain (loss)     (0.39 )     0.69    
Total from investment operations     (0.12 )     1.34    
Less distributions to shareholders:  
From net investment income     —       (0.88 )  
From net realized gains     —       (0.05 )  
Total distributions     —       (0.93 )  
Net asset value, end of period   $ 25.36     $ 25.48    
Total Return(b)      (0.47 )%**      5.39 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 281,296     $ 94,783    
Net expenses to average daily net assets(c)      0.33 %*      0.33 %*   
Net investment income to average daily net assets(a)      2.13 %*      4.10 %*   
Portfolio turnover rate     37 %**      37 %††   
Fees and expenses reimbursed by the Manager to
average daily net assets:		     0.05 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the period from May 31, 2006 (commencement of operations) through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout each period)

    Six Months Ended
August 31, 2007
(Unaudited)		   Period from
May 31, 2006
(commencement of
operations) through
February 28, 2007		  
Net asset value, beginning of period   $ 25.48     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.27       0.83    
Net realized and unrealized gain (loss)     (0.38 )     0.60    
Total from investment operations     (0.11 )     1.43    
Less distributions to shareholders:  
From net investment income     —       (0.90 )  
From net realized gains     —       (0.05 )  
Total distributions     —       (0.95 )  
Net asset value, end of period   $ 25.37     $ 25.48    
Total Return(b)      (0.43 )%**      5.75 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,201,438     $ 1,874,841    
Net expenses to average daily net assets(c)      0.29 %*      0.29 %*   
Net investment income to average daily net assets(a)      2.15 %*      4.33 %*   
Portfolio turnover rate     37 %**      37 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.05 %*      0.06 %*   

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Net expenses exclude expenses incurred indirectly through investment in underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


15



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Inflation Indexed Plus 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the Lehman Brothers U.S. Treasury Inflation Notes Index. The Fund primarily makes investments that are indexed or otherwise "linked" to general measures of inflation in the country of issue. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its assets in shares of Short-Duration Collateral Fund; in inflation indexed bonds issued by the U.S. and foreign governments and their agencies or instrumentalities (including securities neither guaranteed nor insured by the U.S. government), including Inflation-Protected Securities issued by the U.S. Treasury (TIPS), and inflation indexed bonds issued by corporations; in shares of World Opportunity Overlay Fund; in futures contracts, swap contracts, currency forwards, currency options and other types of derivatives; up to 5% of the Fund's total assets in sovereign debt of emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund; and in non-inflation indexed (or nominal) fixed income securities issued by the U.S. and foreign governments and their agencies or instrumentalities (including securities neither guaranteed nor insured by the U.S. Government) and by corporations (to gain direct exposure to such securities and/or for use as part of a synthetic position).

As of August 31, 2007, the Fund had three classes of shares outstanding: Class III, Class IV and Class VI. Class VI, Class III and Class IV commenced operations on May 31, 2006, June 29, 2006 and July 18, 2006, respectively. Each class of shares bears a different level of shareholder service fees.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). Shares of GMO Short-Duration Collateral Fund, GMO Special Purpose Holding Fund and GMO World Opportunity Overlay Fund are not publicly available.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements


16


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $177,138 in conjunction with a settlement agreement related to the default of those asset-backed securities.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.


17


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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


18


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.


19


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Indexed securities

The Fund invests in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's de fault. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their


20


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.


21


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes and distributions

The Fund intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has adopted a tax year-end of December 31. 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,778,144,285     $ 8,249,998     $ (16,271,365 )   $ (8,021,367 )  

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.


22


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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. 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's operations. In addition, the Fund will also incur certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3 ).

Recently issues accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescri bes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.25% 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 of each class at the annual rate of 0.15% for Class III shares, 0.10% for Class IV shares and 0.055% for Class VI shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect


23


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

shareholder service fees borne by a class of shares of the Fund exceeds 0.15% for Class III shares, 0.10% for Class IV shares and 0.055% for Class VI shares; provided, however, that the amount of this waiver will not exceed the respective Class' shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's fees and expenses of the independent trustees of the Trust, fees for legal services not procured or provided by the Manager for the Trust, compensation and expenses of the Trust's CCO (excluding any employee benefits), and investment-related expenses such as brokerage commissions, hedging transaction fees, securities lending fees and expenses, interest expense and transfer taxes), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.014 %     0.005 %     0.048 %     0.067 %  

 

        


24


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $7,665 and $5,428, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2007, cost of purchases and proceeds from sales of investments, other than short-term obligations and class exchanges, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 150,592,653     $ 104,702,085    
Investments (non-U.S. Government securities)     2,351,566,919       800,920,593    

 

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 62.33% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. One of the shareholders is a fund of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 0.02% of the Fund's shares were held by thirteen related parties comprised of certain GMO employee accounts, and 94.94% of the Fund's shares were held by accounts for which the Manager has investment discretion.


25


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		   Period from June 29, 2006
(commencement of operations)
through February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     5,495,887     $ 139,138,912       15,451,865     $ 389,950,136    
Shares issued to shareholders
in reinvestment of distributions		     —       —       316,658       7,932,294    
Shares repurchased     (4,848,896 )     (123,459,039 )     (5,553,811 )     (139,327,005 )  
Net increase (decrease)     646,991     $ 15,679,873       10,214,712     $ 258,555,425    
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from July 18, 2006
(commencement of operations)
through February 28, 2007		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     7,496,338     $ 190,386,804       7,531,845     $ 189,718,619    
Shares issued to shareholders
in reinvestment of distributions		     —       —       221,447       5,547,242    
Shares repurchased     (124,966 )     (3,175,000 )     (4,032,720 )     (101,100,287 )  
Net increase (decrease)     7,371,372     $ 187,211,804       3,720,572     $ 94,165,574    
    Six Months Ended
August 31, 2007
(Unaudited)		   Period from May 31, 2006
(commencement of operations)
through February 28, 2007		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     78,317,406     $ 1,982,917,910       71,907,875     $ 1,824,498,863    
Shares issued to shareholders
in reinvestment of distributions		     —       —       2,462,698       61,690,592    
Shares repurchased     (25,719,558 )     (653,290,070 )     (777,198 )     (19,691,168 )  
Net increase (decrease)     52,597,848     $ 1,329,627,840       73,593,375     $ 1,866,498,287    

 


26


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains 		  Value,
end of
period		  
GMO Emerging Country
Debt Fund, Class III		   $ 66,616,399     $ 65,684,090     $ 19,200,000     $ 1,033,361     $ 2,050,729     $ 109,020,592    
GMO Short-Duration
Collateral Fund		     1,294,006,779       1,842,667,233       641,900,000       12,167,233       —       2,490,632,663    
GMO Special Purpose
Holding Fund		     40,775       —       —       —       177,138       41,642    
GMO World Opportunity
Overlay Fund		     447,312,841       441,725,000       137,230,000       —       —       752,519,892    
Totals   $ 1,807,976,794     $ 2,350,076,323     $ 798,330,000     $ 13,200,594     $ 2,227,867     $ 3,352,214,789    

 


27



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed the Fund's performance since inception in 2006, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the


28


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a re sult of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's


29


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


30


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.


31


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.45 %   $ 1,000.00     $ 995.30     $ 2.26    
2) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.87     $ 2.29    
Class IV      
1) Actual     0.40 %   $ 1,000.00     $ 995.30     $ 2.01    
2) Hypothetical     0.40 %   $ 1,000.00     $ 1,023.13     $ 2.03    
Class VI      
1) Actual     0.36 %   $ 1,000.00     $ 995.70     $ 1.81    
2) Hypothetical     0.36 %   $ 1,000.00     $ 1,023.33     $ 1.83    

 

*  Expenses are calculated using each Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


32



GMO International Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.2 %  
Short-Term Investments     4.1    
Futures     1.2    
Forward Currency Contracts     0.9    
Options Purchased     0.5    
Loan Participations     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.2 )  
Swaps     (0.3 )  
Reverse Repurchase Agreements     (0.4 )  
Other     (0.2 )  
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region     62.8 %  
Sweden     21.1    
Japan     19.6    
Australia     10.1    
Switzerland     9.9    
Canada     3.9    
Emerging     3.0    
United Kingdom     (0.9 )  
United States     (29.5 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


1



GMO International Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 4.0%  
        Australia — 0.1%  
        Asset-Backed Securities  
USD     533,624     Medallion Trust, Series 03-1G, Class A, Variable Rate,
3 mo. LIBOR + .19%, 5.55%, due 12/21/33		     531,378    
        Canada — 1.4%  
        Foreign Government Obligations  
CAD     2,000,000     Government of Canada (Cayman), 7.25%, due 06/01/08     1,927,519    
CAD     2,000,000     Province of British Columbia, 7.88%, due 11/30/23     2,486,458    
GBP     1,500,000     Province of Quebec, 8.63%, due 11/04/11     3,288,705    
    Total Canada     7,702,682    
        United Kingdom — 0.1%  
        Asset-Backed Securities  
GBP     81,530     RMAC, Series 03-NS1A, Class A2A, 144A, AMBAC, Variable Rate,
3 mo. GBP LIBOR + .45%, 6.29%, due 06/12/35		     164,616    
GBP     199,132     RMAC, Series 03-NS2A, Class A2A, 144A, AMBAC, Variable Rate,
3 mo. GBP LIBOR + .40%, 6.24%, due 09/12/35		     401,420    
    Total United Kingdom     566,036    
        United States — 2.4%  
        U.S. Government  
USD     7,737,540     U.S. Treasury Inflation Indexed Note, 3.63%, due 01/15/08 (a) (b)      7,714,569    
USD     5,000,000     U.S. Treasury Note, 4.00%, due 09/30/07 (a)      5,000,000    
    Total United States     12,714,569    
    TOTAL DEBT OBLIGATIONS (COST $19,314,925)     21,514,665    

 

See accompanying notes to the financial statements.


2


GMO International Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Principal Amount /
Shares		   Description   Value ($)  
        OPTIONS PURCHASED — 0.1%  
        Currency Options — 0.1%  
EUR     15,100,000     EUR Call/USD Put, Expires 10/23/07, Strike 1.32     745,402    
JPY     3,680,000,000     JPY Put/USD Call, Expires 01/22/08, Strike 123.00     48,208    
    Total Currency Options     793,610    
    TOTAL OPTIONS PURCHASED (COST $635,453)     793,610    
        MUTUAL FUNDS — 95.2%  
        United States — 95.2%  
        Affiliated Issuers  
    1,563,923     GMO Emerging Country Debt Fund, Class III     16,264,799    
    14,993,311     GMO Short-Duration Collateral Fund     387,127,297    
    37,466     GMO Special Purpose Holding Fund (c) (d)      53,951    
    4,082,795     GMO World Opportunity Overlay Fund     107,622,486    
    Total United States     511,068,533    
    TOTAL MUTUAL FUNDS (COST $507,557,496)     511,068,533    
        SHORT-TERM INVESTMENTS — 0.2%  
        Money Market Funds — 0.2%  
    1,283,734     Merrimac Cash Series-Premium Class     1,283,734    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,283,734)     1,283,734    
    TOTAL INVESTMENTS — 99.5%
(Cost $528,791,608)		     534,660,542    
            Other Assets and Liabilities (net) — 0.5%     2,445,474    
    TOTAL NET ASSETS — 100.0%   $ 537,106,016    

 

See accompanying notes to the financial statements.


3


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement   Date   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
    9/11/07   CHF     72,500,000     $ 60,011,027     $ 345,102    
    9/11/07   CHF     30,500,000       25,246,018       22,339    
    9/11/07   CHF     16,200,000       13,409,361       6,775    
    9/11/07   CHF     35,100,000       29,053,614       (332,362 )  
    9/11/07   CHF     13,900,000       11,505,562       (121,275 )  
    9/25/07   EUR     132,600,000       180,807,914       (2,152,240 )  
    9/25/07   EUR     10,100,000       13,771,945       (97,779 )  
    9/25/07   EUR     2,600,000       3,545,253       (21,578 )  
    9/04/07   GBP     42,300,000       85,287,375       2,061,575    
    9/04/07   GBP     900,000       1,814,625       22,914    
    9/04/07   GBP     1,400,000       2,822,750       (45,528 )  
    11/06/07   GBP     26,600,000       53,566,502       153,702    
    10/02/07   JPY     11,410,000,000       98,932,000       4,188,838    
    10/02/07   JPY     1,480,000,000       12,832,547       5,206    
    10/02/07   JPY     1,710,000,000       14,826,794       (153,350 )  
    10/02/07   JPY     170,000,000       1,474,009       36,303    
    9/18/07   NZD     38,300,000       26,856,090       (2,227,846 )  
    9/18/07   NZD     8,300,000       5,819,988       (823,855 )  
    $ 641,583,374     $ 866,941    
Sales  
    10/16/07   AUD     16,500,000     $ 13,488,481     $ 635,519    
    10/16/07   AUD     1,800,000       1,471,471       55,361    
    10/16/07   AUD     10,500,000       8,583,579       258,681    
    10/23/07   CAD     3,200,000       3,033,093       5,641    
    9/11/07   CHF     4,000,000       3,310,953       (67,780 )  
    9/11/07   CHF     4,600,000       3,807,596       28,015    
    9/11/07   CHF     5,000,000       4,138,691       21,874    
    9/25/07   EUR     8,400,000       11,453,895       58,171    
    9/25/07   EUR     21,900,000       29,861,941       102,667    

 

See accompanying notes to the financial statements.


4


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
9/25/07   EUR     1,400,000     $ 1,908,983     $ (20,278 )  
9/04/07   GBP     9,400,000       18,952,750       64,992    
9/04/07   GBP     6,900,000       13,912,125       108,242    
9/04/07   GBP     1,700,000       3,427,625       7,633    
9/04/07   GBP     26,600,000       53,632,250       (147,630 )  
9/18/07   NZD     4,200,000       2,945,054       321,139    
9/18/07   NZD     3,600,000       2,524,332       285,036    
9/18/07   NZD     6,300,000       4,417,581       507,223    
9/18/07   NZD     26,200,000       18,371,529       1,696,729    
    $ 199,241,929     $ 3,921,235    

 

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
10/09/07   EUR 28,800,000     NOK 230,362,560     $ 257,677    
10/09/07   EUR 200,000     NOK 1,594,500       890    
10/30/07   EUR 600,000     SEK 5,616,000       (2,705 )  
    $ 255,862    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  172     Australian Government Bond 10 Yr.   September 2007   $ 14,150,880     $ 312,697    
  428     Australian Government Bond 3 Yr.   September 2007     34,845,238       246,119    
  161     Canadian Government Bond 10 Yr.   December 2007     17,010,199       (67,566 )  
  674     Euro BOBL   September 2007     99,183,855       1,414,714    
  1,348     Euro Bund   September 2007     208,917,329       3,893,209    
  2,000     Federal Fund 30 day   September 2007     791,771,670       (15,147 )  
  82     Japanese Government
Bond 10 Yr. (TSE)		   September 2007     95,851,974       1,444,750    
    $ 7,228,776    

 

See accompanying notes to the financial statements.


5


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Sales      
  218     U.S. Long Bond (CBT)   December 2007   $ 24,320,625     $ (194,919 )  
  265     U.S. Treasury Note 10 Yr.   December 2007     28,897,422       (189,326 )  
  468     U.S. Treasury Note 2 Yr. (CBT)   December 2007     96,481,125       (177,975 )  
  142     U.S. Treasury Note 5 Yr. (CBT)   December 2007     15,151,844       (93,685 )  
  37     UK Gilt Long Bond   December 2007     7,986,063       (21,745 )  
    $ (677,650 )  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)		   Fixed
Rate		   Variable Rate   Market
Value		  
  103,000,000     SEK   9/19/2009   Deutsche Bank AG   Receive     4.00 %   3 month SEK STIBOR   $ (141,712 )  
  90,000,000     SEK   9/19/2012   Barclays Bank PLC   Receive     4.15 %   3 month SEK STIBOR     (304,771 )  
  95,000,000     SEK   9/19/2012   Citigroup   Receive     4.15 %   3 month SEK STIBOR     (321,703 )  
  26,000,000     SEK   9/19/2012   Deutsche Bank AG   Receive     4.15 %   3 month SEK STIBOR     (88,045 )  
  8,000,000     SEK   9/19/2012   JP Morgan
Chase Bank		   Receive     4.15 %   3 month SEK STIBOR     (27,091 )  
  3,800,000     CHF   9/19/2012   Citigroup   Receive     2.70 %   6 month CHF LIBOR     (68,270 )  
  34,300,000     CHF   9/19/2012   Deutsche Bank AG   Receive     2.70 %   6 month CHF LIBOR     (616,229 )  
  28,200,000     CHF   9/19/2012   JP Morgan
Chase Bank		   Receive     2.70 %   6 month CHF LIBOR     (506,638 )  
  59,000,000     SEK   9/19/2014   Deutsche Bank AG   Receive     4.25 %   3 month SEK STIBOR     (244,045 )  
  8,200,000     AUD   9/17/2017   JP Morgan
Chase Bank		   Receive     6.83 %   6 month AUD BBSW     96,061    
  25,800,000     SEK   9/19/2017   Deutsche Bank AG   Receive     4.25 %   3 month SEK STIBOR     (154,375 )  
  24,400,000     SEK   9/19/2017   JP Morgan
Chase Bank		   Receive     4.25 %   3 month SEK STIBOR     (145,998 )  
  5,000,000     EUR   3/21/2030   UBS Warburg   Receive     5.90 %   3 month Floating Rate
EUR LIBOR		     1,016,525    
    Premiums to (Pay) Receive   $ 1,050,306     $ (1,506,291 )  

 

See accompanying notes to the financial statements.


6


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

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.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

RMAC - Residential Mortgage Acceptance Corp.

STIBOR - Stockholm Interbank Offered Rate

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2007, which are subject to change based on the terms of the security.

(a)  All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(b)  Indexed security in which price and/or coupon is linked to the prices of a specific instrument or financial statistic (Note 2).

(c)  Bankrupt issuer.

(d)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust (Note 2).

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - B ritish Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar		  

 

See accompanying notes to the financial statements.


7



GMO International Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $21,234,112) (Note 2)   $ 23,592,009    
Investments in affiliated issuers, at value (cost $507,557,496) (Notes 2 and 8)     511,068,533    
Foreign currency, at value (cost $34,117) (Note 2)     34,222    
Dividends and interest receivable     496,235    
Unrealized appreciation on open forward currency contracts (Note 2)     11,258,244    
Interest receivable for open swap contracts     100,452    
Receivable for open swap contracts (Note 2)     1,112,586    
Other expense reimbursement from Manager (Note 2)     830,768    
Receivable for expenses reimbursed by Manager (Note 3)     31,190    
Total assets     548,524,239    
Liabilities:  
Payable for investments purchased     1,200,000    
Payable to affiliate for (Note 3):  
Management fee     115,361    
Shareholder service fee     69,217    
Trustees and Chief Compliance Officer of GMO Trust fees     985    
Unrealized depreciation on open forward currency contracts (Note 2)     6,214,206    
Payable for open swap contracts (Note 2)     2,618,877    
Payable for variation margin on open futures contracts (Note 2)     275,165    
Accrued expenses     924,412    
Total liabilities     11,418,223    
Net assets   $ 537,106,016    
Net assets consist of:  
Paid-in capital   $ 559,506,766    
Distributions in excess of net investment income     (8,449,740 )  
Accumulated net realized loss     (31,003,851 )  
Net unrealized appreciation     17,052,841    
    $ 537,106,016    
Net assets attributable to:  
Class III shares   $ 537,106,016    
Shares outstanding:  
Class III     56,982,013    
Net asset value per share:  
Class III   $ 9.43    

 

See accompanying notes to the financial statements.


8


GMO International Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,911,580    
Interest     882,349    
Total investment income     3,793,929    
Expenses:  
Management fee (Note 3)     624,259    
Shareholder service fee – Class III (Note 3)     374,556    
Custodian, fund accounting agent and transfer agent fees     94,852    
Audit and tax fees     31,740    
Legal fees     6,808    
Trustees fees and related expenses (Note 3)     2,707    
Registration fees     1,288    
Miscellaneous     3,312    
Total expenses     1,139,522    
Fees and expenses reimbursed by Manager (Note 3)     (135,424 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (32,516 )  
Shareholder service fee waived (Note 3)     (11,691 )  
Net expenses     959,891    
Net investment income (loss)     2,834,038    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (1,126,990 )  
Investments in affiliated issuers     2,249,814    
Realized gains distributions from affiliated issuers (Note 8)     651,028    
Closed futures contracts     (13,094,054 )  
Closed swap contracts     (1,300,352 )  
Foreign currency, forward contracts and foreign currency related transactions     (2,301,508 )  
Net realized gain (loss)     (14,922,062 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     440,179    
Investments in affiliated issuers     251,812    
Open futures contracts     9,927,699    
Open swap contracts     (2,232,975 )  
Foreign currency, forward contracts and foreign currency related transactions     6,247,395    
Net unrealized gain (loss)     14,634,110    
Net realized and unrealized gain (loss)     (287,952 )  
Net increase (decrease) in net assets resulting from operations   $ 2,546,086    

 

See accompanying notes to the financial statements.


9


GMO International Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,834,038     $ 18,495,917    
Net realized gain (loss)     (14,922,062 )     20,285,772    
Change in net unrealized appreciation (depreciation)     14,634,110       (3,538,755 )  
Net increase (decrease) in net assets from operations     2,546,086       35,242,934    
Distributions to shareholders from:  
Net investment income  
Class III     (18,500,709 )     (23,666,074 )  
Net realized gains  
Class III     —       (3,983,947 )  
      (18,500,709 )     (27,650,021 )  
Net share transactions (Note 7):  
Class III     103,582,374       19,357,480    
Total increase (decrease) in net assets     87,627,751       26,950,393    
Net assets:  
Beginning of period     449,478,265       422,527,872    
End of period (including distributions in excess of net investment
income of $8,449,740 and accumulated undistributed
net investment income of $7,216,931, respectively)		   $ 537,106,016     $ 449,478,265    

 

See accompanying notes to the financial statements.


10



GMO International Bond Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 9.73     $ 9.57     $ 10.61     $ 10.38     $ 9.94     $ 9.05    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.05       0.41       0.21       0.17       0.20       0.20    
Net realized and unrealized gain (loss)     (0.00 )(b)      0.38       (0.93 )     1.02       1.94       2.00    
Total from investment operations     0.05       0.79       (0.72 )     1.19       2.14       2.20    
Less distributions to shareholders:  
From net investment income     (0.35 )     (0.54 )     (0.31 )     (0.91 )     (0.71 )     (1.31 )  
From net realized gains     —       (0.09 )     (0.01 )     (0.05 )     (0.99 )     —    
Total distributions     (0.35 )     (0.63 )     (0.32 )     (0.96 )     (1.70 )     (1.31 )  
Net asset value, end of period   $ 9.43     $ 9.73     $ 9.57     $ 10.61     $ 10.38     $ 9.94    
Total Return(c)      0.57 %**      8.32 %     (6.83 )%     11.81 %     23.17 %     25.17 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 537,106     $ 449,478     $ 422,528     $ 438,365     $ 271,015     $ 122,521    
Net expenses to average daily
net assets(d) 		     0.38 %*      0.39 %     0.39 %     0.39 %     0.39 %     0.38 %  
Net investment income to average
daily net assets(a) 		     1.13 %*      4.17 %     2.13 %     1.65 %     1.98 %     1.96 %  
Portfolio turnover rate     16 %**      32 %     36 %     51 %     26 %     40 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.07 %*      0.26 %††      0.08 %     0.09 %     0.12 %     0.11 %  

 

(a)  Net investment income is affected by the timing of the declaration of the dividends by the underlying funds in which the Fund invests.

(b)  Net realized and unrealized gain (loss) was less than $0.01 per share.

(c)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

†  Calculated using average shares outstanding throughout the period.

††  Includes 0.19% non-recurring Internal Revenue Code Section 860 expense reimbursed by the Manager (Note 2).

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


11



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return in excess of that of the JPMorgan Non-U.S. Government Bond Index. The Fund typically invests in fixed income securities included in the JPMorgan Non-U.S. Government Bond Index and in securities with similar characteristics. The Fund seeks additional returns by investing in global interest rate, currency, and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of Short-Duration Collateral Fund; in futures contracts, currency options, currency forwards, swap contracts, and other types of derivatives; in investment-grade bonds denominated in various currencies, including foreign and U.S. government securities and asset-backed securities issued by foreign governments and U.S. government agencies (including securities neither guaranteed nor insured by the U.S. government), corporate bonds, and mortgage-backed and other asset-backed securities issued by pri vate issuers; in shares of World Opportunity Overlay Fund; and up to 5% of the Fund's total assets in sovereign debt of emerging countries (including below investment grade securities), primarily through investment in shares of Emerging Country Debt Fund ("ECDF").

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, upon request, without charge by calling (617) 346-7646 (collect). Shares of the GMO Short-Duration Collateral Fund, the GMO World Opportunity Overlay Fund and the GMO Special Purpose Holding Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market


12


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

GMO Special Purpose Holding Fund ("SPHF"), a holding of the Fund, has litigation pending against various entities related to the default of certain asset-backed securities previously held by SPHF. For the period ended August 31, 2007, the Fund indirectly received $229,497 in conjunction with a settlement agreement related to the default of those asset-backed securities.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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


13


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.


14


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Purc hased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. Indexed securities held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward swap spread lock swap agreements involve commitments to pay or receive a settlement amount calculated a s 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has exposure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's


15


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with 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 assets 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 under the agreement may decline below the price at which the Fund is obligated to repurchase under the agreement. The market value of the securities the Fund


16


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

has sold is determined daily and any additional required collateral is allocated to or sent by the Fund on the next business day. There were no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. For the period ended Augus t 31, 2007, the Fund did not participate in securities lending.

Taxes and distributions

The Fund intends to qualify each tax 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 are generally withheld in accordance with the applicable country's tax treaty with the United States.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $23,687,952 expiring in 2015. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of February 28, 2007, the Fund elected to defer to March 1, 2007 post-October capital losses of $1,384,814.


17


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 531,714,424     $ 3,721,815     $ (775,697 )   $ 2,946,118    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

On October 12, 2006, the Fund paid a dividend under Code Section 860 of $0.092 per share to shareholders of record as of October 11, 2006. It is anticipated the Fund will be required to make a payment, estimated to be, $830,768 to the Internal Revenue Service ("IRS") related to such dividend, which has been included in accrued expenses on the Statement of Assets and Liabilities. The Manager will make a reimbursement payment to the Fund concurrent with the Fund's payment to the IRS.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).


18


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.25% 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 0.15% for Class III shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by the Fund exceeds 0.15%; provided, however, that the amount of this waiver will not exceed 0.15%.


19


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses")) exceed 0.25% of the Fund's average daily net assets. In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2008 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses), exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.015 %     0.004 %     0.049 %     0.068 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $2,063 and $1,564, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $161,967,397 and $76,318,174, respectively.


20


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 49.71% 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 may have a material effect on the Fund.

As of August 31, 2007, 2.81% of the Fund's shares were held by four related parties comprised of certain GMO employee accounts, and 43.86% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     12,759,458     $ 122,847,475       8,919,195     $ 87,630,458    
Shares issued to shareholders
in reinvestment of distributions		     1,906,152       17,746,275       2,731,073       26,403,882    
Shares repurchased     (3,883,721 )     (37,011,376 )     (9,612,832 )     (94,676,860 )  
Net increase (decrease)     10,781,889     $ 103,582,374       2,037,436     $ 19,357,480    

 


21


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Emerging Country
Debt Fund, Class III		   $ 14,983,428     $ 3,233,941     $ 1,400,000     $ 212,409     $ 421,531     $ 16,264,799    
GMO Short-Duration
Collateral Fund		     316,596,798       128,199,170       59,400,000       2,699,171       —       387,127,297    
GMO Special Purpose
Holding Fund		     52,827       —       —       —       229,497       53,951    
GMO World Opportunity
Overlay Fund		     90,176,123       30,325,000       14,200,000       —       —       107,622,486    
Totals   $ 421,809,176     $ 161,758,111     $ 75,000,000     $ 2,911,580     $ 651,028     $ 511,068,533    

 


22



GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating


23


GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund, and reviewed information provided by the Manager regarding asset-based fees paid by its separate account clients with similar objectives. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, su ch as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered that the fee charged under the Fund's investment management agreement is based on services provided by the Manager that are in addition to, rather than duplicative of, services provided under the investment management agreements of other funds of the Trust in which it invests, noting in particular that certain underlying funds do not charge any advisory fees, and that with respect to all other underlying fun ds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for certain of the fees and expenses (including advisory fees) that the Fund would otherwise bear as a result of its investments in those other funds. In addition, the Trustees considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the


24


GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


25


GMO International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.45 %   $ 1,000.00     $ 1,005.70     $ 2.27    
2) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.87     $ 2.29    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


26



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     49.8 %  
Debt Obligations     35.0    
Cash and Cash Equivalents     19.1    
Short-Term Investments     5.4    
Preferred Stocks     2.4    
Options Purchased     0.2    
Loan Participations     0.1    
Private Equity Securities     0.1    
Investment Funds     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Convertible Securities     0.0    
Forward Currency Contracts     (0.0 )  
Written Options     (0.1 )  
Reverse Repurchase Agreements     (0.4 )  
Futures     (8.8 )  
Swaps     (9.8 )  
Other     6.8    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
United States     66.9 %  
Sweden     7.4    
Korea     5.9    
Taiwan     5.1    
Brazil     4.1    
Switzerland     3.9    
Euro Region     3.4    
Australia     3.3    
China     2.3    
Mexico     1.4    
Malaysia     1.2    
Russia     1.0    
Thailand     1.0    
Philippines     0.9    
Turkey     0.8    
India     0.6    
Poland     0.6    
South Africa     0.6    
Canada     0.4    
Israel     0.4    
Argentina     0.2    
Colombia     0.2    
Indonesia     0.2    
Ukraine     0.2    
Uruguay     0.2    
Venezuela     0.2    
Hungary     0.1    
Hong Kong     (0.1 )  
United Kingdom     (4.4 )  
Japan     (8.0 )  
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


2



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
    MUTUAL FUNDS — 100.0%  
    Affiliated Issuers — 100.0%  
  25,122,640     GMO Alpha Only Fund, Class IV     273,083,099    
  636,827     GMO Alternative Asset Opportunity Fund     17,850,261    
  2,492,521     GMO Emerging Country Debt Fund, Class IV     25,922,219    
  10,030,503     GMO Emerging Markets Fund, Class VI     241,233,608    
  11,572,616     GMO Inflation Indexed Plus Bond Fund, Class VI     293,597,267    
  3,763,812     GMO Special Situations Fund, Class VI     77,534,518    
  6,408,296     GMO Strategic Fixed Income Fund, Class VI     161,937,637    
  11,632,133     GMO U.S. Quality Equity Fund, Class VI     259,396,556    
    TOTAL MUTUAL FUNDS (COST $1,270,445,425)     1,350,555,165    
    SHORT-TERM INVESTMENTS — 0.0%  
  38,097     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $38,115 and an effective
yield of 4.25%, collateralized by a U.S. Treasury Bond with a
rate of 8.75%, maturity date of 05/15/17 and a market value,
iuncluding accrued interest, of $41,244.		     38,097    
    TOTAL SHORT-TERM INVESTMENTS (COST $38,097)     38,097    
    TOTAL INVESTMENTS — 100.0%
(Cost $1,270,483,522)		     1,350,593,262    
        Other Assets and Liabilities (net) — (0.0%)     (52,644 )  
    TOTAL NET ASSETS — 100.0%   $ 1,350,540,618    

 

Notes to Schedule of Investments:

As of August 31, 2007, 21.16% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


3



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $38,097) (Note 2)   $ 38,097    
Investments in affiliated issuers, at value (cost $1,270,445,425) (Notes 2 and 8)     1,350,555,165    
Receivable for investments sold     923,322    
Receivable for expenses reimbursed by Manager (Note 3)     9,827    
Total assets     1,351,526,411    
Liabilities:  
Payable for Fund shares repurchased     923,322    
Payable to affiliate for (Note 3):          
Trustees and Chief Compliance Officer of GMO Trust fees     2,410    
Accrued expenses     60,061    
Total liabilities     985,793    
Net assets   $ 1,350,540,618    
Net assets consist of:  
Paid-in capital   $ 1,165,616,181    
Distributions in excess of net investment income     (3,113,577 )  
Accumulated net realized gain     107,928,274    
Net unrealized appreciation     80,109,740    
    $ 1,350,540,618    
Net assets attributable to:  
Class III shares   $ 1,350,540,618    
Shares outstanding:  
Class III     48,369,175    
Net asset value per share:  
Class III   $ 27.92    

 

See accompanying notes to the financial statements.


4


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,895,171    
Interest     622    
Total investment income     2,895,793    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     26,579    
Audit and tax fees     14,076    
Legal fees     15,272    
Trustees fees and related expenses (Note 3)     7,685    
Registration fees     1,012    
Miscellaneous     8,465    
Total expenses     73,089    
Fees and expenses reimbursed by Manager (Note 3)     (58,420 )  
Net expenses     14,669    
Net investment income (loss)     2,881,124    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     81,495,074    
Realized gains distributions from affiliated issuers (Note 8)     26,278,309    
Net realized gain (loss)     107,773,383    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (16,215,928 )  
Net realized and unrealized gain (loss)     91,557,455    
Net increase (decrease) in net assets resulting from operations   $ 94,438,579    

 

See accompanying notes to the financial statements.


5


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,881,124     $ 36,545,339    
Net realized gain (loss)     107,773,383       88,320,293    
Change in net unrealized appreciation (depreciation)     (16,215,928 )     (12,988,280 )  
Net increase (decrease) in net assets from operations     94,438,579       111,877,352    
Distributions to shareholders from:  
Net investment income  
Class III     (3,177,365 )     (52,951,501 )  
Net realized gains  
Class III     (43,330,259 )     (93,632,773 )  
      (46,507,624 )     (146,584,274 )  
Net share transactions (Note 7):  
Class III     6,121,706       123,416,222    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     91,508       62,428    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     6,213,214       123,478,650    
Total increase (decrease) in net assets     54,144,169       88,771,728    
Net assets:  
Beginning of period     1,296,396,449       1,207,624,721    
End of period (including distributions in excess of net investment
income of $3,113,577 and $2,817,336, respectively)		   $ 1,350,540,618     $ 1,296,396,449    

 

See accompanying notes to the financial statements.


6



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months Ended
August 31, 2007		  
Year Ended February 28/29,		  
    (Unaudited)   2007   2006   2005   2004(a)   
Net asset value, beginning of period   $ 26.92     $ 27.76     $ 26.50     $ 24.28     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)      0.06 †      0.80 †      1.26 †      0.98 †      0.61    
Net realized and unrealized gain (loss)     1.93       1.63       2.93       3.00       4.53    
Total from investment operations     1.99       2.43       4.19       3.98       5.14    
Less distributions to shareholders:  
From net investment income     (0.07 )     (1.16 )     (1.51 )     (0.99 )     (0.75 )  
From net realized gains     (0.92 )     (2.11 )     (1.42 )     (0.77 )     (0.11 )  
Total distributions     (0.99 )     (3.27 )     (2.93 )     (1.76 )     (0.86 )  
Net asset value, end of period   $ 27.92     $ 26.92     $ 27.76     $ 26.50     $ 24.28    
Total Return(c)      7.37 %**      9.31 %     16.50 %     16.74 %     25.92 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,350,541     $ 1,296,396     $ 1,207,625     $ 1,068,099     $ 287,490    
Net expenses to average daily
net assets(d)(e) 		     0.00 %*      0.00 %     0.00 %     0.00 %     0.00 %*   
Net investment income to average
daily net assets(b) 		     0.43 %*      2.94 %     4.64 %     3.92 %     5.05 %*   
Portfolio turnover rate     33 %**      45 %     47 %     50 %     24 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.01 %*      0.01 %     0.01 %     0.02 %     0.07 %*   
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.07     $ 0.13    

 

(a)  Period from July 23, 2003 (commencement of operations) through February 29, 2004.

(b)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(c)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholders.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Purchase premiums and redemptions fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Benchmark-Free 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks a positive total return. The Fund does not seek to control risk relative to a particular securities market index or benchmark. In addition, the Fund does not seek to outperform a particular securities market index or blend of market indices (i.e., the Fund seeks positive return, not relative return). The Fund is a fund of funds and invests in shares of other GMO Funds ("underlying funds"), which may include the GMO International Equity Funds (including one or more of the GMO Emerging Markets Funds), the GMO U.S. Equity Funds, the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund. The Fund is not restricted in its exposure to any particular asset class, and at times may be substantially invested in underlying funds that primarily invest in a single asset class. In addition, the Fund is not restricted in its exposure to any particular market.

The financial statements of the underlying funds should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request by calling (617) 346-7646 (collect).

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are


8


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


9


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,274,958,413     $ 76,126,580     $ (491,731 )   $ 75,634,849    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchase and redemption of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were 0.21% and 0.21%, of the amount invested or redeemed, respectively. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemptions fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee cha rged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund


10


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

received $475 and $15,111 in purchase premiums and $91,033 and $47,317 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.


11


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

3.  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 directly charge a management or shareholder service fee from the Fund, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act)), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.491 %     0.070 %     0.025 %     0.586 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $5,845 and $3,956, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $441,750,119 and $452,882,985, respectively.


12


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 14.20% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder may have a material effect on the Fund.

As of August 31, 2007, 1.40% of the Fund's shares were held by eighteen related parties comprised of certain GMO employee accounts, and 96.98% of the Fund's shares were held by accounts for which the Manager has investment discretion.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     11,636     $ 320,032       230,453     $ 6,218,922    
Shares issued to shareholders
in reinvestment of distributions		     1,563,264       44,052,781       5,166,625       136,960,268    
Shares repurchased     (1,365,692 )     (38,251,107 )     (737,840 )     (19,762,968 )  
Purchase premiums and
redemption fees		     —       91,508       —       62,428    
Net increase (decrease)     209,208     $ 6,213,214       4,659,238     $ 123,478,650    

 


13


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Alpha Only
Fund, Class IV		   $ 298,510,368     $ 31,019,000     $ 68,925,486     $ —     $ —     $ 273,083,099    
GMO Alternative Asset
Opportunity Fund		     52,680,617       —       33,755,731       —       —       17,850,261    
GMO Emerging Country
Debt Fund, Class IV		     27,366,474       1,062,997       1,747,200       357,443       705,554       25,922,219    
GMO Emerging Markets
Fund, Class VI		     350,694,222       22,408,691       175,345,352       1,039,429       21,369,262       241,233,608    
GMO Inflation Indexed
Plus Bond Fund, Class VI		     162,776,234       134,049,600       2,850,983       —       —       293,597,267    
GMO International Growth
Equity Fund, Class IV		     39,254,064       1,415,956       42,470,420       —       1,415,956       —    
GMO International Intrinsic
Value Fund, Class IV		     38,941,954       889,041       41,771,769       —       889,041       —    
GMO International Small
Companies Fund, Class III		     13,336,722       461,656       13,265,466       —       461,656       —    
GMO Special Situations
Fund, Class VI		     —       75,276,231       —       —       —       77,534,518    
GMO Strategic Fixed Income
 Fund, Class VI		     225,145,879       6,571,544       71,349,036       —       —       161,937,637    
GMO U.S. Quality Equity
Fund, Class VI		     87,702,351       168,595,403       1,401,542       1,498,299       1,436,840       259,396,556    
Totals   $ 1,296,408,885     $ 441,750,119     $ 452,882,985     $ 2,895,171     $ 26,278,309     $ 1,350,555,165    

 


14



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees considered that the Fund seeks a positive total return and does not seek to outperform a particular securities market index or blend of market indices. The Trustees also considered the Fund's investment performance as compared to funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including a one-year period and for the life of the Fund, and information prepared by the third-party data services, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees observed that the usefulness of the comparative data provided by the third-party data services was limited because the peer groups they used for the Fund included funds with investment programs that were substantially different from that of the Fund. The Trustees also considered the qualifications and experience of the personne l responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


15


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationship s). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory fees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


16


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


17


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
  1 ) Actual     0.59 %   $ 1,000.00     $ 1,073.70     $ 3.08    
  2 ) Hypothetical     0.59 %   $ 1,000.00     $ 1,022.17     $ 3.00    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


18



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     57.7 %  
Debt Obligations     29.8    
Cash and Cash Equivalents     9.8    
Short-Term Investments     4.7    
Preferred Stocks     1.6    
Options Purchased     0.1    
Private Equity Securities     0.1    
Loan Participations     0.1    
Investment Funds     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Convertible Securities     0.0    
Written Options     (0.1 )  
Forward Currency Contracts     (0.1 )  
Reverse Repurchase Agreements     (0.2 )  
Swaps     (4.5 )  
Futures     (5.0 )  
Other     6.0    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
United States     44.2 %  
Euro Region     16.8    
Sweden     7.0    
United Kingdom     4.8    
Switzerland     4.4    
Australia     4.3    
Korea     3.0    
Taiwan     2.6    
Japan     2.2    
Brazil     2.1    
China     1.2    
Singapore     1.0    
Mexico     0.7    
Canada     0.6    
Hong Kong     0.6    
Malaysia     0.6    
Philippines     0.5    
Russia     0.5    
Thailand     0.5    
India     0.4    
Turkey     0.3    
Denmark     0.2    
Indonesia     0.2    
Israel     0.2    
Norway     0.2    
Poland     0.2    
South Africa     0.2    
Columbia     0.1    
Hungary     0.1    
Ukraine     0.1    
Uruguay     0.1    
Venezuela     0.1    
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


2



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    34,090,352     GMO Alpha Only Fund, Class IV     370,562,131    
    5,850,131     GMO Core Plus Bond Fund, Class IV     58,033,301    
    2,917,240     GMO Domestic Bond Fund, Class VI     28,968,190    
    1,546,872     GMO Emerging Countries Fund, Class III     27,333,229    
    1,150,467     GMO Emerging Country Debt Fund, Class IV     11,964,860    
    14,739,950     GMO Emerging Markets Fund, Class VI     354,495,794    
    23,356,547     GMO Inflation Indexed Plus Bond Fund, Class VI     592,555,595    
    2,303,752     GMO International Bond Fund, Class III     21,724,380    
    11,888,655     GMO International Core Equity Fund, Class VI     491,476,986    
    9,277,833     GMO International Growth Equity Fund, Class IV     302,179,025    
    8,176,639     GMO International Intrinsic Value Fund, Class IV     298,283,788    
    392,898     GMO Short-Duration Investment Fund, Class III     3,547,867    
    8,700,000     GMO Special Situations Fund, Class VI     179,220,000    
    15,708,820     GMO Strategic Fixed Income Fund, Class VI     396,961,871    
    6,756,519     GMO U.S. Core Equity Fund, Class VI     96,685,784    
    15,131,727     GMO U.S. Quality Equity Fund, Class VI     337,437,523    
    27,074     GMO U.S. Value Fund, Class III     284,549    
    TOTAL MUTUAL FUNDS (COST $3,394,985,217)     3,571,714,873    
        SHORT-TERM INVESTMENTS — 0.0%  
    34,379     Citigroup Global Markets Repurchase Agreement, dated 08/31/07, due 09/04/07,
with a maturity value of $34,395 and an effective yield of 4.25%, collateralized
by a U.S. Treasury Bond with a rate of 8.75%, maturity date of 05/15/17
and a market value, including accrued interest, of $37,120.		     34,379    
    TOTAL SHORT-TERM INVESTMENTS (COST $34,379)     34,379    
    TOTAL INVESTMENTS — 100.0%
(Cost $3,395,019,596)		     3,571,749,252    
          Other Assets and Liabilities (net) — 0.0%     (74,583 )  
    TOTAL NET ASSETS — 100.0%   $ 3,571,674,669    

 

See accompanying notes to the financial statements.


3


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2007 (Unaudited)

Notes to Schedule of Investments:

As of August 31, 2007, 38.62% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


4



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $34,379) (Note 2)   $ 34,379    
Investments in affiliated issuers, at value (cost $3,394,985,217) (Notes 2 and 8)     3,571,714,873    
Receivable for investments sold     124,000    
Receivable for expenses reimbursed by Manager (Note 3)     15,252    
Total assets     3,571,888,504    
Liabilities:  
Payable for Fund shares repurchased     124,000    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     6,531    
Accrued expenses     83,304    
Total liabilities     213,835    
Net assets   $ 3,571,674,669    
Net assets consist of:  
Paid-in capital   $ 3,286,413,735    
Accumulated undistributed net investment income     10,043,219    
Accumulated net realized gain     98,488,059    
Net unrealized appreciation     176,729,656    
    $ 3,571,674,669    
Net assets attributable to:  
Class III shares   $ 3,571,674,669    
Shares outstanding:  
Class III     290,088,658    
Net asset value per share:  
Class III   $ 12.31    

 

See accompanying notes to the financial statements.


5


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 15,390,228    
Interest     44,519    
Total investment income     15,434,747    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     25,208    
Audit and tax fees     14,628    
Legal fees     36,892    
Trustees fees and related expenses (Note 3)     18,053    
Registration fees     3,680    
Miscellaneous     20,516    
Total expenses     118,977    
Fees and expenses reimbursed by Manager (Note 3)     (91,264 )  
Net expenses     27,713    
Net investment income (loss)     15,407,034    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     40,416,732    
Realized gains distributions from affiliated issuers (Note 8)     59,074,575    
Net realized gain (loss)     99,491,307    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     43,747,793    
Net realized and unrealized gain (loss)     143,239,100    
Net increase (decrease) in net assets resulting from operations   $ 158,646,134    

 

See accompanying notes to the financial statements.


6


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 15,407,034     $ 77,547,567    
Net realized gain (loss)     99,491,307       141,698,243    
Change in net unrealized appreciation (depreciation)     43,747,793       (2,413,878 )  
Net increase (decrease) in net assets from operations     158,646,134       216,831,932    
Distributions to shareholders from:  
Net investment income  
Class III     (2,816,719 )     (104,092,536 )  
Net realized gains  
Class III     (85,530,747 )     (76,782,210 )  
      (88,347,466 )     (180,874,746 )  
Net share transactions (Note 7):  
Class III     421,871,111       1,229,975,659    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     341,126       1,039,471    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     422,212,237       1,231,015,130    
Total increase (decrease) in net assets     492,510,905       1,266,972,316    
Net assets:  
Beginning of period     3,079,163,764       1,812,191,448    
End of period (including accumulated undistributed net investment
income of $10,043,219 and distributions in excess of net
investment income of $2,547,096, respectively)		   $ 3,571,674,669     $ 3,079,163,764    

 

See accompanying notes to the financial statements.


7



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value,
beginning of period		   $ 12.01     $ 11.76     $ 11.33     $ 10.74     $ 8.13     $ 8.64    
Income (loss) from
investment operations:		  
Net investment
income (loss)(a) 		     0.06 †      0.39 †      0.36 †      0.27 †      0.18       0.20    
Net realized and
unrealized gain (loss)		     0.57       0.66       0.86       0.90       2.68       (0.28 )  
Total from
investment
operations		     0.63       1.05       1.22       1.17       2.86       (0.08 )  
Less distributions to
shareholders:		  
From net investment
income		     (0.01 )     (0.43 )     (0.37 )     (0.32 )     (0.23 )     (0.43 )  
From net realized gains     (0.32 )     (0.37 )     (0.42 )     (0.26 )     (0.02 )     —    
Total distributions     (0.33 )     (0.80 )     (0.79 )     (0.58 )     (0.25 )     (0.43 )  
Net asset value,
end of period		   $ 12.31     $ 12.01     $ 11.76     $ 11.33     $ 10.74     $ 8.13    
Total Return(b)      5.16 %(c)**      9.22 %(c)      11.05 %(c)      11.07 %(c)      35.53 %(c)      (1.06 )%  
Ratios/Supplemental
Data:		  
Net assets, end of
period (000's)		   $ 3,571,675     $ 3,079,164     $ 1,812,191     $ 1,030,238     $ 453,807     $ 304,145    
Net expenses to
average daily net
assets(d)(e) 		     0.00 %*      0.00 %     0.00 %     0.00 %     0.00 %     0.00 %  
Net investment
income to average
daily net assets(a) 		     0.93 %*      3.28 %     3.17 %     2.53 %     2.19 %     4.01 %  
Portfolio turnover rate     38 %**      23 %     16 %     10 %     59 %     61 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:		     0.01 %*      0.01 %     0.01 %     0.02 %     0.03 %     0.05 %  
Purchase premiums
and redemption
fees consisted of the
following per
share amounts:† 		   $ 0.00 (f)    $ 0.01     $ 0.01     $ 0.01     $ 0.01       —    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

(c)  Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Global Balanced Asset 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the GMO Global Balanced Index. The Fund is a fund of funds and invests in shares of other GMO Funds, which may include the GMO International Equity Funds (including one or more of the GMO Emerging Markets Funds), GMO U.S. Equity Funds, GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund. The GMO Global Balanced Index is a composite index computed by GMO consisting of: (i) MSCI ACWI and (ii) the Lehman Brothers U.S. Aggregate Index in the following proportions: 65% MSCI ACWI and 35% Lehman Brothers U.S. Aggregate Index. From June 30, 2002 through March 31, 2007, the GMO Global Balanced Index consisted of: (i) the S&P 500 Index; (ii) the MSCI ACWI (All Country World Index) ex-U.S. Index; and (iii) the Lehman Brothers U.S. Aggregate Index in the following proportions: 48.75% (S&P 500), 16.25% (MSCI ACWI (All Country World Index) ex-U.S. Ind ex), and 35% (Lehman Brothers U.S. Aggregate Index).

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect).

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at


9


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based o n models to the extent that these fair value prices are available.

Fixed income debt securities held by the Fund or the underlying funds are typically valued pursuant to prices 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, at its discretion, may override a price supplied by a primary source by using a price provided by another source if such action is deemed appropriate. The prices provided by such primary pricing sources may differ from the value that would be realized if the securities were sold and the differences could be material.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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.


10


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

As of February 28, 2007, the Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent permitted by the Code, of $638 and $1,276 expiring in 2008 and 2010, respectively. Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,402,054,340     $ 181,095,615     $ (11,400,703 )   $ 169,694,912    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares were each 0.09% of the amount invested or redeemed. The redemption fee is only applicable to shares acquired on or after June 30, 2003. The Fund's purchase premium and redemption fee are approximately equal to the weighted average of the purchase premiums and redemption fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of


11


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 2007 and the year ended February 28, 2007, the Fund received $328,723 and $982,849 in purchase premiums and $12,403 and $56,622 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or know n transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.


12


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  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 directly charge a management fee or shareholder service fee to the Fund, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act)), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.429 %     0.072 %     0.015 %     0.516 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $13,545 and $9,660, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.


13


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $1,647,943,721 and $1,239,591,320, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 28.29% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the outstanding shares of the Fund. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, 0.06% of the Fund's shares were held by twelve related parties comprised of certain GMO employee accounts.

7.  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
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     30,438,321     $ 380,293,445       96,416,659     $ 1,162,398,617    
Shares issued to shareholders
in reinvestment of distributions		     7,011,437       88,133,765       14,544,192       171,981,824    
Shares repurchased     (3,768,196 )     (46,556,099 )     (8,670,747 )     (104,404,782 )  
Purchase premiums and
redemption fees		     —       341,126       —       1,039,471    
Net increase (decrease)     33,681,562     $ 422,212,237       102,290,104     $ 1,231,015,130    

 


14


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Alpha Only
Fund, Class IV		   $ 380,002,186     $ 121,010,628     $ 146,361,750     $ —     $ —     $ 370,562,131    
GMO Alternative
Asset
Opportunity
Fund		     62,157,956       81,595       60,714,048       —       —       —    
GMO Core Plus
Bond Fund,
Class IV		     333,599,965       28,459,566       291,603,105       9,892,377       —       58,033,301    
GMO Domestic
Bond Fund,
Class VI		     20,617,931       9,031,475       1,000,000       41,677       —       28,968,190    
GMO Emerging
Countries Fund,
Class III		     21,889,917       3,262,007       —       54,662       3,178,707       27,333,229    
GMO Emerging
Country Debt
Fund, Class IV		     11,833,586       506,269       —       164,984       325,661       11,964,860    
GMO Emerging
Markets Fund,
Class VI		     275,288,575       37,955,601       3,198,491       1,131,565       23,263,418       354,495,794    
GMO Inflation
Indexed Plus
Bond Fund,
Class VI		     328,859,382       378,590,185       114,405,000       —       —       592,555,595    
GMO International
Bond Fund,
Class III		     21,923,157       3,072,646       2,659,600       743,674       —       21,724,380    
GMO International
Core Equity
Fund, Class VI		     —       491,659,200       2,706,302       —       7,199,200       491,476,986    
GMO International
Growth Equity
Fund, Class IV		     271,341,941       24,126,819       2,709,863       —       11,311,896       302,179,025    

 


15


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO International
Intrinsic Value
Fund, Class IV		   $ 271,767,810     $ 20,939,179     $ 3,036,754     $ —     $ 7,103,253     $ 298,283,788    
GMO International
Small Companies
Fund, Class III		     4,237,261       152,419       4,220,247       —       146,870       —    
GMO
Short-Duration
Investment
Fund, Class III		     3,489,627       19,201       —       19,201       —       3,547,867    
GMO Special
Situations Fund,
Class VI		     —       174,000,000       —       —       —       179,220,000    
GMO Strategic
Fixed Income
Fund, Class VI		     307,603,773       271,344,349       186,023,941       —       —       396,961,871    
GMO U.S. Core
Equity Fund,
Class VI		     489,370,403       27,405,491       420,852,219       789,776       4,005,861       96,685,784    
GMO U.S. Quality
Equity Fund,
Class VI		     274,837,403       56,315,875       —       2,550,528       2,530,774       337,437,523    
GMO U.S. Value
Fund, Class III		     377,075       11,216       100,000       1,784       8,935       284,549    
Totals   $ 3,079,197,948     $ 1,647,943,721     $ 1,239,591,320     $ 15,390,228     $ 59,074,575     $ 3,571,714,873    

 


16



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees observed that the usefulness of the comparative data provided by the third-party data services was limited because the peer groups they used for the Fund included funds with investment programs that were substantially differ ent from that of the Fund. As a result, the Trustees gave more weight to the Fund's performance relative to its benchmark than to some of the additional comparative data. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


17


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationship s). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory fees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


18


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


19


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.52 %   $ 1,000.00     $ 1,051.60     $ 2.68    
2) Hypothetical     0.52 %   $ 1,000.00     $ 1,022.52     $ 2.64    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


20



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO International Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     90.6 %  
Short-Term Investments     4.0    
Preferred Stocks     3.2    
Private Equity Securities     0.1    
Investment Funds     0.1    
Futures     0.1    
Debt Obligations     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Forward Currency Contracts     (0.2 )  
Other     2.1    
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in other funds of GMO Trust ("underlying funds").


1


GMO International Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2007 (Unaudited)

Country / Region Summary**   % of Investments  
Euro Region     29.2 %  
Japan     16.3    
United Kingdom     15.8    
Korea     5.6    
Taiwan     4.8    
Australia     3.4    
Brazil     3.4    
Sweden     3.1    
Switzerland     3.0    
China     2.4    
Singapore     2.2    
Hong Kong     1.8    
Malaysia     1.1    
Mexico     0.9    
Thailand     0.9    
Denmark     0.8    
Norway     0.8    
Russia     0.7    
Philippines     0.6    
Canada     0.6    
India     0.6    
Poland     0.5    
South Africa     0.5    
Israel     0.4    
Turkey     0.3    
Chile     0.1    
Hungary     0.1    
Indonesia     0.1    
      100.0 %  

 

**  The table above incorporates aggregate indirect country exposure associated with investments in the underlying funds. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.


2



GMO International Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    1,313,961     GMO Emerging Countries Fund, Class III     23,217,685    
    7,277,216     GMO Emerging Markets Fund, Class VI     175,017,051    
    9,804,167     GMO International Growth Equity Fund, Class IV     319,321,704    
    8,695,559     GMO International Intrinsic Value Fund, Class IV     317,214,006    
    TOTAL MUTUAL FUNDS (COST $621,323,993)     834,770,446    
        SHORT-TERM INVESTMENTS — 0.0%  
    32,185     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $32,200, and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.75%,
maturity date of 05/15/17 and a market value, including accrued
interest, of $34,370.		     32,185    
    TOTAL SHORT-TERM INVESTMENTS (COST $32,185)     32,185    
    TOTAL INVESTMENTS — 100.0%
(Cost $621,356,178)		     834,802,631    
          Other Assets and Liabilities (net) — 0.0%     (38,260 )  
    TOTAL NET ASSETS — 100.0%   $ 834,764,371    

 

Notes to Schedule of Investments:

As of August 31, 2007, 81.94% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third party vendor (Note 2).

See accompanying notes to the financial statements.


3



GMO International Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $32,185) (Note 2)   $ 32,185    
Investments in affiliated issuers, at value (cost $621,323,993) (Notes 2 and 8)     834,770,446    
Receivable for expenses reimbursed by Manager (Note 3)     8,897    
Total assets     834,811,528    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,590    
Accrued expenses     45,567    
Total liabilities     47,157    
Net assets   $ 834,764,371    
Net assets consist of:  
Paid-in capital   $ 582,985,512    
Accumulated undistributed net investment income     617,248    
Accumulated net realized gain     37,715,158    
Net unrealized appreciation     213,446,453    
    $ 834,764,371    
Net assets attributable to:  
Class III shares   $ 834,764,371    
Shares outstanding:  
Class III     44,598,991    
Net asset value per share:  
Class III   $ 18.72    

 

See accompanying notes to the financial statements.


4


GMO International Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 623,651    
Interest     578    
Total investment income     624,229    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,460    
Audit and tax fees     14,444    
Legal fees     9,292    
Trustees fees and related expenses (Note 3)     4,589    
Registration fees     1,472    
Miscellaneous     5,152    
Total expenses     58,409    
Fees and expenses reimbursed by Manager (Note 3)     (51,428 )  
Net expenses     6,981    
Net investment income (loss)     617,248    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     4,004,686    
Realized gains distributions from affiliated issuers (Note 8)     34,184,768    
Net realized gain (loss)     38,189,454    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     42,591,422    
Net realized and unrealized gain (loss)     80,780,876    
Net increase (decrease) in net assets resulting from operations   $ 81,398,124    

 

See accompanying notes to the financial statements.


5


GMO International Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 617,248     $ 13,139,578    
Net realized gain (loss)     38,189,454       100,493,550    
Change in net unrealized appreciation (depreciation)     42,591,422       11,639,862    
Net increase (decrease) in net assets from operations     81,398,124       125,272,990    
Distributions to shareholders from:  
Net investment income  
Class III     —       (32,342,398 )  
Net realized gains  
Class III     (51,610,534 )     (58,801,341 )  
      (51,610,534 )     (91,143,739 )  
Net share transactions (Note 7):  
Class III     46,217,519       65,087,399    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     2,156       20,199    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     46,219,675       65,107,598    
Total increase (decrease) in net assets     76,007,265       99,236,849    
Net assets:  
Beginning of period     758,757,106       659,520,257    
End of period (including accumulated undistributed net investment
income of $617,248 and $0, respectively)		   $ 834,764,371     $ 758,757,106    

 

See accompanying notes to the financial statements.


6



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 17.96     $ 17.13     $ 15.19     $ 12.83     $ 8.23     $ 9.02    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.01       0.33       0.18       0.29       0.25       0.36    
Net realized and unrealized
gain (loss)		     1.97       2.85       2.90       2.65       4.60       (0.83 )  
Total from investment
operations		     1.98       3.18       3.08       2.94       4.85       (0.47 )  
Less distributions to shareholders:  
From net investment income     —       (0.83 )     (0.47 )     (0.42 )     (0.25 )     (0.32 )  
From net realized gains     (1.22 )     (1.52 )     (0.67 )     (0.16 )     —       —    
Total distributions     (1.22 )     (2.35 )     (1.14 )     (0.58 )     (0.25 )     (0.32 )  
Net asset value, end of period   $ 18.72     $ 17.96     $ 17.13     $ 15.19     $ 12.83     $ 8.23    
Total Return(b)      10.77 %**(c)      19.33 %(c)      21.15 %(c)      23.25 %(c)      60.41 %(c)      (5.58 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 834,764     $ 758,757     $ 659,520     $ 489,026     $ 256,277     $ 103,768    
Net expenses to average daily
net assets(d)(e) 		     0.00 %*      0.00 %     0.00 %     0.00 %     0.00 %     0.00 %  
Net investment income to
average daily net assets(a) 		     0.15 %*      1.87 %     1.15 %     2.18 %     2.35 %     4.11 %  
Portfolio turnover rate     1 %**      4 %     7 %     15 %     43 %     19 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.01 %*      0.01 %     0.02 %     0.03 %     0.05 %     0.05 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:		   $ 0.00 (f)†    $ 0.00 (f)†    $ 0.00 (f)†    $ 0.01 †    $ 0.02 †      —    

 

(a)  Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests.

(b)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown and assumes the effect of reinvested distributions.

(c)  Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(d)  Net expenses exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks total return greater than that of the MSCI ACWI (All Country World Index) ex-U.S. Index. The Fund is a fund of funds and invests primarily in shares of the GMO International Equity Funds (which may include one or more of the GMO Emerging Markets Funds). The Fund may also invest in shares of other GMO Funds, including the GMO Fixed Income Funds, GMO Alpha Only Fund, and GMO Alternative Asset Opportunity Fund.

The financial statements of the series of the Trust in which the Fund invests ("underlying funds") should be read in conjunction with the Fund's financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect) or by visiting GMO's website at www.gmo.com.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 the underlying funds and other mutual funds are valued at their net asset value.

Investments held by the underlying funds are valued as follows. Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days


8


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

or less are generally valued at amortized cost, which approximates fair value. For other assets, and in cases where market prices are not readily available or the Manager believes established valuation methodologies or procedures are unreliable, the Fund's investments will be valued at "fair value", as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign securities in those markets or on those exchanges may not reflect the events that occur after that close but before the close of the NYSE. As a result, foreign equity securities are generally valued by a third party vendor using fair value prices based on models to the extent that these fair value prices are available.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Taxes and distributions

The Fund intends to qualify each tax 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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.


9


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 621,849,529     $ 212,953,102     $ —     $ 212,953,102    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 certain 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 the underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary (See Note 3).

Purchases and redemptions of Fund shares

As of August 31, 2007, the premium on cash purchases and fee on redemptions of Fund shares are each 0.16% of the amount invested. The redemption fee is only applicable to shares acquired on or after June 30, 2003. The Fund's purchase premium or redemption fee are approximately equal to the weighted average of the purchase premiums and redemptions fees, if any, of the underlying funds in which the Fund was invested as of June 30, 2007. The level of purchase premium and redemption fee for the Fund may be adjusted to account for changes in the Fund's investments (i.e., changes in the percentage of Fund assets allocated to each underlying fund). If the Manager determines that any portion of a cash purchase or redemption is offset by a corresponding cash redemption or purchase occurring on the same day, it will waive the purchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In ad dition, the purchase premium or redemption fee charged by the Fund may be waived in extraordinary circumstances if the Fund will not incur transaction costs. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the period ended


10


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

August 31, 2007 and the year ended February 28, 2007, the Fund received $42 and $2,056 in purchase premiums and $2,114 and $18,143 in redemption fees, respectively. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except to the extent of certain estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemption transactions are generally not subject to redemption fees except to the extent those transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may assess estimated or known transaction costs. There is no premium for reinvested distributions.

Investment risks

The Fund is subject to the investment risks 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 U.S. 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. Additional ly, the investment risks associated with an investment in the underlying funds may be more pronounced to the extent that the underlying funds engage in derivative transactions.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is


11


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

The Manager determines the allocation of the assets of the Fund among the designated underlying funds. The Manager does not directly charge a management fee or shareholder service fee, but receives management and shareholder service fees from the underlying funds in which the Fund invests.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 (excluding expenses indirectly incurred by investment in the underlying funds, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes)) .

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2007, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net Expenses
(excluding shareholder
service fees)		   Indirect
Shareholder
Service Fees		   Total Indirect
Expenses		  
  0.621 %     0.084 %     0.705 %  

 

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $3,485 and $2,392, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments and class exchanges, for the period ended August 31, 2007 aggregated $39,903,063 and $10,500,882, respectively.


12


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 27.10% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.02% of the Fund's shares were held by five related parties comprised of certain GMO employee accounts.

7.  Share transactions

    Six Months Ended
August 31, 2007
(Unaudited)		   Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,643     $ 31,410       77,925     $ 1,404,568    
Shares issued to shareholders
in reinvestment of distributions		     2,583,837       50,410,665       4,812,509       84,216,341    
Shares repurchased     (222,170 )     (4,224,556 )     (1,145,352 )     (20,533,510 )  
Purchase premiums and
redemption fees		     —       2,156       —       20,199    
Net increase (decrease)     2,363,310     $ 46,219,675       3,745,082     $ 65,107,598    

 


13


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2007 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains 		  Value,
end of
period		  
GMO Emerging Countries
Fund, Class III		   $ 18,624,705     $ 2,746,523     $ 7,000     $ 46,431     $ 2,700,091     $ 23,217,685    
GMO Emerging Markets
Fund, Class VI		     146,067,671       12,444,090       7,548,020       577,220       11,866,870       175,017,051    
GMO International Growth
Equity Fund, Class IV		     295,016,842       14,379,806       864,738       —       12,013,163       319,321,704    
GMO International Intrinsic
Value Fund, Class IV		     297,957,461       10,294,377       981,552       —       7,566,377       317,214,006    
GMO International
Small Companies
Fund, Class III		     1,105,478       38,267       1,099,572       —       38,267       —    
Totals   $ 758,772,157     $ 39,903,063     $ 10,500,882     $ 623,651     $ 34,184,768     $ 834,770,446    

 


14



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears


15


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees noted that they had approved renewal of the Manager's investment management agreements with the other funds of the Trust in which the Fund may invest and had concluded that the advisory f ees charged to those funds were reasonable, after considering, among other things: possible economies of scale to the Manager in connection with its management of the other funds of the Trust; the Manager's profitability with respect to the other funds of the Trust and the Trust as a whole; information prepared by third-party data services concerning fees paid to managers of funds deemed by the services to have similar objectives to those of the other funds of the Trust; and information provided by the Manager regarding fees paid by its separate account clients with similar objectives.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangemen t in place with the Fund, and the reputation of the Fund's other service providers.


16


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


17


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including purchase premiums and redemption fees; and (2) ongoing costs including indirect management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.71 %   $ 1,000.00     $ 1,107.70     $ 3.76    
2) Hypothetical     0.71 %   $ 1,000.00     $ 1,021.57     $ 3.61    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


18



GMO Special Situations Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.



GMO Special Situations Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Short-Term Investments     4.5 %  
Forward Currency Contracts     2.3    
Other     93.2    
      100.0 %  

 


1



GMO Special Situations Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 4.5%  
        Money Market Funds — 4.5%  
    15,215,234     Merrimac Treasury Plus Series-Premium Class     15,215,234    
    TOTAL MONEY MARKET FUNDS (COST $15,215,234)     15,215,234    
    TOTAL SHORT-TERM INVESTMENTS (COST $15,215,234)     15,215,234    
    TOTAL INVESTMENTS — 4.5%
(Cost $15,215,234)		     15,215,234    
        Other Assets and Liabilities (net) — 95.5%     319,265,295    
    TOTAL NET ASSETS — 100.0%   $ 334,480,529    

 

See accompanying notes to the financial statements.


2


GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments – (Continued)
August 31, 2007 (Unaudited)

A summary of outstanding financial instruments at August 31, 2007 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/
Receive		   Units of
Currency		   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys  
11/20/07   JPY     5,503,802,300     $ 48,036,909     $ 1,027,605    
11/20/07   JPY     4,969,860,000       43,376,687       851,601    
                $ 91,413,596     $ 1,879,206    
Sales  
11/20/07   JPY     772,375,455     $ 6,741,254     $ 13,043    

 

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation (Depreciation)		  
11/20/07   AUD 18,203,953     JPY 1,812,629,500       956,564    
11/20/07   AUD 16,881,547     JPY 1,656,620,000       674,698    
11/20/07   AUD 35,531,002     JPY 3,308,504,741       (135,473 )  
11/20/07   CAD 16,432,186     JPY 1,812,629,500       238,742    
11/20/07   CAD 14,890,873     JPY 1,656,620,000       338,647    
11/20/07   CAD 6,412,846     JPY 696,787,738       556    
11/20/07   EUR 11,269,404     JPY 1,812,629,500       424,983    
11/20/07   EUR 2,118,693     JPY 332,035,158       3,561    
11/20/07   EUR 10,378,166     JPY 1,656,620,000       280,893    
11/20/07   GBP 21,169,961     JPY 4,969,860,000       760,409    
11/20/07   GBP 11,665,535     JPY 2,768,379,600       678,923    
11/20/07   GBP 11,676,492     JPY 2,768,379,600       656,865    
11/20/07   GBP 7,993,070     JPY 1,844,160,997       5,262    
11/20/07   NZD 19,328,200     JPY 1,656,620,000       978,629    
11/20/07   NZD 15,540,616     JPY 1,242,627,689       6,939    
    $ 5,870,198    

 

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NZD - New Zealand Dollar

See accompanying notes to the financial statements.


3



GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value (cost $15,215,234) (Note 2)   $ 15,215,234    
Cash     286,385,805    
Interest receivable     873,867    
Receivable for Fund shares sold     24,350,000    
Unrealized appreciation on open forward currency contracts (Note 2)     7,897,920    
Receivable for expenses reimbursed by Manager (Note 3)     19,127    
Total assets     334,741,953    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     91,846    
Shareholder service fee     14,390    
Trustees and Chief Compliance Officer of GMO Trust fees     496    
Unrealized depreciation on open forward currency contracts (Note 2)     135,473    
Accrued expenses     19,219    
Total liabilities     261,424    
Net assets   $ 334,480,529    
Net assets consist of:  
Net capital(1)    $ 326,718,082    
Net unrealized appreciation     7,762,447    
    $ 334,480,529    
Net assets attributable to:  
Class III shares   $ 25,923,695    
Class VI shares   $ 308,556,834    
Shares outstanding:  
Class III     1,258,691    
Class VI     14,981,773    
Net asset value per share:  
Class III   $ 20.60    
Class VI   $ 20.60    

 

(1)  Net capital includes net investment income (loss) and net realized gain (loss) on investments.

See accompanying notes to the financial statements.


4


GMO Special Situations Fund

(A Series of GMO Trust)

Statement of Operations — Period from July 31, 2007
(commencement of operations) through August 31, 2007 (Unaudited)

Investment Income:  
Interest   $ 875,832    
Total investment income     875,832    
Expenses:  
Management fee (Note 3)     91,846    
Shareholder service fee – Class III (Note 3)     1,165    
Shareholder service fee – Class VI (Note 3)     13,226    
Custodian, fund accounting agent and transfer agent fees     4,061    
Audit and tax fees     13,578    
Legal fees     1,240    
Trustees fees and related expenses (Note 3)     341    
Miscellaneous     495    
Total expenses     125,952    
Fees and expenses reimbursed by Manager (Note 3)     (19,127 )  
Net expenses     106,825    
Net investment income (loss)     769,007    
Realized and unrealized gain (loss):  
Change in net unrealized appreciation (depreciation) on:  
Foreign currency, forward contracts and foreign currency related transactions     7,762,447    
Net unrealized gain (loss)     7,762,447    
Net increase (decrease) in net assets resulting from operations   $ 8,531,454    

 

See accompanying notes to the financial statements.


5


GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Period from
July 31, 2007
(commencement of operations)
through August 31, 2007
(Unaudited)		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 769,007    
Change in net unrealized appreciation (depreciation)     7,762,447    
Net increase (decrease) in net assets from operations     8,531,454    
Net share transactions (Note 7):  
Class III     25,672,845    
Class VI     300,276,230    
Increase (decrease) in net assets resulting from net share transactions     325,949,075    
Total increase (decrease) in net assets     334,480,529    
Net assets:  
Beginning of period     —    
End of period   $ 334,480,529    

 

See accompanying notes to the financial statements.


6



GMO Special Situations Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout the period)

    Period from
August 13, 2007
(commencement of
operations) through
August 31, 2007
(Unaudited)		  
Net asset value, beginning of period   $ 20.09    
Income (loss) from investment operations:  
Net investment income (loss)†      0.03    
Net realized and unrealized gain (loss)     0.48    
Total from investment operations     0.51    
Net asset value, end of period   $ 20.60    
Total Return(a)     2.54 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 25,924    
Net expenses to average daily net assets     0.54 %*   
Net investment income to average daily net assets     3.04 %*   
Portfolio turnover rate     0 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.07 %*   

 

(a)  The total return would have been lower had certain expenses not been reimbursed during the period shown.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover rate of the Fund for the period from July 31, 2007 (commencement of operations) through August 31, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7


GMO Special Situations Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class VI share outstanding throughout the period)

    Period from
July 31, 2007
(commencement of
operations) through
August 31, 2007
(Unaudited)		  
Net asset value, beginning of period   $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.05    
Net realized and unrealized gain (loss)     0.55    
Total from investment operations     0.60    
Net asset value, end of period   $ 20.60    
Total Return(a)     3.00 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 308,557    
Net expenses to average daily net assets     0.43 %*   
Net investment income to average daily net assets     3.10 %*   
Portfolio turnover rate     0 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.08 %*   

 

(a)  The total return would have been lower had certain expenses not been reimbursed during the period shown.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover rate of the Fund for the period from July 31, 2007 (commencement of operations) through August 31, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Special Situations Fund (the "Fund"), which commenced operations on July 31, 2007, 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund's investment objectives are capital appreciation and capital preservation. The Fund seeks to achieve its investment objectives by implementing investment strategies that are intended to complement long-only investments in global equities and fixed income instruments. The Fund may have exposure to foreign and U.S. equity securities (including both growth and value style equities and equities of any market capitalization), foreign and U.S. fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), currencies, and, from time to time, other alternative asset classes (e.g., instruments that seek exposure to or hedge risks of market volatility). The Fund is not restricted in its exposure to any particular asset class, and at times may be substantially invested in a single asset class (e.g., equity securities or fixed income securities). In addition, the Fund is not r estricted in its exposure to any particular market. The Fund may have substantial exposure to a particular country or type of country (e.g., emerging countries). The Fund does not seek to control risk relative to a particular securities market index or benchmark. In addition, the Fund does not seek to outperform a particular securities market index or blend of market indices.

For the period July 31, 2007 through August 31, 2007, the Fund's Class VI shares were operational and for the period August 13, 2007 through August 31, 2007, the Fund's Class III shares were operational. Each class of shares bears a different level of shareholder service fees.

Shares of the Fund are not publicly offered and are principally available only to other funds of the Trust and certain accredited investors.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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.


9


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Portfolio valuation

Portfolio securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

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 currencies and forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount o f investment income and foreign withholding taxes recorded on the Fund's accounting records and the U.S. dollar equivalent amounts actually received or paid.

Forward currency contracts

The Fund may enter into forward currency contracts including forward cross currency contracts. 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 using rates supplied by a quotation service and changes in value are 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 lo ss 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 there are movements in currency values that are unfavorable to the Fund. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


10


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Options

The Fund may write call and put options. Writing options increases the Fund's exposure to the underlying instrument by, in the case of a call option, obligating the Fund to sell the underlying instrument at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying instrument at a set price from the option-holder. 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 t he 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. In the event that the Fund writes uncovered call options (i.e. options for investments that the Fund does not own), it bears the risk of incurring substantial losses if the price of the underlying instrument increases during the term of the option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. There were no open written option contracts during the period.

The Fund may also purchase put and call options. Purchasing options alters the Fund's exposure to the underlying instrument by, in the case of a call option, entitling the Fund to purchase the underlying instrument at a set price from the writer of the option and, in the case of a put option, entitling the Fund to sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium as a cost


11


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

for a purchased option disclosed in the Schedule of Investments which is 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 closing transaction to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. There were no purchased option contracts outstanding at the end of the period.

Exchange traded options are valued at the last sale price, or if no sale is reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by a primary pricing source chosen by the Manager.

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 t he 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. There were no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities where the redemption values and/or coupons are linked to the prices of a specific instrument or financial statistic. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets in which it may be difficult to invest 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. There were no indexed securities held by the Fund at the end of the period.

Swap agreements

The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Interest rate swap agreements involve the exchange by one party 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 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 the total


12


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. 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. In a credit default swap, one party makes a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers (i.e., to reduce risk where a party owns or has expos ure to the issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. 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.

Swaps are marked to market daily using standard models that incorporate 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 on swap contracts are recorded as realized gain or loss in the Statement of Operations. Gains or losses are realized upon early termination of the swap agreements. These financial instruments are not actively traded on financial markets. The values assigned to these instruments are based upon the best available information and because of the uncertainty of the valuation, these values may differ significantly from the values that would have been realized had a ready market for these instruments existed, and the differences could be material. Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized in the St atement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms in the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. There were no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. There were no repurchase agreements o utstanding at the end of the period.


13


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Taxes

The Fund elected to be taxed as a partnership for federal income tax purposes. As a partnership, the Fund will not be subject to federal and state income tax. Instead, each shareholder is responsible for the tax liability or benefit related to his/her allocable share of taxable income or loss. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 15,215,234     $ —     $ —     $ —    

 

Distributions

The Fund does not intend to make any distributions to its shareholders but may do so at the sole discretion of the Trustees.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capit al is conclusively determined. 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 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's operations.


14


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

Investment risks

There are certain additional risks involved in investing in foreign securities that are not inherent in investments in U.S. 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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.37% 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 0.15% for Class III shares and 0.055% for Class VI shares.


15


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, expenses indirectly incurred by investment in other Funds of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedgi ng transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) exceed 0.37% of the Fund's average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $248 and $248, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $0 and $0, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 92.25% of the outstanding shares of the Fund was held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Each of the shareholders are other funds of the Trust. Investment activities of these shareholders may have a material effect on the Fund.

As of August 31, 2007, there were no shares held by related parties, and 100.00% of the Fund's shares were held by accounts for which the Manager has investment discretion.


16


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  Share transactions

The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:

    Period from August 13, 2007,
(commencement of operations)
through August 31, 2007
(Unaudited)		  
Class III   Shares   Amount  
Shares sold     1,258,691     $ 25,672,845    
Shares issued to shareholders
in reinvestment of distributions		     —       —    
Shares repurchased     —       —    
Net increase (decrease)     1,258,691     $ 25,672,845    
    Period from July 31, 2007,
(commencement of operations)
through August 31, 2007
(Unaudited)		  
Class VI   Shares   Amount  
Shares sold     14,981,773     $ 300,276,230    
Shares issued to shareholders
in reinvestment of distributions		     —       —    
Shares repurchased     —       —    
Net increase (decrease)     14,981,773     $ 300,276,230    

 


17



GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the initial investment management agreement of the Fund, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. At a meeting on July 25, 2007, the Trustees discussed materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the Manager's proposal to establish the Fund as a new series of the Trust and the proposed new investment management agreement between the Trust, on behalf of the Fund, and the Manager, including the extensive materials that had been provided to the Trustees for purposes of considering the renewal of investment management agreements of other series of the Trust at the Trustees' June 27, 2007 meeting. During the meeting, the Trustees met with a member o f the Manager's Asset Allocation Division – the investment division that would be responsible for the management of the Fund. As discussed below, at meetings throughout the year, the Trustees also considered other information relevant to approval of the Fund's investment management agreement.

The Trustees considered that they had met with the Fund's investment advisory personnel over the course of the year. The Trustees also considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel who will provide services under the Fund's investment management agreement. In addition, the Trustees considered information concerning the investment philosophy of, and investment process to be applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention to be devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

Since the Fund had not yet commenced operations, the Trustees were unable to consider its performance. However, the Trustees considered that the Fund's purpose is to serve as an investment vehicle for the Trust's asset allocation funds and other GMO asset allocation separate account clients rather than as a stand-alone fund, the qualifications and experience of the personnel responsible for managing those funds, the support those personnel received from the Manager, the investment techniques used to manage those funds, and the overall competence of the Manager.

The Trustees gave substantial consideration to the fees to be paid under the Fund's investment management agreement. In evaluating those fees, the Trustees took into account the sophistication of the investment techniques to be used to manage the Fund. Since the Fund had not yet commenced operations, the Trustees were unable to review the Manager's profitability with respect to the Fund. The Trustees did, however, consider how the proposed fees compared to fees paid by other funds of GMO Trust and so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value to be derived from serving as investment manager to the Fund. As the Fund had not yet commenced operations, the Trustees did not consider


18


GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

possible economies of scale to the Manager associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee to be charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services to be provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of other funds of the Trust. The Trustees also considered the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also took into account information concerning the Manager's practices and results with respect to the execution of portfolio transactions that they received over the course of the year.

The Trustees considered the scope of the services to be provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund would be consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services to be provided by persons other than the Manager, considering, among other things, the Fund's estimated total expenses, the Manager's proposed contractual expense reimbursement arrangement with respect to the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services to be provided supported the approval of the Fund's investment management agreement.

At the end of the meeting on July 25, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the Fund's initial investment management agreement for an initial period ending on the second anniversary of the agreement's execution.


19


GMO Special Situations Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, as outlined in the notes to the table below.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.


20


GMO Special Situations Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2007 (Unaudited)

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred		  
Class III      
1) Actual     0.54 %   $ 1,000.00     $ 1,025.40     $ 0.27 (a)   
2) Hypothetical     0.54 %   $ 1,000.00     $ 1,022.42     $ 2.75 (b)   
Class VI      
1) Actual     0.43 %   $ 1,000.00     $ 1,030.00     $ 0.37 (c)   
2) Hypothetical     0.43 %   $ 1,000.00     $ 1,022.97     $ 2.19 (b)   

 

(a)  For the period August 13, 2007 (commencement of operations) through August 31, 2007. Expense is calculated using the Class's annualized net expense ratio for the period ended August 31, 2007, multiplied by the average account value over the period, multiplied by 18 days in the period, divided by 366 days in the year.

(b)  For the period March 1, 2007 through August 31, 2007. Expense is calculated using the Class's annualized net expense ratio for the period ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.

(c)  For the period July 31, 2007 (commencement of operations) through August 31, 2007. Expense is calculated using the Class's annualized net expense ratio for the period ended August 31, 2007, multiplied by the average account value over the period, multiplied by 31 days in the period, divided by 366 days in the year.


21



GMO Real Estate Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2007


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit our website at www.gmo.com, or visit the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on our website at www.gmo.com, or on the Securities and Exchange Commission's website at www.sec.gov.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission's website at www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund's complete schedule of portfolio holdings is also available at www.gmo.com.



GMO Real Estate Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2007 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Real Estate Investments     96.7 %  
Short-Term Investments     21.7    
Other     (18.4 )  
      100.0 %  
Industry Sector Summary   % of REIT Investments  
Apartments     16.4 %  
Shopping Centers     14.7    
Regional Malls     10.9    
Health Care     9.2    
Industrial     8.8    
Office Suburban     8.3    
Diversified     8.1    
Office Central Business District     7.2    
Hotels     6.9    
Storage     5.2    
Triple Net     3.3    
Manufactured Housing     0.7    
Outlets     0.3    
      100.0 %  

 


1



GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        REAL ESTATE INVESTMENTS — 96.7%  
        REAL ESTATE INVESTMENT TRUSTS — 96.7%  
        Apartments — 15.9%  
    4,700     American Campus Communities, Inc.     133,198    
    9,500     Apartment Investment & Management Co.-Class A     424,650    
    15,800     Archstone-Smith Trust     929,040    
    6,000     Avalonbay Communities, Inc. (a)      686,280    
    3,400     BRE Properties, Inc.-Class A     188,836    
    3,500     Camden Property Trust     215,215    
    4,300     Education Realty Trust, Inc.     58,781    
    16,000     Equity Residential Properties Trust     643,840    
    2,400     Essex Property Trust, Inc.     282,696    
    3,300     Home Properties of NY, Inc. (a)      167,706    
    1,400     Mid-America Apartment Communities, Inc.     69,426    
    3,300     Post Properties, Inc.     131,703    
    9,900     UDR, Inc.     248,589    
    Total Apartments     4,179,960    
        Diversified — 7.9%  
    2,800     Cousins Properties, Inc. (a)      76,916    
    9,600     Franklin Street Properties Corp.     165,600    
    1,900     Pennslyvania Real Estate Investment Trust (a)      71,877    
    15,700     Vornado Realty Trust     1,673,463    
    2,400     Washington Real Estate Investment Trust     78,600    
    Total Diversified     2,066,456    
        Health Care — 8.9%  
    20,600     Health Care Property Investors, Inc.     626,652    
    7,500     Health Care, Inc. (a)      299,250    
    3,400     Healthcare Realty Trust, Inc.     84,898    
    2,600     LTC Properties, Inc.     58,708    
    5,000     Medical Properties Trust, Inc. (a)      67,350    
    3,400     National Health Investors, Inc.     102,816    

 

See accompanying notes to the financial statements.


2


GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
    8,900     Nationwide Health Properties (a)      246,975    
    6,700     Omega Healthcare Investors, Inc.     99,763    
    8,600     Senior Housing Properties Trust     174,924    
    1,700     Universal Health Realty Income Trust     56,984    
    13,900     Ventas, Inc.     529,312    
    Total Health Care     2,347,632    
        Hotels — 6.6%  
    9,300     Ashford Hospitality Trust, Inc.     101,463    
    8,200     DiamondRock Hospitality Co.     147,190    
    10,300     Hospitality Properties Trust     406,438    
    45,800     Host Marriott Corp. (a)      1,020,882    
    1,700     Lasalle Hotel Properties     70,788    
    Total Hotels     1,746,761    
        Industrial — 8.5%  
    6,900     AMB Property Corp.     379,362    
    2,400     Digital Realty Trust, Inc.     93,600    
    600     Eastgroup Properties, Inc.     25,458    
    2,000     First Industrial Realty Trust, Inc.     81,560    
    27,438     Prologis     1,650,670    
    Total Industrial     2,230,650    
        Manufactured Housing — 0.7%  
    3,100     Equity Lifestyle Properties, Inc.     150,970    
    1,000     Sun Communities, Inc.     28,510    
    Total Manufactured Housing     179,480    
        Office Central Business District — 6.9%  
    8,100     American Financial Realty Trust     67,068    
    6,000     BioMed Realty Trust, Inc.     146,280    
    11,900     Boston Properties, Inc.     1,190,833    
    2,100     Maguire Properties, Inc.     54,621    
    3,323     SL Green Realty Corp.     370,548    
    Total Office Central Business District     1,829,350    

 

See accompanying notes to the financial statements.


3


GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares   Description   Value ($)  
        Office Suburban — 8.0%  
    1,900     Alexandria Real Estate Equity, Inc.     177,327    
    8,089     Brandywine Realty Trust     208,534    
    1,400     Corporate Office Properties (a)      60,298    
    11,100     Duke Realty Investments     375,069    
    5,900     Highwoods Properties, Inc.     210,571    
    27,400     HRPT Properties Trust     267,972    
    800     Kilroy Realty Corp.     48,904    
    9,600     Liberty Property Trust (a)      374,976    
    6,400     Mack-Cali Realty Corp.     267,264    
    1,100     Parkway Properties, Inc. (a)      50,908    
    1,000     PS Business Parks, Inc.     56,500    
    Total Office Suburban     2,098,323    
        Outlets — 0.2%  
    1,700     Tanger Factory Outlet Centers, Inc.     64,719    
        Regional Malls — 10.6%  
    3,900     CBL & Associates Properties, Inc.     128,544    
    12,800     General Growth Properties     636,288    
    3,900     Macerich Co.     316,758    
    16,100     Simon Property Group, Inc. (a)      1,528,212    
    3,300     Taubman Centers, Inc.     170,214    
    Total Regional Malls     2,780,016    
        Shopping Centers — 14.2%  
    12,900     Developers Diversified Realty Corp.     689,892    
    8,700     Equity One, Inc. (a)      227,592    
    5,400     Federal Realty Investment Trust     453,978    
    8,300     Inland Real Estate Corp. (a)      128,484    
    26,558     Kimco Realty Corp.     1,137,214    
    600     Ramco-Gershenson Properties     19,350    
    7,400     Regency Centers Corp.     514,078    
    1,700     Saul Centers, Inc.     85,102    

 

See accompanying notes to the financial statements.


4


GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
    3,800     Urstadt Biddle Properties, Inc.     64,372    
    10,200     Weingarten Realty     410,142    
    Total Shopping Centers     3,730,204    
        Storage — 5.1%  
    2,200     Extra Space Storage, Inc.     33,814    
    15,914     Public Storage, Inc.     1,205,963    
    2,000     Sovran Self Storage     90,220    
    Total Storage     1,329,997    
        Triple Net — 3.2%  
    3,300     Entertainment Properties Trust     157,872    
    3,400     Getty Realty Corp.     92,718    
    4,700     Lexington Corporate Properties Trust (a)      97,196    
    7,800     National Retail Properties, Inc.     183,222    
    11,200     Realty Income Corp. (a)      302,400    
    Total Triple Net     833,408    
    TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $25,287,780)     25,416,956    
    TOTAL REAL ESTATE INVESTMENTS (COST $25,287,780)     25,416,956    
        SHORT-TERM INVESTMENTS — 21.7%  
        Money Market Funds — 1.9%  
    127,406     Barclays Global Investors Institutional Money Market Fund (b)      127,406    
    382,218     Reserve Primary Money Market Fund (b)      382,218    
    Total Money Market Funds     509,624    
        Other Short-Term Investments — 19.8%  
      127,405     Citigroup Eurodollar Overnight Time Deposit, 5.00%,
due 09/04/07 (b) 		     127,405    
      896,632     Citigroup Global Markets Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $897,056 and an effective yield
of 4.25%, collateralized by a U.S. Treasury Bond with a rate of 8.75%,
maturity date of 05/15/17 and a market value, including accrued interest,
of $948,610.		     896,632    

 

See accompanying notes to the financial statements.


5


GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2007 (Unaudited)

Par Value ($)   Description   Value ($)  
  1,274,062     Credit Suisse First Boston Corp. Tri-party Repurchase Agreement,
dated 08/31/07, due 09/04/07, with a maturity value of $1,274,834 and
an effective yield of 5.45%, collateralized by various corporate debt
obligations with an interest rate range of 0.00% - 9.12%, maturity date
range of 04/01/09 - 05/29/37, and an aggregate market value of $1,371,566. (b) 		     1,274,062    
  222,961     Lehman Brothers Inc. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $223,096 and an effective yield
of 5.44%, collateralized by a corporate debt obligation with a rate of 5.38%,
maturity date of 07/22/15, and a market value of $227,444. (b) 		     222,961    
  1,274,062     Merrill Lynch & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,274,821 and an effective
yield of 5.36%, collateralized by a U.S. Treasury Bond with a rate of 4.50%,
maturity date of 11/30/11, and a market value of $1,299,557. (b) 		     1,274,062    
  1,274,062     Morgan Stanley & Co. Tri-party Repurchase Agreement, dated 08/31/07,
due 09/04/07, with a maturity value of $1,274,834 and an effective yield
of 5.45%, collateralized by various corporate debt obligations with an interest
rate range of 0.00% - 8.50%, maturity date range of 11/16/07 - 06/15/37,
and an aggregate market value of $1,305,102. (b) 		     1,274,062    
  125,708     Svenska Handlesbanken Eurodollar Overnight Time Deposit, 5.31%,
due 09/04/07 (b) 		     125,708    
    Total Other Short-Term Investments     5,194,892    
    TOTAL SHORT-TERM INVESTMENTS (COST $5,704,516)     5,704,516    
    TOTAL INVESTMENTS — 118.4%
(Cost $30,992,296)		     31,121,472    
        Other Assets and Liabilities (net) — (18.4%)     (4,834,903 )  
    TOTAL NET ASSETS — 100.0%   $ 26,286,569    

 

Notes to Schedule of Investments:

(a)  All or a portion of this security is out on loan (Note 2).

(b)  All or a portion of this security represents investment of security lending collateral (Note 2).

See accompanying notes to the financial statements.


6



GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2007 (Unaudited)

Assets:  
Investments, at value, including securities on loan of $4,727,330 (cost $26,050,517) (Note 2)   $ 26,179,693    
Investments in repurchase agreements, at value (cost $4,941,779) (Note 2)     4,941,779    
Cash     820    
Dividends and interest receivable     17,515    
Receivable for expenses reimbursed by Manager (Note 3)     5,921    
Total assets     31,145,728    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     4,807,884    
Payable to affiliate for (Note 3):  
Management fee     7,369    
Shareholder service fee     3,349    
Trustees and Chief Compliance Officer of GMO Trust fees     108    
Accrued expenses     40,449    
Total liabilities     4,859,159    
Net assets   $ 26,286,569    
Net assets consist of:  
Paid-in capital   $ 23,407,965    
Accumulated undistributed net investment income     605,751    
Accumulated net realized gain     2,143,677    
Net unrealized appreciation     129,176    
    $ 26,286,569    
Net assets attributable to:  
Class III shares   $ 26,286,569    
Shares outstanding:  
Class III     2,588,191    
Net asset value per share:  
Class III   $ 10.16    

 

See accompanying notes to the financial statements.


7


GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2007 (Unaudited)

Investment Income:  
Dividends   $ 655,832    
Interest     24,751    
Securities lending income     5,334    
Total investment income     685,917    
Expenses:  
Management fee (Note 3)     54,908    
Shareholder service fee – Class III (Note 3)     24,958    
Custodian, fund accounting agent and transfer agent fees     7,544    
Audit and tax fees     26,036    
Legal fees     460    
Trustees fees and related expenses (Note 3)     208    
Registration fees     552    
Miscellaneous     276    
Total expenses     114,942    
Fees and expenses reimbursed by Manager (Note 3)     (34,776 )  
Net expenses     80,166    
Net investment income (loss)     605,751    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     2,155,871    
Change in net unrealized appreciation (depreciation) on investments     (7,939,258 )  
Net realized and unrealized gain (loss)     (5,783,387 )  
Net increase (decrease) in net assets resulting from operations   $ (5,177,636 )  

 

See accompanying notes to the financial statements.


8


GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007 		 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 605,751     $ 1,167,931    
Net realized gain (loss)     2,155,871       4,112,753    
Change in net unrealized appreciation (depreciation)     (7,939,258 )     4,229,092    
Net increase (decrease) in net assets from operations     (5,177,636 )     9,509,776    
Distributions to shareholders from:  
Net investment income  
Class III     —       (888,285 )  
Net realized gains  
Class III     (2,675,118 )     (7,162,158 )  
      (2,675,118 )     (8,050,443 )  
Net share transactions (Note 7):                  
Class III     (3,510,933 )     (5,200,133 )  
Total increase (decrease) in net assets     (11,363,687 )     (3,740,800 )  
Net assets:  
Beginning of period     37,650,256       41,391,056    
End of period (including accumulated undistributed net
investment income of $605,751 and $0, respectively)		   $ 26,286,569     $ 37,650,256    

 

See accompanying notes to the financial statements.


9



GMO Real Estate Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class III share outstanding throughout each period)

    Six Months
Ended
August 31, 2007		   Year Ended February 28/29,  
    (Unaudited)   2007   2006   2005   2004   2003  
Net asset value, beginning
of period		   $ 12.87     $ 12.27     $ 14.54     $ 14.65     $ 10.49     $ 11.17    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.21       0.38       0.61       0.59       0.58       0.50    
Net realized and unrealized
gain (loss)		     (1.95 )     2.72       3.24       1.55       4.01       (0.71 )  
Total from investment operations     (1.74 )     3.10       3.85       2.14       4.59       (0.21 )  
Less distributions to shareholders:  
From net investment income     —       (0.31 )     (0.40 )     (0.87 )     (0.43 )     (0.47 )  
From net realized gains     (0.97 )     (2.19 )     (5.72 )     (1.38 )     —       —    
Total distributions     (0.97 )     (2.50 )     (6.12 )     (2.25 )     (0.43 )     (0.47 )  
Net asset value, end of period   $ 10.16     $ 12.87     $ 12.27     $ 14.54     $ 14.65     $ 10.49    
Total Return(a)      (13.63 )%**      29.76 %     28.89 %     16.01 %     44.56 %     (2.16 )%  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 26,287     $ 37,650     $ 41,391     $ 235,837     $ 191,458     $ 142,256    
Net expenses to average daily
net assets		     0.48 %*      0.48 %     0.48 %     0.48 %     0.52 %     0.69 %  
Net investment income to average
daily net assets		     3.64 %*      3.24 %     3.91 %     4.13 %     4.61 %     4.47 %  
Portfolio turnover rate     28 %**      43 %     52 %     134 %     56 %     61 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.21 %*      0.28 %     0.25 %     0.25 %     0.24 %     0.04 %  

 

†  Calculated using average shares outstanding throughout the period.

(a)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2007 (Unaudited)

1.  Organization

GMO Real Estate 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 of the Trust ("Trustees") to create an unlimited number of series of shares ("Funds") and to subdivide Funds into classes.

The Fund seeks high total return. The Fund seeks to achieve its objective by outperforming the MSCI U.S. REIT Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the MSCI U.S. REIT Index, and companies with similar characteristics.

2.  Significant accounting policies

The following is a summary of significant accounting policies which are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with U.S. GAAP 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 readily available are valued at the last sale price or official closing price on each business day, or if there is no such reported sale or official closing price, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of mutual funds are valued at their net asset value. Securities for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit with the futures clearing broker an amount of cash, U.S. government and agency obligations, or other liquid assets in accordance with the initial margin requirements of the broker or exchange. In addition, the Fund maintains cash or securities in an amount that at least equals the net amount payable in the event the Fund must deliver the full amount of the contracts. 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


11


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Losses may arise from changes in the value of the underlying instrument if the Fund is unable to liquidate a futures position due to an illiquid secondary market for the contracts or the imposition of price limits, or if counterparties do not perform under the contract terms. Futures contracts are generally valued at the settlement price established each day by the board of trade or exchange on which they are traded. There were no futures contracts outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with 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 or enters into insolvency proceedings and the value of the collateral declines, recovery of cash by the Fund may be delayed or limited. Repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Securities lending

The Fund may lend its securities to certain qualified broker-dealers. The loans are collateralized with cash or liquid 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 loss with respect to the investment of the collateral, the risk of delay in and/or inability to exercise its rights with respect to the collateral, and the risk of delay in recovery or loss of rights in the loaned securities should the borrower of the securities fail financially. If a loan is collateralized by U.S. government securities, the Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically invests the cash collateral for its own account in interest-bearing, short-term securities and pays a fee to the borrower that normally represents a portion of the Fund's earnings on the collateral. As of August 31, 2007, the Fund had loaned securities valued by the Fund at $4,727,330, collateralized by cash in the amount of $4,807,884, which was invested in short-term instruments.

Taxes and distributions

The Fund intends to qualify each tax 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


12


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

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.

The Fund's policy is to declare and pay distributions from net investment income, if any, semiannually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions are 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 U.S. GAAP.

As of August 31, 2007, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation and depreciation in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 31,024,838     $ 1,443,319     $ (1,346,685 )   $ 96,634    

 

Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital.

Security transactions and related investment income

Security transactions are accounted for on trade date. Dividend income, net of applicable foreign withholding taxes, if any, 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 amortization of premiums and accretion of discounts. Interest income on inflation indexed securities, if any, 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. Income is not recognized, nor are premiums amortized or discounts accreted on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Distributions paid by real estate investment trusts (REITs) in excess of their income are recorded as reductions of the cost of the related investments which increases/decreases the realized gains/losses as applicable. If the Fund no longer owns the applicable securities, any distributions received in excess of income are recorded as realized gains. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.


13


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (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.

Investment risks

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.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in the tax return that could impact the Fund's financial statements. It also provides guidance in relation to the Fund's financial statements on classification of tax benefits or liabilities, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 for registered investment companies. Management has evaluated the effects of applying the various provisions of FIN 48 and has determined that the adoption of FIN 48 does not have a material effect on the Fund's financial statements. Management will continue to monitor the rules and guidance pertaining to FIN 48 and will take action if appropriate.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, ("FAS 157") "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO earns a management fee paid monthly at the annual rate of 0.33% 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 0.15% for Class III shares.


14


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2008 to the extent the Fund's total annual operating expenses (excluding shareholder service fees, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Section 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (in cluding taxes)) exceed 0.33% of the Funds' average daily net assets.

The Fund's portion of the fees paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2007 was $208 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. No remuneration was paid by the Fund to any other officer of the Trust.

4.  Purchases and sales of securities

Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2007 aggregated $8,826,463 and $13,920,823, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Fund.

6.  Principal shareholders and related parties

As of August 31, 2007, 88.14% 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 may have a material effect on the Fund.

As of August 31, 2007, 0.50% of the Fund's shares were held by seven related parties comprised of certain GMO employee accounts, and 73.91% of the Fund's shares were held by accounts for which the Manager has investment discretion.


15


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2007 (Unaudited)

7.  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
August 31, 2007
(Unaudited)		  
Year Ended
February 28, 2007		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     50     $ 624       84,697     $ 914,263    
Shares issued to shareholders
in reinvestment of distributions		     258,216       2,675,118       644,533       7,044,489    
Shares repurchased     (596,120 )     (6,186,675 )     (1,176,570 )     (13,158,885 )  
Net increase (decrease)     (337,854 )   $ (3,510,933 )     (447,340 )   $ (5,200,133 )  

 


16



GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2007 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2007, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The Trustees considered separately the investment management agreement for each fund of the Trust, but noted the common interests of the funds.

As discussed below, at meetings throughout the year, the Trustees considered information relevant to renewal of the Fund's investment management agreement. In addition, at a meeting on May 31, 2007 with their independent legal counsel and the Trust's independent Chief Compliance Officer, the Trustees discussed extensive materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of considering the renewal of the Fund's investment management agreement. At the conclusion of the meeting, the Trustees instructed their independent legal counsel to request additional information from the Manager, which was furnished by the Manager and/or addressed by the Manager at a meeting of the Trustees on June 27, 2007.

The Trustees met over the course of the year with the Fund's investment advisory personnel and considered information provided by the Manager relating to the education, experience, and number of investment professionals and other personnel providing services under the Fund's investment management agreement. The Trustees also considered information concerning the investment philosophy of, and investment process applied by, the Manager in managing the Fund and the level of skill required to manage the Fund. In evaluating that information, the Trustees considered the Manager's internal resources as well as other resources available to the Manager's personnel. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund. The Trustees considered the business reputation of the Manager, its financial resources and its professional liability insurance coverage.

The Trustees also considered the Fund's investment performance relative to its performance benchmark, and as compared to the performance of other accounts with similar objectives managed by the Manager and funds managed by other managers deemed by third-party data services to have similar objectives. The Trustees reviewed performance over various periods, including one-, five- and ten-year periods and for the life of the Fund, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark (including the volatility of the Fund's returns), as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement. The Trustees considered information prepared by third-party data services


17


GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

concerning fees paid to managers of funds deemed by the services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. In comparing the fees, the Trustees considered information provided by the Manager regarding the generally broader scope of services provided by the Manager to the Fund in comparison to separate account clients and the impact on the Manager of, and expenses and risks associated with, the more extensive regulatory and tax regimes to which the Fund is subject. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided to the Fund and the Trust. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholde r servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients and expanding existing client relationships (including through sub-advisory relationships). The Trustees also considered possible economies of scale to the Manager, and concluded that the fee payable under the agreement appropriately reflected any economies of scale associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of the Fund and other funds of the Trust. The Trustees also evaluated the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading and business conduct of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the Trust's proxy voting policies and procedures, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also received information concerning the Manager's practices and results with respect to the ex ecution of portfolio transactions.

The Trustees considered the scope of the services provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that the standard of care set forth in the investment management agreement was comparable to that found in most mutual fund investment management agreements. The Trustees noted that the scope of the Manager's services to the Fund was consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services provided by persons other than the Manager, considering, among other


18


GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2007 (Unaudited)

things, the Fund's total expenses, the Manager's reimbursement of certain expenses pursuant to its contractual expense reimbursement arrangement in place with the Fund, and the reputation of the Fund's other service providers.

After reviewing these factors, among others, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the nature, extent, and quality of services provided supported the renewal of the Fund's investment management agreement.

At the end of the meeting on June 27, 2007, the Trustees, each of whom is not an "interested person" of the Trust, based on their evaluation of all factors that they deemed to be material, including those factors described above, approved the renewal of the Fund's investment management agreement for an additional twelve-month period commencing June 30, 2007.


19


GMO Real Estate Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2007 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2007.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, shareholder service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2007 through August 31, 2007.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled "Net Expense Incurred" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.48 %   $ 1,000.00     $ 863.70     $ 2.25    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.72     $ 2.44    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2007, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 366 days in the year.


20



Item 2. Code of Ethics.

Not applicable to this filing.

Item 3. Audit Committee Financial Expert.

Not applicable to this filing.

Item 4. Principal Accountant Fees and Services.

Not applicable to this filing.

Item 5. Audit Committee of Listed Registrants.

Not applicable to this filing.

Item 6.  Schedule of Investments.

The complete schedule of investments for each series of the registrant is included as part of the semiannual reports to shareholders filed under Item 1 of this Form N-CSR.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to this registrant.

Item 8.  Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to this registrant.

Item 9.  Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable to this registrant.

Item 10. Submission of Matters to a Vote of Security Holders.

There were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.

Item 11. Controls and Procedures.

(a)          The registrant’s Principal Executive Officer and Principal Financial Officer have concluded as of a date within 90 days of the filing of this report, based on their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c))) that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms.

(b)         There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.



Item 12. Exhibits.

(a)(1) Not applicable to this filing.

(a)(2) Certifications by the Principal Executive Officer and Principal Financial Officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) are attached hereto as EX-99.CERT.

(a)(3)  Not applicable to this registrant

(b)         Certifications by the Principal Executive Officer and Principal Financial Officer of the registrant  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) are attached hereto as EX-99.906 CERT.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)

GMO Trust

 

 

By (Signature and Title):

/s/ Scott Eston

 

 

Scott Eston, Chief Executive Officer

 

 

 

Date:

  November 2, 2007

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/ Scott Eston

 

 

Scott Eston, Principal Executive Officer

 

 

 

Date:

  November 2, 2007

 

 

 

By (Signature and Title):

/s/ Sheppard N. Burnett

 

 

Sheppard N. Burnett, Principal Financial Officer

 

 

 

Date:

  November 2, 2007

 

 


 EX-99.CERT 2 a07-23407_1ex99dcert.htm EX-99.CERT

EXHIBIT 99.CERT

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002:

I, Scott Eston, Principal Executive Officer of the Registrant, certify that:

1. I have reviewed this report on Form N-CSR of the Series of GMO Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

  November 2, 2007

 

 

 

 

/s/ Scott Eston

 

Scott Eston, Principal Executive Officer


CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002:

I, Sheppard N. Burnett, Principal Financial Officer of the Registrant, certify that:

1. I have reviewed this report on Form N-CSR of the Series of GMO Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

  November 2, 2007

 

 

 

 

/s/ Sheppard N. Burnett

 

Sheppard N. Burnett, Principal Financial Officer

 


 EX-99.906CERT 3 a07-23407_1ex99d906cert.htm EX-99.906CERT

EXHIBIT 99.906CERT

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Scott Eston, Principal Executive Officer of GMO Trust (the “Registrant”), certifies to the best of his knowledge that:

1.               The Registrant’s periodic report on Form N-CSR for the period ended August 31, 2007 (the “Form N-CSR”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.               The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ Scott Eston

 

 

Scott Eston

 

Principal Executive Officer

 

 

 

Date:

November 2, 2007

 

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.

This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.



CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Sheppard N. Burnett, Principal Financial Officer of GMO Trust (the “Registrant”), certifies to the best of his knowledge that:

1.               The Registrant’s periodic report on Form N-CSR for the period ended August 31, 2007 (the “Form N-CSR”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.               The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

/s/ Sheppard N. Burnett

 

 

Sheppard N. Burnett

 

Principal Financial Officer

 

 

 

Date:

November 2, 2007

 

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.

This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.


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