-----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, MvOahZmsBvJ1SJiW7NncJ1X/f07qTPIp1K934qIo2lqSQxY+KzZQ7+4KF13U+Uyu yz6IX6gprE+3nxdC6zX1fQ== 0001104659-08-067922.txt : 20081104 0001104659-08-067922.hdr.sgml : 20081104 20081104165459 ACCESSION NUMBER: 0001104659-08-067922 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080831 FILED AS OF DATE: 20081104 DATE AS OF CHANGE: 20081104 EFFECTIVENESS DATE: 20081104 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: 081161463 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 C000011426 Class VI GMCQX C000011427 Class M GMTMX 0000772129 S000004083 GMO Tobacco-Free Core Fund C000011431 Class III GMTCX 0000772129 S000004084 GMO U.S. Quality Equity Fund C000011437 Class III GQETX C000011438 Class IV GQEFX C000011439 Class V GQLFX C000011440 Class VI GQLOX 0000772129 S000004135 GMO U.S. Intrinsic Value Fund C000011589 Class III GMVUX 0000772129 S000004138 GMO U.S. Growth Fund C000011603 Class III GMGWX C000011607 Class M GMWMX 0000772129 S000004141 GMO U.S. Small/Mid Cap Value Fund C000011619 Class III GMSUX 0000772129 S000004144 GMO U.S. Small/Mid Cap Growth Fund C000011635 Class III GMSPX 0000772129 S000004146 GMO Real Estate Fund C000011645 Class III GMORX 0000772129 S000004147 GMO Tax-Managed U.S. Equities Fund C000011652 Class III GTMUX 0000772129 S000004157 GMO International Core Equity Fund C000011701 Class III GMIEX C000011702 Class IV GMIRX C000011704 Class VI GCEFX 0000772129 S000004218 GMO International Growth Equity Fund C000011867 Class III GMIGX C000011868 Class IV GMGFX 0000772129 S000004224 GMO International Intrinsic Value Fund C000011880 Class II GMICX C000011881 Class III GMOIX C000011882 Class IV GMCFX C000011885 Class M GMVMX 0000772129 S000004226 GMO Global Growth Fund C000011890 Class III GMGTX 0000772129 S000004227 GMO Developed World Stock Fund C000011892 Class III GDWTX C000011893 Class IV GDWFX 0000772129 S000004228 GMO Currency Hedged International Equity Fund C000011898 Class III GMOCX 0000772129 S000004229 GMO Foreign Fund C000011904 Class II GMFRX C000011905 Class III GMOFX C000011906 Class IV GMFFX 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 C000011914 Class III GMISX 0000772129 S000004911 GMO Emerging Markets Fund C000013269 Class III GMOEX C000013270 Class IV GMEFX C000013271 Class V GEMVX C000013272 Class VI GEMMX 0000772129 S000004912 GMO Emerging Countries Fund C000013275 Class III GMCEX C000013279 Class M GECMX 0000772129 S000004913 GMO Tax-Managed International Equities Fund C000013282 Class III GTMIX 0000772129 S000004914 GMO Domestic Bond Fund C000013286 Class III GMDBX C000013289 Class VI GDBSX 0000772129 S000004917 GMO Core Plus Bond Fund C000013294 Class III GUGAX C000013295 Class IV GPBFX 0000772129 S000004918 GMO International Bond Fund C000013302 Class III GMIBX 0000772129 S000004919 GMO Currency Hedged International Bond Fund C000013310 Class III GMHBX 0000772129 S000004920 GMO Global Bond Fund C000013318 Class III GMGBX 0000772129 S000004922 GMO Emerging Country Debt Fund C000013327 Class III GMCDX C000013328 Class IV GMDFX 0000772129 S000004924 GMO Short-Duration Investment Fund C000013332 Class III GMSIX 0000772129 S000004926 GMO Alpha Only Fund C000013338 Class III GGHEX C000013339 Class IV GAPOX 0000772129 S000005485 GMO Benchmark-Free Allocation Fund C000014927 Class III GBMFX 0000772129 S000005486 GMO International Equity Allocation Fund C000014930 Class III GIEAX 0000772129 S000005487 GMO Global Balanced Asset Allocation Fund C000014933 Class III GMWAX 0000772129 S000005488 GMO Global Equity Allocation Fund C000014936 Class III GMGEX 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 C000014941 Class III 0000772129 S000005492 GMO Emerging Markets Opportunities Fund C000014947 Class III GMASX C000014950 Class VI GMQSX 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 GMDCX 0000772129 S000011778 GMO Inflation Indexed Plus Bond Fund C000032211 Class III GMITX C000032214 Class VI GMIPX 0000772129 S000012210 GMO Strategic Fixed Income Fund C000033338 III GFITX C000033341 VI GMFIX 0000772129 S000012211 GMO International Opportunities Equity Allocation Fund C000033342 III GIOTX 0000772129 S000019254 GMO Special Situations Fund C000053096 Class III C000053097 Class VI N-CSRS 1 a08-23962_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 E. 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:

02/28/09

 

 

Date of reporting period:

08/31/08

 

 



 

Item 1. Reports to Stockholders.

 

The semiannual reports for each series of the registrant for the periods ended August 31, 2008 are filed herewith.

 



GMO Developed World Stock Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Developed World Stock Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.5 %  
Short-Term Investments     3.1    
Preferred Stocks     0.3    
Forward Currency Contracts     0.1    
Futures     (0.5 )  
Other     1.5    
      100.0 %  
Country Summary   % of Equity Investments  
United States     51.5 %  
United Kingdom     12.3    
Japan     9.2    
France     7.3    
Germany     3.6    
Canada     3.2    
Singapore     2.2    
Switzerland     2.1    
Italy     2.0    
Netherlands     2.0    
Hong Kong     1.4    
Australia     0.9    
Finland     0.7    
Spain     0.7    
Belgium     0.4    
Norway     0.2    
Sweden     0.2    
Ireland     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     16.7 %  
Financials     16.7    
Energy     14.1    
Industrials     10.2    
Consumer Staples     9.9    
Information Technology     9.4    
Consumer Discretionary     8.7    
Materials     7.5    
Utilities     4.2    
Telecommunication Services     2.6    
      100.0 %  

 


1




GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.5%  
        Australia — 0.8%  
    22,900     BHP Billiton Ltd     804,289    
    437,966     Telstra Corp Ltd     1,625,762    
    25,295     Woodside Petroleum Ltd     1,358,667    
    Total Australia     3,788,718    
      Belgium — 0.4%  
    75,924     Dexia     1,072,987    
    54,210     Fortis     750,609    
    Total Belgium     1,823,596    
        Canada — 3.1%  
    7,300     Agrium Inc     617,454    
    10,400     Bank of Nova Scotia     480,429    
    21,000     Barrick Gold Corp     730,787    
    15,864     BCE Inc     601,063    
    13,300     Canadian National Railway Co     697,818    
    15,100     Canadian Natural Resources     1,289,004    
    21,300     Canadian Pacific Railway Ltd     1,299,505    
    17,200     EnCana Corp     1,292,835    
    20,200     Goldcorp Inc     687,158    
    13,400     Nexen Inc     419,996    
    13,400     Potash Corp of Saskatchewan Inc     2,331,686    
    18,600     Research In Motion Ltd *      2,266,229    
    16,800     Suncor Energy Inc     961,989    
    26,700     Talisman Energy Inc     471,990    
    Total Canada     14,147,943    
        Finland — 0.7%  
    21,531     Fortum Oyj     883,758    
    81,649     Nokia Oyj     2,044,280    
    7,169     Rautaruukki Oyj     243,165    
    Total Finland     3,171,203    

 

See accompanying notes to the financial statements.


2



GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — 7.0%  
    5,313     Air Liquide SA     645,319    
    11,702     Alstom     1,188,715    
    21,762     Arcelor Mittal     1,707,272    
    17,449     AXA     556,753    
    63,397     BNP Paribas     5,687,035    
    11,559     Casino Guichard-Perrachon SA     1,132,710    
    16,653     Cie de Saint-Gobain     1,017,430    
    8,252     CNP Assurances     990,515    
    23,039     Credit Agricole SA     488,445    
    52,855     France Telecom SA     1,558,425    
    26,486     GDF Suez     1,524,728    
    20,401     Peugeot SA     969,284    
    11,712     Renault SA     977,991    
    59,380     Sanofi-Aventis     4,212,744    
    12,445     Societe Generale     1,200,476    
    2,855     Suez Environnement SA *      82,009    
    102,026     Total SA     7,329,156    
    1,708     Vallourec SA     475,150    
    Total France     31,744,157    
        Germany — 3.1%  
    31,558     Altana AG     502,968    
    18,528     BASF AG     1,069,228    
    6,694     Beiersdorf AG (Bearer)     389,677    
    8,794     Deutsche Boerse AG     824,272    
    42,498     E.ON AG     2,477,514    
    25,237     Hannover Rueckversicherungs AG (Registered)     1,070,521    
    7,666     K&S AG     919,046    
    3,532     Linde AG     443,186    
    4,242     MAN AG     414,227    
    9,290     Muenchener Rueckversicherungs AG (Registered)     1,440,570    
    4,780     Q-Cells AG *      478,542    
    5,417     RWE AG     583,397    
    6,154     Salzgitter AG     942,362    
    37,885     Suedzucker AG     642,156    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    7,653     ThyssenKrupp AG     381,033    
    4,941     Volkswagen AG     1,473,230    
    Total Germany     14,051,929    
      Hong Kong — 1.3%  
    28,000     Cheung Kong Holdings Ltd     397,991    
    211,000     CLP Holdings Ltd     1,711,729    
    55,400     Esprit Holdings Ltd     457,342    
    91,600     Hang Seng Bank Ltd     1,806,652    
    163,500     Hong Kong Electric Holdings Ltd     1,038,101    
    39,000     Sun Hung Kai Properties Ltd     531,783    
    Total Hong Kong     5,943,598    
        Ireland — 0.1%  
    49,191     Bank of Ireland     394,320    
        Italy — 1.9%  
    242,972     ENI SPA     7,881,369    
    120,146     UniCredito Italiano SPA     646,470    
    Total Italy     8,527,839    
        Japan — 8.8%  
    34,100     Alps Electric Co Ltd     308,196    
    18,900     Asahi Breweries     350,081    
    167,000     Cosmo Oil Co Ltd     487,761    
    18,500     Daiichi Sankyo Co Ltd     556,571    
    7,900     Eisai Co Ltd     314,174    
    16,500     Fast Retailing Co Ltd     1,665,445    
    148,000     Fuji Heavy Industries Ltd     846,058    
    73,000     Hitachi Ltd     537,641    
    100,300     Honda Motor Co Ltd     3,257,510    
    28,200     Hoya Corp     574,861    
    131,000     Itochu Corp     1,053,865    
    17,000     JFE Holdings Inc     718,420    
    13,000     Kao Corp     368,069    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    56,000     Kawasaki Kisen Kaisha Ltd     397,025    
    3,600     Keyence Corp     728,211    
    20,000     Kirin Holdings Co Ltd     299,237    
    18,300     Komatsu Ltd     383,010    
    25,500     Konica Minolta Holdings Inc     351,462    
    4,700     Kyocera Corp     393,908    
    127,000     Marubeni Corp     785,797    
    40,000     Matsushita Electric Industrial Co Ltd     822,154    
    97,000     Mazda Motor Corp     516,315    
    4,800     Nintendo Co Ltd     2,253,407    
    122,000     Nippon Mining Holdings Inc     677,660    
    183,000     Nippon Oil Corp     1,141,354    
    57,000     Nippon Yusen KK     454,875    
    273,900     Nissan Motor Co     2,080,569    
    307,000     Osaka Gas Co Ltd     1,116,970    
    60,000     Ricoh Company Ltd     990,397    
    86,600     Seven & I Holdings Co Ltd     2,522,446    
    35,100     Shin-Etsu Chemical Co Ltd     1,952,620    
    65,400     Showa Shell Sekiyu KK     739,353    
    287,200     Sojitz Corp     819,458    
    47,100     SUMCO Corp     933,080    
    82,600     Sumitomo Corp     1,029,096    
    175,000     Sumitomo Metal Industries Ltd     773,072    
    152,000     Taisei Corp     346,011    
    29,000     Taisho Pharmaceutical Co Ltd     615,133    
    44,900     Takeda Pharmaceutical Co Ltd     2,345,589    
    9,100     TDK Corp     527,159    
    17,300     Tokyo Electric Power Co Inc     493,577    
    222,000     Tokyo Gas Co Ltd     926,244    
    83,000     TonenGeneral Sekiyu KK     667,829    
    54,500     Toyota Tsusho Kaisha     931,895    
    Total Japan     40,053,565    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — 1.9%  
    131,088     Aegon NV     1,544,213    
    28,085     Heineken NV     1,316,708    
    152,407     ING Groep NV     4,748,129    
    11,627     Koninklijke DSM     669,189    
    25,490     Koninklijke KPN NV     432,493    
    Total Netherlands     8,710,732    
        Norway — 0.2%  
    33,700     StatoilHydro ASA     1,033,762    
        Singapore — 2.2%  
    47,000     Capitaland Ltd     143,556    
    52,000     City Developments Ltd     377,183    
    80,000     Keppel Corp Ltd     555,565    
    117,000     Oversea-Chinese Banking Corp     663,012    
    276,000     Sembcorp Industries Ltd     801,151    
    128,200     Singapore Airlines Ltd     1,371,004    
    120,000     Singapore Exchange Ltd     529,895    
    363,000     Singapore Technologies Engineering Ltd     717,060    
    1,254,600     Singapore Telecommunications     3,096,460    
    116,000     United Overseas Bank Ltd     1,543,990    
    Total Singapore     9,798,876    
        Spain — 0.6%  
    10,986     Gas Natural SDG SA     508,961    
    17,764     Repsol YPF SA     549,450    
    73,680     Telefonica SA     1,820,522    
    Total Spain     2,878,933    
        Sweden — 0.2%  
    34,100     Electrolux AB Series B     437,514    
    45,900     Svenska Cellulosa AB Class B     521,437    
    Total Sweden     958,951    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — 2.0%  
    60,569     ABB Ltd *      1,485,620    
    8,900     Alcon Inc     1,515,581    
    83,105     Novartis AG (Registered)     4,629,661    
    2,459     Syngenta AG (Registered)     659,773    
    2,902     Zurich Financial Services AG     757,615    
    Total Switzerland     9,048,250    
        United Kingdom — 11.8%  
    97,874     AstraZeneca Plc     4,771,547    
    161,592     Aviva Plc     1,508,402    
    75,902     BAE Systems Plc     662,444    
    623,150     Barclays Plc     3,987,495    
    133,075     BG Group Plc     2,951,783    
    14,958     BHP Billiton Plc     465,881    
    44,079     British American Tobacco Plc     1,489,172    
    25,366     British Energy Group Plc     338,743    
    277,394     DSG International Plc     249,234    
    252,043     GlaxoSmithKline Plc     5,930,775    
    606,511     HBOS Plc     3,471,627    
    131,074     HSBC Holdings Plc     2,062,405    
    149,322     Kesa Electricals Plc     438,528    
    105,098     Kingfisher Plc     253,860    
    547,533     Lloyds TSB Group Plc     3,021,758    
    27,699     Next Plc     534,459    
    465,293     Old Mutual Plc     822,884    
    78,155     Persimmon Plc     529,029    
    26,950     Reed Elsevier Plc     308,014    
    32,486     Rio Tinto Plc     3,083,855    
    1,664,584     Royal Bank of Scotland Group     7,079,598    
    24,702     Royal Dutch Shell Group Class A (Amsterdam)     859,659    
    125,444     Royal Dutch Shell Plc A Shares (London)     4,383,931    
    297,175     Taylor Woodrow Plc     292,088    
    173,387     Tomkins Plc     468,367    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    946,666     Vodafone Group Inc     2,419,161    
    67,378     Wolseley Plc     543,650    
    16,484     Xstrata Plc     919,035    
    Total United Kingdom     53,847,384    
        United States — 49.4%  
    43,100     3M Co.     3,085,960    
    60,500     Abbott Laboratories     3,474,515    
    10,200     Accenture Ltd.     421,872    
    6,600     ACE Ltd.     347,226    
    18,500     Aflac, Inc.     1,048,950    
    34,600     Allstate Corp. (The)     1,561,498    
    57,200     Altria Group, Inc.     1,202,916    
    12,300     Amazon.com, Inc. *      993,963    
    13,300     Amphenol Corp.-Class A     632,016    
    19,000     Anadarko Petroleum Corp.     1,172,870    
    10,500     Apache Corp.     1,200,990    
    21,000     Apple, Inc. *      3,560,130    
    9,000     Ashland, Inc.     368,370    
    7,600     Assurant, Inc.     444,068    
    54,300     Automatic Data Processing, Inc.     2,409,834    
    26,800     AutoNation, Inc. *      304,180    
    148,791     Bank of America Corp.     4,633,352    
    12,600     Bank of New York Mellon Corp. (The)     436,086    
    9,300     Bard (C.R.), Inc.     869,085    
    27,800     Baxter International, Inc.     1,883,728    
    17,000     Becton, Dickinson & Co.     1,485,460    
    13,100     Bed Bath & Beyond, Inc. *      401,646    
    37,300     Best Buy Co., Inc.     1,669,921    
    3,100     BlackRock, Inc.     673,475    
    3,900     Bunge Ltd.     348,504    
    5,300     Burlington Northern Santa Fe Corp.     569,220    
    29,700     Capital One Financial Corp.     1,310,958    
    38,700     Centerpoint Energy, Inc.     614,556    
    3,500     CF Industries Holdings, Inc.     533,400    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    20,000     CH Robinson Worldwide, Inc.     1,042,200    
    21,900     Chesapeake Energy Corp.     1,059,960    
    25,805     Chevron Corp.     2,227,487    
    133,100     Citigroup, Inc.     2,527,569    
    20,700     Citrix Systems, Inc. *      626,589    
    1,600     CME Group, Inc.     536,608    
    37,300     Coach, Inc. *      1,081,327    
    155,100     Coca-Cola Co. (The)     8,076,057    
    21,200     Cognizant Technology Solutions Corp.-Class A *      621,584    
    9,000     Colgate-Palmolive Co.     684,270    
    16,700     Comerica, Inc.     469,103    
    24,300     Computer Sciences Corp. *      1,142,829    
    49,353     ConocoPhillips     4,072,116    
    19,900     Convergys Corp. *      293,525    
    23,000     Corning, Inc.     472,420    
    8,900     Costco Wholesale Corp.     596,834    
    12,600     CSX Corp.     814,968    
    55,100     D.R. Horton, Inc.     686,546    
    9,200     Danaher Corp.     750,444    
    20,100     Deere & Co.     1,418,457    
    16,100     Devon Energy Corp.     1,643,005    
    13,500     Dow Chemical Co. (The)     460,755    
    20,700     DTE Energy Co.     872,712    
    54,800     Duke Energy Corp.     955,712    
    28,200     Ecolab, Inc.     1,289,868    
    67,500     Eli Lilly & Co.     3,148,875    
    19,500     Emerson Electric Co.     912,600    
    20,600     Energy East Corp.     560,320    
    9,900     EOG Resources, Inc.     1,033,758    
    24,600     Expeditors International of Washington, Inc.     887,814    
    7,800     Express Scripts, Inc. *      572,598    
    39,300     Exxon Mobil Corp.     3,144,393    
    6,300     Fastenal Co.     327,159    
    28,292     Fidelity National Title Group, Inc.-Class A     396,937    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    18,200     First American Corp.     459,914    
    5,500     First Solar, Inc. *      1,521,575    
    5,700     FirstEnergy Corp.     414,048    
    16,600     Fiserv, Inc. *      860,876    
    10,200     Fluor Corp.     817,326    
    5,300     FMC Technologies, Inc. *      283,868    
    19,100     Forest Laboratories, Inc. *      681,679    
    10,100     FPL Group, Inc.     606,606    
    7,200     Freeport-McMoRan Copper & Gold, Inc.     643,104    
    27,300     Gannett Co., Inc.     485,667    
    23,600     General Dynamics Corp.     2,178,280    
    12,400     Genuine Parts Co.     526,008    
    30,700     Genworth Financial, Inc.-Class A     492,735    
    10,900     Gilead Sciences, Inc. *      574,212    
    10,700     Google, Inc.-Class A *      4,957,203    
    13,600     Halliburton Co.     597,584    
    24,300     Harley-Davidson, Inc.     966,654    
    11,900     Hartford Financial Services Group (The), Inc.     750,652    
    15,200     Hess Corp.     1,591,592    
    39,000     Hewlett-Packard Co.     1,829,880    
    92,700     Home Depot, Inc.     2,514,024    
    35,700     Hudson City Bancorp, Inc.     658,308    
    36,400     Illinois Tool Works, Inc.     1,805,804    
    61,600     Intel Corp.     1,408,792    
    21,500     International Business Machines Corp.     2,617,195    
    5,600     Jacobs Engineering Group, Inc. *      413,392    
    1,144     John Bean Technologies Corp. *      14,872    
    246,600     Johnson & Johnson     17,368,038    
    47,400     Kimberly-Clark Corp.     2,923,632    
    32,335     Kraft Foods, Inc.     1,018,876    
    31,300     Lehman Brothers Holdings, Inc.     503,617    
    5,900     Leucadia National Corp.     273,111    
    11,800     Lexmark International, Inc. *      424,446    
    10,200     Lincare Holdings, Inc. *      336,600    
    65,200     Lowe's Cos., Inc.     1,606,528    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    12,700     Marathon Oil Corp.     572,389    
    3,900     Mastercard, Inc.-Class A     945,945    
    37,500     McDonald's Corp.     2,325,000    
    30,500     McGraw-Hill Cos. (The), Inc.     1,306,620    
    13,800     Medco Health Solutions, Inc. *      646,530    
    40,900     Medtronic, Inc.     2,233,140    
    9,200     MEMC Electronic Materials, Inc. *      451,628    
    141,400     Merck & Co., Inc.     5,043,738    
    54,000     Microsoft Corp.     1,473,660    
    22,100     Monsanto Co.     2,524,925    
    15,100     Morgan Stanley     616,533    
    16,700     Mosaic Co. (The)     1,782,558    
    8,300     Murphy Oil Corp.     651,799    
    101,300     National City Corp.     510,552    
    9,600     National Oilwell Varco, Inc. *      707,808    
    34,200     Nike, Inc.-Class B     2,072,862    
    33,300     NiSource, Inc.     548,784    
    6,800     Noble Energy Inc.     487,764    
    8,400     Nucor Corp.     441,000    
    900     NVR, Inc. *      537,957    
    31,500     Occidental Petroleum Corp.     2,499,840    
    45,025     Old Republic International Corp.     492,123    
    46,700     Oracle Corp. *      1,024,131    
    7,500     Parker-Hannifin Corp.     480,525    
    48,900     Paychex, Inc.     1,666,512    
    8,100     Peabody Energy Corp.     509,895    
    20,200     Pepco Holdings, Inc.     512,070    
    88,000     PepsiCo, Inc.     6,026,240    
    354,200     Pfizer, Inc.     6,768,762    
    57,200     Philip Morris International, Inc.     3,071,640    
    6,500     PPG Industries, Inc.     408,590    
    18,600     Praxair, Inc.     1,671,024    
    16,800     Progress Energy, Inc.     733,824    
    4,900     Public Storage     432,768    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    68,400     Regions Financial Corp.     634,068    
    13,600     Rockwell Collins, Inc.     715,224    
    9,400     Ryder Systems, Inc.     606,488    
    11,000     Sigma-Aldrich Corp.     624,360    
    10,600     Southwestern Energy Co. *      406,722    
    8,700     SPX Corp.     1,037,475    
    8,900     State Street Corp.     602,263    
    29,600     Stryker Corp.     1,988,824    
    13,542     Supervalu, Inc.     314,039    
    46,800     Sysco Corp.     1,489,644    
    7,100     Textron, Inc.     291,810    
    39,400     TJX Cos. (The), Inc.     1,427,856    
    9,900     Torchmark Corp.     591,426    
    5,000     Transocean, Inc. *      636,000    
    27,200     Tyco Electronics Ltd.     895,152    
    38,100     United Parcel Service, Inc.-Class B     2,442,972    
    46,100     United Technologies Corp.     3,023,699    
    33,115     UnitedHealth Group, Inc.     1,008,352    
    26,200     Valero Energy Corp.     910,712    
    10,400     VF Corp.     824,200    
    9,500     W.W. Grainger, Inc.     855,285    
    125,200     Wal-Mart Stores, Inc.     7,395,564    
    50,749     Washington Mutual, Inc. (a)      205,533    
    13,100     Weatherford International Ltd. *      505,398    
    12,900     Wells Fargo & Co.     390,483    
    19,300     Western Union Co.     533,066    
    6,400     Whirlpool Corp.     520,704    
    18,200     WM Wrigley Jr. Co.     1,446,536    
    33,000     Xcel Energy, Inc.     676,830    
    22,600     XTO Energy, Inc.     1,139,266    
    Total United States     224,511,933    
    TOTAL COMMON STOCKS (COST $478,322,877)     434,435,689    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        PREFERRED STOCKS — 0.3%  
      Germany — 0.3%  
    3,600     Porsche AG (Non Voting) 0.71%     510,757    
    6,389     Volkswagen AG 1.73%     984,839    
    Total Germany     1,495,596    
    TOTAL PREFERRED STOCKS (COST $1,149,237)     1,495,596    
        SHORT-TERM INVESTMENTS — 3.1%  
    192,000     Bank of New York Mellon Institutional Cash Reserves Fund (b)      192,000    
    13,200,000     Royal Bank of Canada Time Deposit, 2.04%, due 09/02/08     13,200,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $13,392,000)     13,392,000    
          TOTAL INVESTMENTS — 98.9%
(Cost $492,864,114)
    449,323,285    
          Other Assets and Liabilities (net) — 1.1%     5,376,378    
    TOTAL NET ASSETS — 100.0%   $ 454,699,663    

 

See accompanying notes to the financial statements.


13



GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   CAD     7,707,092     $ 7,252,266     $ (21,457 )  
11/21/08   CAD     7,480,413       7,038,964       (19,428 )  
11/21/08   CAD     7,480,413       7,038,964       2,145    
11/21/08   CHF     10,788,576       9,805,300       (19,645 )  
11/21/08   CHF     10,471,265       9,516,909       (21,951 )  
11/21/08   CHF     10,471,265       9,516,909       (12,819 )  
11/21/08   DKK     4,535,854       888,303       (838 )  
11/21/08   EUR     1,470,275       2,147,903       (106,584 )  
11/21/08   GBP     1,187,338       2,151,897       (145,642 )  
11/21/08   JPY     1,193,106,106       11,013,192       135,723    
11/21/08   JPY     1,229,260,836       11,346,925       135,440    
11/21/08   JPY     1,193,106,106       11,013,192       135,624    
11/21/08   NOK     3,259,519       596,335       (22,251 )  
11/21/08   NZD     469,710       324,955       (5,646 )  
11/21/08   SEK     38,728,551       5,974,747       (89,421 )  
11/21/08   SEK     37,589,476       5,799,019       (77,367 )  
11/21/08   SEK     37,589,476       5,799,019       (80,726 )  
11/21/08   SGD     1,640,742       1,161,736       (3,647 )  
11/21/08   SGD     1,690,462       1,196,941       (4,226 )  
11/21/08   SGD     1,640,742       1,161,736       (3,245 )  
    $ 110,745,212     $ (225,961 )  
Sales  
11/21/08   AUD     1,217,730     $ 1,035,728     $ 14,966    
11/21/08   AUD     1,254,631       1,067,114       11,979    
11/21/08   AUD     1,217,730       1,035,729       15,086    
11/21/08   CAD     1,913,674       1,800,740       24,501    
11/21/08   EUR     6,695,051       9,780,702       29,978    
11/21/08   EUR     6,695,051       9,780,702       8,500    
11/21/08   EUR     6,897,932       10,077,088       19,967    
11/21/08   GBP     5,115,937       9,271,976       217,079    

 

See accompanying notes to the financial statements.


14



GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
11/21/08   GBP     5,270,965     $ 9,552,944     $ 217,665    
11/21/08   GBP     5,115,937       9,271,976       208,802    
11/21/08   HKD     11,189,497       1,435,863       (1,176 )  
11/21/08   HKD     11,189,497       1,435,863       (1,193 )  
11/21/08   HKD     11,528,573       1,479,374       (1,352 )  
11/21/08   NOK     7,766,923       1,420,974       (853 )  
11/21/08   SEK     10,802,272       1,666,492       90,089    
    $ 70,113,265     $ 854,038    

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  32     DAX   September 2008   $ 7,554,134     $ (420,507 )  
  44     MSCI Singapore   September 2008     2,108,324       30,931    
  162     TOPIX   September 2008     18,689,731       (1,661,131 )  
                $ 28,352,189     $ (2,050,707 )  
Sales      
  119     FTSE 100   September 2008   $ 12,252,678     $ (257,180 )  
  13     IBEX 35   September 2008     2,236,437       35,919    
  28     SPI 200   September 2008     3,092,007       125,736    
                $ 17,581,122     $ (95,525 )  

 

As of August 31, 2008, 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.


15



GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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, 2008, 43.03% 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.


16




GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $194,400 (cost $492,864,114) (Note 2)   $ 449,323,285    
Cash     68,903    
Foreign currency, at value (cost $438,800) (Note 2)     436,586    
Dividends and interest receivable     1,243,133    
Foreign taxes receivable     54,591    
Unrealized appreciation on open forward currency contracts (Note 2)     1,267,544    
Receivable for collateral on open futures contracts (Note 2)     3,071,000    
Receivable for variation margin on open futures contracts (Note 2)     405,637    
Receivable for expenses reimbursed by Manager (Note 3)     51,460    
Total assets     455,922,139    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     192,000    
Payable to affiliate for (Note 3):  
Management fee     174,168    
Shareholder service fee     49,735    
Trustees and Chief Compliance Officer of GMO Trust fees     1,030    
Unrealized depreciation on open forward currency contracts (Note 2)     639,467    
Accrued expenses     166,076    
Total liabilities     1,222,476    
Net assets   $ 454,699,663    
Net assets consist of:  
Paid-in capital   $ 497,580,445    
Accumulated undistributed net investment income     5,655,549    
Accumulated net realized loss     (3,444,809 )  
Net unrealized depreciation     (45,091,522 )  
    $ 454,699,663    
Net assets attributable to:  
Class III shares   $ 259,174,766    
Class IV shares   $ 195,524,897    
Shares outstanding:  
Class III     12,845,872    
Class IV     9,679,795    
Net asset value per share:  
Class III   $ 20.18    
Class IV   $ 20.20    

 

See accompanying notes to the financial statements.


17



GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $549,416)   $ 8,754,636    
Securities lending income     211,928    
Interest     205,995    
Total investment income     9,172,559    
Expenses:  
Management fee (Note 3)     1,114,496    
Shareholder service fee – Class III (Note 3)     204,608    
Shareholder service fee – Class IV (Note 3)     104,060    
Custodian and fund accounting agent fees     211,048    
Transfer agent fees     21,160    
Audit and tax fees     37,352    
Legal fees     5,612    
Trustees fees and related expenses (Note 3)     2,684    
Registration fees     1,104    
Miscellaneous     4,324    
Total expenses     1,706,448    
Fees and expenses reimbursed by Manager (Note 3)     (279,220 )  
Expense reductions (Note 2)     (5,448 )  
Net expenses     1,421,780    
Net investment income (loss)     7,750,779    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (241,848 )  
Closed futures contracts     (911,101 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,787,949 )  
Net realized gain (loss)     (2,940,898 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (29,783,497 )  
Open futures contracts     191,030    
Foreign currency, forward contracts and foreign currency related transactions     (1,534,984 )  
Net unrealized gain (loss)     (31,127,451 )  
Net realized and unrealized gain (loss)     (34,068,349 )  
Net increase (decrease) in net assets resulting from operations   $ (26,317,570 )  

 

See accompanying notes to the financial statements.


18



GMO Developed World Stock Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,750,779     $ 11,232,424    
Net realized gain (loss)     (2,940,898 )     39,545,032    
Change in net unrealized appreciation (depreciation)     (31,127,451 )     (63,583,976 )  
Net increase (decrease) in net assets from operations     (26,317,570 )     (12,806,520 )  
Distributions to shareholders from:  
Net investment income  
Class III     (3,915,011 )     (8,471,254 )  
Class IV     (3,107,504 )     (5,941,447 )  
Total distributions from net investment income     (7,022,515 )     (14,412,701 )  
Net realized gains  
Class III     (2,479,946 )     (22,082,339 )  
Class IV     (1,952,911 )     (15,851,765 )  
Total distributions from net realized gains     (4,432,857 )     (37,934,104 )  
      (11,455,372 )     (52,346,805 )  
Net share transactions (Note 7):  
Class III     (28,751,752 )     66,739,553    
Class IV     5,060,415       21,793,212    
Increase (decrease) in net assets resulting from net share
transactions
    (23,691,337 )     88,532,765    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     147,454       253,528    
Increase in net assets resulting from purchase premiums
and redemption fees
    147,454       253,528    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (23,543,883 )     88,786,293    
Total increase (decrease) in net assets     (61,316,825 )     23,632,968    
Net assets:  
Beginning of period     516,016,488       492,383,520    
End of period (including accumulated undistributed net investment
income of $5,655,549 and $4,927,285, respectively)
  $ 454,699,663     $ 516,016,488    

 

See accompanying notes to the financial statements.


19




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net assets value, beginning of period   $ 21.88     $ 24.58     $ 22.24     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)      0.35       0.54       0.43       0.15    
Net realized and unrealized gain (loss)     (1.51 )     (0.74 )     2.84       2.15    
Total from investment operations     (1.16 )     (0.20 )     3.27       2.30    
Less distributions to shareholders:  
From net investment income     (0.33 )     (0.67 )     (0.32 )     (0.06 )  
From net realized gains     (0.21 )     (1.83 )     (0.61 )        
Total distributions     (0.54 )     (2.50 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 20.18     $ 21.88     $ 24.58     $ 22.24    
Total Return(b)      (5.29 )%**      (1.73 )%     14.87 %     11.51 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 259,175     $ 309,609     $ 282,446     $ 179,466    
Net expenses to average daily net assets     0.61 %*(c)      0.62 %(c)      0.62 %     0.62 %*   
Net investment income to average daily net assets     3.22 %*      2.15 %     1.83 %     1.27 %*   
Portfolio turnover rate     26 %**      53 %     43 %     15 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.12 %*      0.11 %     0.12 %     0.20 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
  $ 0.01     $ 0.02     $ 0.03     $ 0.07    

 

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

(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.

(c)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  Calculated using average shares outstanding throughout the period.

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

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 21.90     $ 24.59     $ 22.25     $ 20.24    
Income (loss) from investment operations:  
Net investment income (loss)      0.35       0.56       0.45       0.12    
Net realized and unrealized gain (loss)     (1.51 )     (0.74 )     2.82       1.95    
Total from investment operations     (1.16 )     (0.18 )     3.27       2.07    
Less distributions to shareholders:  
From net investment income     (0.33 )     (0.68 )     (0.32 )     (0.06 )  
From net realized gains     (0.21 )     (1.83 )     (0.61 )        
Total distributions     (0.54 )     (2.51 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 20.20     $ 21.90     $ 24.59     $ 22.25    
Total Return(b)      (5.27 )%**      (1.66 )%     14.88 %     10.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 195,525     $ 206,408     $ 209,937     $ 137,409    
Net expenses to average daily net assets     0.57 %(c)*      0.57 %(c)      0.57 %     0.57 %*   
Net investment income to average daily net assets     3.23 %*      2.22 %     1.93 %     1.20 %*   
Portfolio turnover rate     26 %**      53 %     43 %     15 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.12 %*      0.11 %     0.12 %     0.17 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
    (d)      (d)    $ 0.02     $ 0.06    

 

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

(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.

(c)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(d)  For the periods ended August 31, 2008 and February 29, 2008, the class received no purchase premiums or redemption fees.

†  Calculated using average shares outstanding throughout the period.

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

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


21




GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (Unaudited)

1.  Organization

GMO Developed World Stock 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 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, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the


22



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 253,457,467     $ 629,172    
Level 2 - Other Significant Observable Inputs     195,865,818       1,267,544    
Level 3 - Significant Unobservable Inputs              
Total   $ 449,323,285     $ 1,896,716    

 

*  Other financial instruments include foreign currency, forward currency contracts and futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (2,338,818 )  
Level 2 - Other Significant Observable Inputs           (639,467 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (2,978,285 )  

 

**  Other financial instruments include forward currency contracts and futures contracts.


23



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities.


24



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.


25



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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


26



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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, 2008, the Fund had loane d securities valued by the Fund at $194,400, collateralized by cash in the amount of $192,000, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments


27



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 495,367,025     $ 25,311,915     $ (71,355,655 )   $ (46,043,740 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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


28



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchase and redemption of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.25% of the amount invested or redeemed. An additional purchase premium and redemption fee of 0.005% is charged for any purchases/redemptions (or any portion of a purchase/redemption) effected in a currency other than the U.S. dollar. 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in- kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The


29



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

Effective June 30, 2008, GMO receives a management fee for investment management services provided to the Fund that is paid monthly at the annual rate of 0.45% of average daily net assets. For the period from March 1, 2008 through June 29, 2008, the management fee rate was 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.45% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008, was $2,408 and $1,380, 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, 2008 aggregated $118,185,019 and $144,393,930, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it would involve future claims that may be


30



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 42.97% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008 , no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     617,516     $ 12,468,750       2,679,838     $ 67,974,333    
Shares issued to shareholders
in reinvestment of distributions
    264,910       5,261,114       1,157,471       28,331,295    
Shares repurchased     (2,188,481 )     (46,481,616 )     (1,177,880 )     (29,566,075 )  
Purchase premiums           31,250             170,362    
Redemption fees           116,204             83,166    
Net increase (decrease)     (1,306,055 )   $ (28,604,298 )     2,659,429     $ 66,993,081    

 


31



GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $           $    
Shares issued to shareholders
in reinvestment of distributions
    254,548       5,060,415       889,056       21,793,212    
Shares repurchased                          
Purchase premiums                          
Redemption fees                          
Net increase (decrease)     254,548     $ 5,060,415       889,056     $ 21,793,212    

 


32




GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 comp etence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement, including the fact that the fees payable under the agreement were being reduced in


33



GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

connection with the renewal of the agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by those 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 regar ding 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 m anaging 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


34



GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


35



GMO Developed World Stock Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.61 %   $ 1,000.00     $ 947.10     $ 2.99    
  2 ) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.13     $ 3.11    
Class IV      
  1 ) Actual     0.57 %   $ 1,000.00     $ 947.30     $ 2.80    
  2 ) Hypothetical     0.57 %   $ 1,000.00     $ 1,022.33     $ 2.91    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


36




GMO Emerging Countries Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Emerging Countries Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     77.1 %  
Preferred Stocks     13.2    
Short-Term Investments     6.4    
Investment Funds     4.5    
Rights and Warrants     0.1    
Other     (1.3 )  
      100.0 %  
Country Summary   % of Equity Investments  
Brazil     19.2 %  
South Korea     17.2    
Taiwan     10.7    
Russia     9.8    
Turkey     6.7    
China     6.3    
South Africa     5.3    
Thailand     5.3    
United States*     4.8    
Hungary     2.4    
Malaysia     2.2    
India     1.5    
Israel     1.4    
Mexico     1.3    
Poland     1.1    
Philippines     1.0    
Indonesia     0.9    
Pakistan     0.8    
Egypt     0.7    
Argentina     0.5    
Czech Republic     0.5    
Chile     0.2    
Morocco     0.2    
Peru     0.0    
      100.0 %  

 

*  Represents an investment to equitize cash in the iShares® MSCI Emerging Markets Index Fund, which is a separate investment portfolio of iShares, Inc., a registered investment company. The iShares® MSCI Emerging Markets Index Fund invests in global emerging markets and seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. iShares® is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares® Funds make any representations regarding the advisability of investing in the iShares® MSCI Emerging Markets Index Fund.


1



GMO Emerging Countries Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     25.0 %  
Energy     20.8    
Materials     13.5    
Information Technology     11.5    
Telecommunication Services     7.4    
Industrials     6.1    
Miscellaneous*     4.8    
Consumer Discretionary     4.7    
Consumer Staples     2.9    
Utilities     2.5    
Health Care     0.8    
      100.0 %  

 

*  Represents an investment to equitize cash in the iShares® MSCI Emerging Markets Index Fund, which is a separate investment portfolio of iShares, Inc., a registered investment company. The iShares® MSCI Emerging Markets Index Fund invests in global emerging markets and seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. iShares® is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares® Funds make any representations regarding the advisability of investing in the iShares® MSCI Emerging Markets Index Fund.


2




GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
    COMMON STOCKS — 77.1%  
    Argentina — 0.5%  
  28,150     Petrobras Energia Participaciones SA Sponsored ADR     319,221    
  18,660     Tenaris SA ADR     1,020,515    
    Total Argentina     1,339,736    
    Brazil — 6.4%  
  7,100     B2W Companhia Global do Varejo     253,291    
  40,309     Companhia Saneamento Basico Sao Paulo     912,269    
  52,214     Companhia Siderurgica Nacional SA     1,809,872    
  64,600     Companhia Vale do Rio Doce     1,722,799    
  26,200     Cyrela Brazil Realty SA     329,349    
  7,100     EDP-Energias Do Brasil SA     124,054    
  28,100     Electrobras (Centro)     508,558    
  24,400     Empresa Brasileira de Aeronautica SA     207,026    
  9,100     Empresa Brasileira de Aeronautica SA Sponsored ADR     308,945    
  10,200     Gerdau SA     159,320    
  54,448     Investimentos Itau SA     517,757    
  32,000     Natura Cosmeticos SA     372,614    
  105,040     Petroleo Brasileiro SA (Petrobras)     2,749,084    
  67,810     Petroleo Brasileiro SA (Petrobras) ADR     3,576,299    
  15,023     Souza Cruz SA     392,902    
  15,500     Tele Norte Leste Participacoes SA     380,653    
  41,520     Uniao de Bancos Brasileiros SA     491,872    
  12,400     Unibanco-Uniao de Bancos Brasileiros SA GDR     1,482,544    
  22,425     Usinas Siderurgicas de Minas Gerais SA     771,805    
    Total Brazil     17,071,013    
    Chile — 0.2%  
  3,072     Banco de Chile ADR     134,677    
  7,800     Banco Santander Chile SA ADR     343,278    
  2,370     Compania Cervecerias Unidas ADR     81,978    
    Total Chile     559,933    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    China — 6.0%  
  262,000     Aluminum Corp of China Ltd     231,038    
  880,000     Bank of China Ltd Class H     378,267    
  810,000     China Construction Bank Class H     656,492    
  142,697     China International Marine Containers Co Ltd Class B     118,151    
  434,500     China Merchants Bank Co Ltd Class H     1,448,799    
  126,488     China Merchants Holdings International Co Ltd     466,307    
  176,664     China Mobile Ltd     2,005,489    
  3,872     China Mobile Ltd Sponsored ADR     219,620    
  813,083     China Petroleum & Chemical Corp Class H     783,017    
  28,000     China Shenhua Energy Co Ltd Class H     95,614    
  2,460     China Telecom Corp Ltd ADR (a)      125,534    
  505,400     China Telecom Corp Ltd Class H     257,194    
  438,000     CNOOC Ltd     681,003    
  480,000     CNPC Hong Kong Ltd     184,008    
  246,000     Cosco Pacific Ltd     374,191    
  17,240     Focus Media Holding Ltd ADR * (a)      564,093    
  665,000     Huaneng Power International Inc Class H     494,630    
  1,758,000     Industrial and Commercial Bank of China Ltd Class H     1,203,723    
  88,000     Kingboard Chemical Holdings Ltd     396,002    
  164,000     Nine Dragons Paper Holdings Ltd     100,414    
  290,000     Parkson Retail Group Ltd     415,975    
  2,567,553     PetroChina Co Ltd Class H     3,291,637    
  9,470     Shanda Interactive Entertainment Ltd ADR *      250,860    
  138,400     Shanghai Industrial Holdings Ltd     373,547    
  102,000     Tencent Holdings Ltd     865,606    
    Total China     15,981,211    
    Czech Republic — 0.5%  
  7,040     CEZ AS     529,513    
  2,600     ECM Real Estate Investments AG *      69,691    
  1,024     Komercni Banka AS     225,455    
  2,480     Pegas Nonwovens SA     58,866    
  316     Philip Morris CR AS     103,982    
  6,530     Telefonica 02 Czech Republic AS     201,661    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Czech Republic — continued  
  12,420     Unipetrol     150,887    
    Total Czech Republic     1,340,055    
    Egypt — 0.6%  
  6,692     Alexandria Mineral Oils Co     93,295    
  31,490     Commercial International Bank     272,002    
  5,050     Egyptian Co for Mobile Services     117,513    
  15,510     Egyptian Financial Group-Hermes Holding     135,988    
  430     El Ezz Aldekhela Steel Alexa Co     113,752    
  15,550     El Ezz Steel Rebars SAE     73,975    
  5,200     ElSwedy Cables Holding Co *      131,585    
  65,927     Sidi Kerir Petrochemicals Co     202,530    
  39,145     South Valley Cement *      104,174    
  127,140     Telecom Egypt     391,466    
    Total Egypt     1,636,280    
    Hungary — 2.3%  
  119,040     Magyar Telekom Nyrt     610,258    
  16,900     MOL Magyar Olaj es Gazipari Nyrt (New Shares)     1,815,479    
  67,180     OTP Bank Nyrt * (a)      3,012,909    
  3,770     Richter Gedeon Nyrt     747,110    
    Total Hungary     6,185,756    
    India — 1.4%  
  45,770     Canara Bank Ltd     221,979    
  27,160     GAIL India Ltd     242,339    
  26,030     Hindalco Industries Ltd     72,045    
  52,050     Hindalco Industries Ltd GDR 144A (Registered Shares)
(Luxembourg Exchange)
    151,466    
  13,981     Hindustan Zinc Ltd     180,994    
  29,870     Indian Oil Corp Ltd     270,528    
  25,330     Infosys Technologies Ltd     1,002,238    
  3,324     Jindal Steel & Power Ltd     142,891    
  32,737     LIC Housing Finance Ltd     241,875    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    India — continued  
  100,018     Satyam Computer Services Ltd     945,991    
  103,030     Steel Authority of India Ltd     362,286    
    Total India     3,834,632    
    Indonesia — 0.9%  
  2,907,751     Bakrie & Brothers Tbk PT *      109,062    
  3,769,000     Bumi Resources Tbk PT     2,240,565    
    Total Indonesia     2,349,627    
    Israel — 1.3%  
  239,010     Bank Hapoalim BM     929,693    
  248,630     Bank Leumi Le     1,025,446    
  5,470     IDB Development Corp Ltd     119,363    
  50,370     Israel Chemicals Ltd     836,121    
  400     Teva Pharmaceutical Industries Ltd     18,946    
  13,880     Teva Pharmaceutical Industries Ltd Sponsored ADR     657,079    
    Total Israel     3,586,648    
    Malaysia — 2.1%  
  41,500     Digi.com Berhad     280,866    
  424,700     Genting Berhad     728,129    
  143,200     Hong Leong Bank Berhad     241,915    
  1,101,850     KNM Group Berhad     481,587    
  76,850     Kuala Lumpur Kepong Berhad     268,575    
  47,000     MISC Berhad     119,999    
  257,300     MISC Berhad (Foreign Registered)     650,889    
  1,037,200     Resorts World Berhad     823,892    
  620,900     RHB Capital Berhad     761,327    
  115,409     Tanjong Plc     447,607    
  185,900     Tenaga Nasional Berhad     430,788    
  194,900     TM International Bhd *      358,958    
    Total Malaysia     5,594,532    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Mexico — 1.2%  
  62,500     Alfa SA de CV Class A     325,788    
  1,045,689     Cemex SA de CV CPO *      2,095,903    
  15,370     Cemex SA de CV Sponsored CPO ADR * (a)      308,169    
  12,670     Fomento Economico Mexicano Sponsored ADR     562,802    
    Total Mexico     3,292,662    
    Morocco — 0.2%  
  110     Lafarge Ciments     30,282    
  23,430     Maroc Telecom     553,829    
    Total Morocco     584,111    
    Pakistan — 0.7%  
  53,190     Arif Habib Securities Ltd * (b)      58,927    
  388,940     Hub Power Co Ltd (b)      98,977    
  63,300     MCB Bank Ltd (b)      182,304    
  136,200     National Bank of Pakistan (b)      149,540    
  505,830     Oil & Gas Development Co Ltd (b)      584,687    
  53,380     Pakistan Oilfields Ltd (b)      153,419    
  115,940     Pakistan Petroleum Ltd (b)      290,116    
  67,740     Pakistan State Oil Co Ltd (b)      223,867    
  198,630     United Bank Ltd (b)      160,011    
    Total Pakistan     1,901,848    
    Peru — 0.0%  
  1,320     Compania de Minas Buenaventura SA ADR     30,624    
  1,490     Southern Copper Corp     38,040    
    Total Peru     68,664    
    Philippines — 0.9%  
  34,412     Ayala Corp     223,042    
  941,644     Ayala Land Inc     208,201    
  345,600     Bank of the Philippine Islands     346,864    
  25,380     Philippine Long Distance Telephone Co     1,491,622    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Philippines — continued  
  2,430     Philippine Long Distance Telephone Co Sponsored ADR     144,075    
    Total Philippines     2,413,804    
    Poland — 1.0%  
  6,100     Bank Handlowy W Warszawie SA     169,397    
  17,620     KGHM Polska Miedz SA     593,226    
  61,000     Polski Koncern Naftowy Orlen SA     881,395    
  32,860     Powszechna Kasa Oszczednosci Bank Polski SA     706,374    
  34,160     Telekomunikacja Polska SA     342,733    
    Total Poland     2,693,125    
    Russia — 9.0%  
  42,580     Aeroflot - Russian Airlines     118,937    
  34,470     Cherepovets MK Severstal GDR (Registered Shares)     582,543    
  14,720     CTC Media Inc *      285,568    
  7,000     Evraz Group SA GDR     528,500    
  23,200     Gazprom Neft     109,006    
  30,000     Gazprom Neft Sponsored ADR     691,500    
  67,010     KamAZ *      245,319    
  51,380     Lukoil Sponsored ADR     3,817,534    
  3,400     Mobile Telesystems Sponsored ADR     231,200    
  241,544     OAO Gazprom Sponsored GDR     9,420,216    
  11,091     OAO Mechel ADR     303,228    
  133,300     OAO Rosneft Oil Co GDR     1,137,049    
  9,550     OAO Tatneft Sponsored GDR (Registered Shares)     988,425    
  16,600     PIK Group GDR (Registered Shares) *      331,004    
  1,866,910     Sberbank RF     4,377,344    
  33,100     Surgutneftegaz Sponsored ADR     238,320    
  3,960     Wimm-Bill-Dann Foods ADR *      275,299    
  11,608     X5 Retail Group NV GDR (Registered Shares) *      316,318    
    Total Russia     23,997,310    
    South Africa — 5.0%  
  52,252     Absa Group Ltd     737,679    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    South Africa — continued  
  27,024     Adcock Ingram Holdings Ltd *      131,653    
  29,567     ArcelorMittal South Africa Ltd     696,497    
  21,367     Aveng Ltd     183,583    
  38,279     Bidvest Group Ltd     565,528    
  627,300     FirstRand Ltd     1,335,833    
  63,400     Foschini Ltd     349,338    
  11,500     Impala Platinum Holdings Ltd     324,479    
  39,100     Imperial Holdings Ltd     273,690    
  40,400     Investec Ltd     300,992    
  52,900     JD Group Ltd     206,409    
  39,100     MTN Group Ltd     601,144    
  116,200     Murray & Roberts Holdings Ltd     1,568,273    
  22,007     Remgro Ltd     533,775    
  34,500     Reunert Ltd     260,036    
  157,800     RMB Holdings Ltd     535,446    
  359,900     Sanlam Ltd     830,246    
  23,900     Sasol Ltd     1,315,583    
  110,268     Standard Bank Group Ltd     1,286,479    
  289,600     Steinhoff International Holdings Ltd     692,470    
  27,024     Tiger Brands Ltd     475,314    
  73,900     Truworths International Ltd     299,463    
    Total South Africa     13,503,910    
    South Korea — 15.3%  
  5,300     Daelim Industrial Co Ltd     326,667    
  28,506     Daewoo Engineering & Construction Co Ltd (a)      302,740    
  4,000     DC Chemical Co Ltd     1,080,815    
  15,939     Dongbu Insurance Co Ltd     446,249    
  11,180     Dongkuk Steel Mill Co Ltd     398,392    
  2,660     GS Engineering & Construction Corp     204,253    
  7,390     GS Holdings Corp     186,165    
  45,120     Hana Financial Group Inc     1,598,398    
  2,590     Hanjin Heavy Industries & Construction Co Ltd     71,032    
  12,811     Hanjin Heavy Industries & Construction Holdings Co Ltd *      197,920    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    South Korea — continued  
  13,890     Hanjin Shipping     352,882    
  32,516     Hanwha Corp     1,103,003    
  5,428     Honam Petrochemical Corp     320,964    
  15,339     Hyundai Engineering & Construction (a)      786,133    
  22,030     Hyundai Marine & Fire Insurance Co Ltd     362,987    
  3,805     Hyundai Mipo Dockyard     544,306    
  9,990     Hyundai Mobis     829,542    
  29,280     Hyundai Motor Co (a)      1,913,011    
  9,570     Hyundai Steel Co     442,918    
  7,220     Hyunjin Materials Co Ltd     273,073    
  42,390     Industrial Bank of Korea     602,076    
  940     KCC Corp     308,339    
  50,570     Kookmin Bank     2,766,595    
  800     Kookmin Bank ADR     43,840    
  79,230     Korea Exchange Bank     992,273    
  3,487     Korea Gas Corp     251,045    
  2,970     Korea Line Corp     475,709    
  3,160     Korea Zinc Co Ltd     365,287    
  7,806     Korean Air Lines Co Ltd     274,591    
  5,280     KT Corp     216,506    
  34,000     KT Corp ADR     692,240    
  35,723     KT&G Corp     3,002,532    
  14,500     KT&G Corp GDR 144A     611,900    
  2,320     LG Chemicals Ltd     200,840    
  18,090     LG Corp     1,032,517    
  55,560     LG Display Co Ltd (a)      1,369,080    
  13,020     LG Electronics Inc     1,199,491    
  22,480     LG Telecom Ltd     196,440    
  1,210     MegaStudy Co Ltd     253,296    
  6,279     NHN Corp *      854,738    
  3,760     POSCO     1,617,317    
  5,230     S-Oil Corp     310,143    
  13,338     Samsung Electronics Co Ltd     6,256,479    
  7,460     Samsung Fire & Marine Insurance Co Ltd     1,354,813    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    South Korea — continued  
  4,620     Samsung SDI Co Ltd *      350,959    
  41,345     Shinhan Financial Group Co Ltd     1,875,808    
  54,740     SK Telecom Co Ltd ADR     1,116,696    
  55,981     Woori Finance Holdings Co Ltd     736,885    
    Total South Korea     41,069,885    
    Taiwan — 10.1%  
  487,733     Asustek Computer Inc     1,121,288    
  348,054     AU Optronics Corp     413,234    
  105,000     Catcher Technology Co Ltd     352,371    
  691,284     Chi Mei Optoelectronics Corp     580,595    
  1,308,339     China Development Financial Holding Corp     412,356    
  1,358,854     China Steel Corp     1,663,215    
  1,036,604     Chinatrust Financial Holding Co Ltd     666,969    
  642,327     Chunghwa Telecom Co Ltd     1,592,359    
  7,240     Chunghwa Telecom Co Ltd ADR *      179,118    
  554,557     Compal Electronics Inc     497,464    
  500     D-Link Corp     602    
  317,779     Far Eastern Textile Co Ltd     291,501    
  1,053,983     First Financial Holding Co Ltd     795,711    
  300,039     Formosa Chemicals & Fibre Co     515,221    
  348,178     Formosa Plastics Corp     678,478    
  368,000     Fubon Financial Holding Co Ltd     309,942    
  41,940     High Tech Computer Corp     777,099    
  486,557     Hon Hai Precision Industry Co Ltd     2,440,830    
  600,410     KGI Securities Co Ltd     299,086    
  482,845     Lite-On Technology Corp     474,369    
  135,097     MediaTek Inc     1,551,268    
  1,130,000     Mega Financial Holdings Co Ltd     710,544    
  424,417     Nan Ya Plastics Corp     663,976    
  91,198     Novatek Microelectronics Corp Ltd     195,851    
  58,000     Powertech Technology Inc     179,815    
  601,431     Quanta Computer Inc     903,905    
  57,200     Richtek Technology Corp     471,235    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Taiwan — continued  
  475,664     Siliconware Precision Industries Co     650,436    
  731,213     Taiwan Cement Corp     714,677    
  267,950     Taiwan Cooperative Bank     197,288    
  155,000     Taiwan Fertilizer Co Ltd     476,824    
  254,787     Taiwan Mobile Co Ltd     455,517    
  2,318,330     Taiwan Semiconductor Manufacturing Co Ltd     4,269,975    
  87     Taiwan Semiconductor Manufacturing Co Ltd Sponsored ADR     845    
  87,000     U-Ming Marine Transport Corp     229,329    
  184,830     Unimicron Technology Corp     205,262    
  2,096,000     Yuanta Financial Holding Co Ltd     1,197,747    
    Total Taiwan     27,136,302    
    Thailand — 5.1%  
  273,690     Advanced Info Service Pcl (Foreign Registered)     706,587    
  350,940     Bangkok Bank Pcl NVDR     1,190,242    
  340,300     Bangkok Dusit Medical Service Pcl (Foreign Registered)     361,842    
  1,307,570     Bank of Ayudhya Pcl NVDR *      776,721    
  6,000     Banpu Pcl (Foreign Registered) (b)      68,237    
  21,000     Banpu Pcl NVDR     237,612    
  1,176,640     BEC World Pcl (Foreign Registered)     766,263    
  3,493,950     IRPC Pcl (Foreign Registered)     416,029    
  1,635,670     Italian Thai Development Pcl (Foreign Registered)     216,320    
  487,600     Kasikornbank Pcl (Foreign Registered) (b)      1,016,958    
  274,080     Kasikornbank Pcl NVDR     571,632    
  1,664,000     Krung Thai Bank Pcl (Foreign Registered)     367,091    
  1,229,510     Land & Houses Pcl NVDR     236,512    
  349,200     PTT Exploration & Production Pcl (Foreign Registered)     1,511,668    
  281,722     PTT Pcl (Foreign Registered)     2,174,769    
  58,859     Siam Cement Pcl (Foreign Registered) (b)      289,300    
  25,180     Siam Cement Pcl NVDR     120,834    
  556,000     Siam City Bank PCL (Foreign Registered) *      227,841    
  643,000     Siam Commercial Bank Pcl (Foreign Registered)     1,462,498    
  267,400     Thai Airways International Pcl (Foreign Registered)     113,967    
  167,770     Thai Oil Pcl (Foreign Registered)     241,931    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Thailand — continued  
  57,560     Thoresen Thai Agencies Pcl     62,794    
  426,970     Thoresen Thai Agencies Pcl (Foreign Registered)     465,798    
    Total Thailand     13,603,446    
    Turkey — 6.4%  
  256,928     Akbank TAS     1,318,280    
  442,450     Dogan Sirketler Grubu Holdings AS *      643,170    
  84,776     Enka Insaat ve Sanayi AS     751,505    
  208,420     Eregli Demir ve Celik Fabrikalari TAS     1,400,000    
  187,950     Haci Omer Sabanci Holding AS     786,293    
  240,202     KOC Holding AS *      830,933    
  9,700     Migros Turk TAS     175,824    
  75,384     Tupras-Turkiye Petrol Rafineriler AS     1,765,733    
  74,880     Turk Hava Yollari Anonim Ortakligi *      407,978    
  319,227     Turkcell Iletisim Hizmet AS     2,111,840    
  947,560     Turkiye Garanti Bankasi *      2,805,245    
  144,210     Turkiye Halk Bankasi AS     794,445    
  496,400     Turkiye IS Bankasi Class C     2,358,340    
  245,375     Turkiye Sinai Kalkinma Bankasi AS *      228,141    
  381,370     Turkiye Vakiflar Bankasi TAO Class D     720,823    
  11,436     Yapi ve Kredi Bankasi AS *      25,420    
    Total Turkey     17,123,970    
    TOTAL COMMON STOCKS (COST $235,714,342)     206,868,460    
    PREFERRED STOCKS — 13.2%  
    Brazil — 11.9%  
  58,000     Aracruz SA Class B (Registered) 2.24%     319,178    
  133,912     Banco Bradesco SA 0.52%     2,460,530    
  137,325     Banco Itau Holding Financeira SA 0.46%     2,590,640    
  61,793     Companhia Energetica de Minas Gerais 2.51%     1,334,046    
  35,500     Companhia Paranaense de Energia Class B 0.93%     609,816    
  139,756     Companhia Vale do Rio Doce Class A 0.54%     3,258,115    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
    Brazil — continued  
  26,200     Electrobras (Centro) SA Class B 6.44%     402,483    
  65,700     Gerdau Metalurgica SA 5.90%     1,672,730    
  117,308     Gerdau SA 4.82%     2,209,421    
  406,727     Itausa-Investimentos Itau SA 0.15%     2,377,981    
  62,800     Net Servicos de Comunicacoa SA *      724,319    
  304,324     Petroleo Brasileiro SA (Petrobras) 0.08%     6,515,894    
  33,460     Petroleo Brasileiro SA Sponsored ADR 0.08%     1,437,776    
  113,100     Sadia SA 0.36%     747,293    
  12,230     Tele Norte Leste Participacoes ADR 0.56%     283,981    
  73,100     Tele Norte Leste Participacoes SA 8.45%     1,701,930    
  15,400     Telecomunicacoes de Sao Paulo SA 4.31%     439,325    
  15,000     Telemar Norte Leste SA Class A 20.07%     782,209    
  56,800     Usinas Siderrurgicas de Minas Gerais SA Class A 0.55%     1,993,227    
    Total Brazil     31,860,894    
    Russia — 0.3%  
  810     Transneft 1.04%     824,500    
    South Korea — 1.0%  
  18,730     Hyundai Motor Co 4.20%     460,726    
  10,550     Hyundai Motor Co 4.41%     239,828    
  6,002     Samsung Electronics Co Ltd (Non Voting) 2.21%     1,993,600    
    Total South Korea     2,694,154    
    TOTAL PREFERRED STOCKS (COST $25,438,073)     35,379,548    
    INVESTMENT FUNDS — 4.5%  
    United States — 4.5%  
  303,500     iShares MSCI Emerging Markets Index Fund     12,155,175    
    TOTAL INVESTMENT FUNDS (COST $12,140,371)     12,155,175    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
    RIGHTS AND WARRANTS — 0.1%  
    Egypt — 0.1%  
  15,550     El Ezz Steel Rights, Expires 09/25/08 * (b)      119,019    
    India — 0.0%  
  11,155     Hindalco Industries Ltd Rights, Expires 10/10/08 *      6,703    
    TOTAL RIGHTS AND WARRANTS (COST $148,248)     125,722    
    SHORT-TERM INVESTMENTS — 6.4%  
  5,042,341     Bank of New York Mellon Institutional Cash Reserves Fund (c)      5,042,341    
  12,200,000     Royal Bank of Canada Time Deposit, 2.04%, due 09/02/08     12,200,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,242,341)     17,242,341    
        TOTAL INVESTMENTS — 101.3%
(Cost $290,683,375)
    271,771,246    
        Other Assets and Liabilities (net) — (1.3)%     (3,523,727 )  
    TOTAL NET ASSETS — 100.0%   $ 268,247,519    

 

See accompanying notes to the financial statements.


15



GMO Emerging Countries Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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

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, 2008, 57.44% 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 Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $4,885,283 (cost $290,683,375) (Note 2)   $ 271,771,246    
Cash     28,451    
Foreign currency, at value (cost $913,365) (Note 2)     909,285    
Receivable for investments sold     347,650    
Receivable for Fund shares sold     1,030,696    
Dividends and interest receivable     1,005,873    
Foreign taxes receivable     237,910    
Receivable for expenses reimbursed by Manager (Note 3)     20,535    
Total assets     275,351,646    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     5,042,341    
Payable for investments purchased     268,310    
Payable for Fund shares repurchased     1,268,663    
Payable to affiliate for (Note 3):  
Management fee     149,720    
Shareholder service fee     30,284    
Administration fee – Class M     5,690    
Trustees and Chief Compliance Officer of GMO Trust fees     836    
Payable for 12b-1 fee – Class M     12,319    
Accrued expenses     325,964    
Total liabilities     7,104,127    
Net assets   $ 268,247,519    

 

See accompanying notes to the financial statements.


17



GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 256,436,606    
Accumulated undistributed net investment income     3,653,711    
Accumulated net realized gain     27,088,252    
Net unrealized depreciation     (18,931,050 )  
    $ 268,247,519    
Net assets attributable to:  
Class III shares   $ 223,773,066    
Class M shares   $ 44,474,453    
Shares outstanding:  
Class III     20,337,149    
Class M     4,108,584    
Net asset value per share:  
Class III   $ 11.00    
Class M   $ 10.82    

 

See accompanying notes to the financial statements.


18



GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,018,398)   $ 6,703,862    
Interest     112,225    
Securities lending income     8,485    
Total investment income     6,824,572    
Expenses:  
Management fee (Note 3)     1,178,855    
Shareholder service fee – Class III (Note 3)     249,597    
12b-1 fee – Class M (Note 3)     37,411    
Administration fee – Class M (Note 3)     29,929    
Custodian and fund accounting agent fees     604,716    
Transfer agent fees     25,852    
Audit and tax fees     49,404    
Legal fees     5,520    
Trustees fees and related expenses (Note 3)     3,326    
Registration fees     11,316    
Miscellaneous     4,133    
Total expenses     2,200,059    
Fees and expenses reimbursed by Manager (Note 3)     (60,519 )  
Expense reductions (Note 2)     (3,447 )  
Net expenses     2,136,093    
Net investment income (loss)     4,688,479    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $4,546) (Note 2)     29,222,441    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $554) (Note 2)
    (389,973 )  
Net realized gain (loss)     28,832,468    
Change in net unrealized appreciation (depreciation) on:  
Investments (net of change in foreign capital gains tax accrual of $(17,159)) (Note 2)     (92,117,299 )  
Foreign currency, forward contracts and foreign currency related transactions     (49,419 )  
Net unrealized gain (loss)     (92,166,718 )  
Net realized and unrealized gain (loss)     (63,334,250 )  
Net increase (decrease) in net assets resulting from operations   $ (58,645,771 )  

 

See accompanying notes to the financial statements.


19



GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,688,479     $ 5,408,824    
Net realized gain (loss)     28,832,468       118,746,655    
Change in net unrealized appreciation (depreciation)     (92,166,718 )     (14,494,242 )  
Net increase (decrease) in net assets from operations     (58,645,771 )     109,661,237    
Distributions to shareholders from:  
Net investment income  
Class III           (6,266,144 )  
Class M           (465,425 )  
Total distributions from net investment income           (6,731,569 )  
Net realized gains  
Class III     (41,574,229 )     (113,812,595 )  
Class M     (3,398,630 )     (10,207,292 )  
Total distributions from net realized gains     (44,972,859 )     (124,019,887 )  
      (44,972,859 )     (130,751,456 )  
Net share transactions (Note 7):  
Class III     (53,038,147 )     51,505,212    
Class M     21,978,349       3,819,194    
Increase (decrease) in net assets resulting from net share
transactions
    (31,059,798 )     55,324,406    
Total increase (decrease) in net assets     (134,678,428 )     34,234,187    
Net assets:  
Beginning of period     402,925,947       368,691,760    
End of period (including accumulated undistributed net investment
income of $3,653,711 and distributions in excess of net
investment income of $1,034,768, respectively)
  $ 268,247,519     $ 402,925,947    

 

See accompanying notes to the financial statements.


20




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,
2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 15.26     $ 16.04     $ 19.20     $ 15.99     $ 14.99     $ 8.54    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.19       0.23       0.32       0.28       0.30       0.18    
Net realized and unrealized
gain (loss)
    (2.59 )     4.87       2.50       5.09       3.43       6.71    
Total from investment
operations
    (2.40 )     5.10       2.82       5.37       3.73       6.89    
Less distributions to shareholders:  
From net investment income           (0.30 )     (0.36 )     (0.35 )     (0.31 )     (0.22 )  
From net realized gains     (1.86 )     (5.58 )     (5.62 )     (1.81 )     (2.42 )     (0.22 )  
Total distributions     (1.86 )     (5.88 )     (5.98 )     (2.16 )     (2.73 )     (0.44 )  
Net asset value, end of period   $ 11.00     $ 15.26     $ 16.04     $ 19.20     $ 15.99     $ 14.99    
Total Return     (16.65 )%**(a)      30.68 %(a)      16.20 %     36.38 %(a)      28.76 %(a)      81.45 %(a)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 223,773     $ 371,540     $ 339,268     $ 346,018     $ 249,005     $ 249,844    
Net expenses to average daily
net assets
    1.15 %*(b)      1.11 %(b)      1.06 %     1.10 %     1.10 %     1.16 %  
Net investment income to
average daily net assets
    1.32 %**(c)      1.31 %     1.74 %     1.68 %     2.12 %     1.82 %  
Portfolio turnover rate     34 %**      72 %     58 %     35 %     53 %     57 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.03 %*      0.03 %           0.01 %     0.05 %     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.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


21



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,
2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 15.07     $ 15.90     $ 19.05     $ 15.87     $ 14.91     $ 8.51    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.16       0.18       0.30       0.27       0.26       0.11    
Net realized and unrealized gain
(loss)
    (2.55 )     4.82       2.44       5.00       3.39       6.71    
Total from investment operations     (2.39 )     5.00       2.74       5.27       3.65       6.82    
Less distributions to shareholders:  
From net investment income           (0.25 )     (0.27 )     (0.28 )     (0.27 )     (0.20 )  
From net realized gains     (1.86 )     (5.58 )     (5.62 )     (1.81 )     (2.42 )     (0.22 )  
Total distributions     (1.86 )     (5.83 )     (5.89 )     (2.09 )     (2.69 )     (0.42 )  
Net asset value, end of period   $ 10.82     $ 15.07     $ 15.90     $ 19.05     $ 15.87     $ 14.91    
Total Return     (16.80 )%(a)      30.29 %     15.89 %     35.99 %     28.30 %     80.98 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 44,474     $ 31,386     $ 29,423     $ 57,136     $ 69,109     $ 58,346    
Net expenses to average daily net
assets
    1.46 %*(b)      1.41 %(b)      1.36 %     1.39 %     1.40 %     1.45 %  
Net investment income to average
daily net assets
    1.14 %**(c)      0.99 %     1.63 %     1.65 %     1.82 %     1.27 %  
Portfolio turnover rate     34 %**      72 %     58 %     35 %     53 %     57 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:
    0.04 %*      0.03 %           0.01 %     0.05 %     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.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


22




GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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/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 countries ("emerging countries"), which excludes countries that are included in the MSCI EAFE Index. The Fund normally invests at least 80% of its assets in investments tied economically to emerging countries.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment funds are valued at their net asset value. Securities for which quotations are


23



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor base d on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 102,533,716     $ 909,285    
Level 2 - Other Significant Observable Inputs     165,842,168          
Level 3 - Significant Unobservable Inputs     3,395,362          
Total   $ 271,771,246     $ 909,285    

 

*  Other financial instruments include foreign currency.


24



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 2,135,349     $    
Realized gain (loss)     (32,882 )        
Change in unrealized appreciation/depreciation     (2,062,926 )        
Net purchases (sales)     1,478,508          
Net transfers in and/or out of Level 3     1,877,313          
Balance as of August 31, 2008   $ 3,395,362     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


25



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a


26



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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


27



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

instruments are not actively traded on financial markets. The values assigned to them 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 exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of th e period.

Securities lending

The Fund may lend its securities to qualified brokers. 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, 2008, the Fund had loane d securities valued by the Fund at $4,885,283, collateralized by cash in the amount of $5,042,341, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.


28



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some 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, 2008, the Fund incurred $4,546 in capital gains taxes, which is included in net realized gain (loss) 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 and 0.10% 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.

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, 2008, the Fund incurred $554 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer March 1, 2008 post-October currency losses of $594,300.


29



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 292,505,943     $ 22,998,651     $ (43,733,348 )   $ (20,734,697 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State


30



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Investment risks

Investments in securities of issuers in emerging countries present risks that are not inherent in many other investments. Many emerging countries are subject to 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 that impede the Fund's ability to repatriate amounts it receives. The Fund may acquire interests in securities in some countries based on the Manager's expectations that conditions in those countries will improve. These factors may result in significant volatility in the values of the Fund's 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 the values i t has placed on its holdings.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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 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 for support services provided to Class M shareholders. That fee is paid monthly at the annual rate of 0.20% of the average daily Class M net assets. 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 for the provision of


31



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

services to Class M shareholders. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily Class M net assets.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 1.00% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, administration and distribution (12b-1) 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, 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $3,142 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.

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, 2008 aggregated $116,221,831 and $183,840,722, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 45.69% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned


32



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.13% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 1.86% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     432,825     $ 5,972,941       957,007     $ 16,034,781    
Shares issued to shareholders
in reinvestment of distributions
    3,347,515       39,835,423       6,663,042       113,483,330    
Shares repurchased     (7,787,824 )     (98,846,511 )     (4,425,134 )     (78,012,899 )  
Net increase (decrease)     (4,007,484 )   $ (53,038,147 )     3,194,915     $ 51,505,212    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class M:   Shares   Amount   Shares   Amount  
Shares sold     2,350,793     $ 26,681,480       628,963     $ 10,927,518    
Shares issued to shareholders
in reinvestment of distributions
    290,233       3,398,631       634,368       10,672,717    
Shares repurchased     (615,256 )     (8,101,762 )     (1,031,321 )     (17,781,041 )  
Net increase (decrease)     2,025,770     $ 21,978,349       232,010     $ 3,819,194    

 


33




GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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


34



GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


35



GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


36



GMO Emerging Countries Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 though August 31, 2008.

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     1.15 %   $ 1,000.00     $ 833.50     $ 5.31    
2) Hypothetical     1.15 %   $ 1,000.00     $ 1,019.41     $ 5.85    
Class M      
1) Actual     1.46 %   $ 1,000.00     $ 832.00     $ 6.74    
2) Hypothetical     1.46 %   $ 1,000.00     $ 1,017.85     $ 7.43    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


37




GMO Global Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Global Growth Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.9 %  
Short-Term Investments     0.9    
Preferred Stocks     0.3    
Forward Currency Contracts     0.1    
Other     0.8    
      100.0 %  
Country Summary   % of Equity Investments  
United States     56.2 %  
United Kingdom     9.1    
Japan     6.2    
Canada     5.6    
France     3.8    
Germany     3.6    
Hong Kong     2.9    
Switzerland     2.8    
Finland     1.9    
Singapore     1.7    
Australia     1.5    
Denmark     1.1    
Spain     1.1    
Netherlands     0.7    
Norway     0.7    
Italy     0.6    
Sweden     0.2    
Austria     0.1    
Belgium     0.1    
Ireland     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     16.9 %  
Energy     16.8    
Information Technology     15.5    
Industrials     10.8    
Consumer Staples     9.9    
Financials     9.7    
Materials     8.3    
Consumer Discretionary     7.1    
Utilities     2.8    
Telecommunication Services     2.2    
      100.0 %  

 


1




GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

    Shares   Description   Value ($)  
        COMMON STOCKS — 97.9%  
        Australia — 1.5%  
    3,511     BHP Billiton Ltd     123,312    
    2,324     CSL Ltd     81,108    
    827     Rio Tinto Ltd     89,666    
    15,616     Telstra Corp Ltd     57,968    
    2,728     Woodside Petroleum Ltd     146,529    
    Total Australia     498,583    
        Austria — 0.1%  
    416     OMV AG     26,652    
        Belgium — 0.1%  
    2,924     Fortis     40,486    
        Canada — 5.5%  
    600     Agnico-Eagle Mines Ltd     34,442    
    900     Agrium Inc     76,125    
    1,700     Bank of Nova Scotia     78,532    
    4,700     Bombardier Inc Class B     36,518    
    700     Canadian National Railway Co     36,727    
    1,700     Canadian Natural Resources     145,120    
    1,700     Canadian Pacific Railway Ltd     103,716    
    1,700     EnCana Corp     127,780    
    1,700     Goldcorp Inc     57,830    
    2,000     Husky Energy Inc     88,416    
    800     Imperial Oil Ltd     41,145    
    1,500     Nexen Inc     47,014    
    1,100     Petro-Canada     48,639    
    2,100     Potash Corp of Saskatchewan Inc     365,413    
    3,000     Research In Motion Ltd *      365,521    
    2,100     Suncor Energy Inc     120,249    
    3,100     Talisman Energy Inc     54,800    
    Total Canada     1,827,987    

 

See accompanying notes to the financial statements.


2



GMO Global Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

    Shares   Description   Value ($)  
        Denmark — 1.1%  
    800     Danske Bank A/S     22,512    
    414     FLSmidth & Co A/S     33,193    
    2,975     Novo-Nordisk A/S Class B     166,070    
    1,100     Vestas Wind Systems A/S *      149,263    
    Total Denmark     371,038    
        Finland — 1.9%  
    3,710     Fortum Oyj     152,280    
    1,302     Kone Oyj Class B     40,325    
    9,344     Nokia Oyj     233,950    
    1,531     Nokian Renkaat Oyj     54,523    
    4,225     Sampo Oyj Class A     106,290    
    822     Wartsila Oyj Class B     47,207    
    Total Finland     634,575    
        France — 3.7%  
    1,060     Alstom     107,677    
    2,604     Arcelor Mittal     204,289    
    2,278     BNP Paribas     204,348    
    421     GDF Suez     24,236    
    1,091     Peugeot SA     51,835    
    5,675     Sanofi-Aventis     402,616    
    641     Societe Generale     61,832    
    394     Suez Environnement SA *      11,318    
    2,528     Total SA     181,602    
    Total France     1,249,753    
        Germany — 3.2%  
    1,325     Altana AG     21,118    
    916     BASF AG     52,861    
    1,008     Deutsche Boerse AG     94,481    
    5,526     E.ON AG     322,150    
    876     K&S AG     105,020    
    358     Linde AG     44,921    
    478     MAN AG     46,676    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        Germany — continued  
    652     Q-Cells AG *      65,274    
    635     RWE AG     68,388    
    598     Solarworld AG     30,722    
    574     Volkswagen AG     171,146    
    192     Wacker-Chemie AG     35,113    
    Total Germany     1,057,870    
        Hong Kong — 2.9%  
    7,000     Cheung Kong Holdings Ltd     99,498    
    18,500     CLP Holdings Ltd     150,080    
    8,600     Esprit Holdings Ltd     70,995    
    24,000     Hang Lung Properties Ltd     75,968    
    7,500     Hang Seng Bank Ltd     147,924    
    41,800     Hong Kong & China Gas     93,786    
    5,900     Hong Kong Exchanges and Clearing Ltd     76,213    
    14,000     Li & Fung Ltd     42,571    
    14,000     New World Development Co Ltd     21,249    
    10,000     Sun Hung Kai Properties Ltd     136,355    
    3,500     Swire Pacific Ltd Class A     34,960    
    Total Hong Kong     949,599    
        Ireland — 0.1%  
    370     Allied Irish Banks Plc     4,663    
    2,278     Bank of Ireland     18,261    
    Total Ireland     22,924    
        Italy — 0.6%  
    6,456     ENI SPA     209,416    
        Japan — 6.1%  
    700     Astellas Pharma Inc     31,529    
    1,400     Daiichi Sankyo Co Ltd     42,119    
    700     Daikin Industries Ltd     23,596    
    700     Daito Trust Construction Co Ltd     29,019    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        Japan — continued  
    1,100     Fast Retailing Co Ltd     111,030    
    7,000     Fuji Heavy Industries Ltd     40,016    
    8,000     Honda Motor Co Ltd     259,821    
    700     JFE Holdings Inc     29,582    
    6,000     Marubeni Corp     37,124    
    4,000     Matsushita Electric Industrial Co Ltd     82,215    
    2,600     Mitsubishi Corp     71,420    
    3,000     Mitsui & Co     51,148    
    5,000     Mitsui OSK Lines Ltd     59,260    
    1,000     Nikon Corp     32,456    
    500     Nintendo Co Ltd     234,730    
    10,500     Nippon Mining Holdings Inc     58,323    
    12,000     Nippon Oil Corp     74,843    
    5,000     Nippon Yusen KK     39,901    
    13,300     Nissan Motor Co     101,028    
    15,000     Osaka Gas Co Ltd     54,575    
    6,600     Seven & I Holdings Co Ltd     192,242    
    2,500     Shin-Etsu Chemical Co Ltd     139,076    
    2,800     SUMCO Corp     55,470    
    2,400     Takeda Pharmaceutical Co Ltd     125,377    
    1,000     Tokio Marine Holdings Inc     33,917    
    4,000     TonenGeneral Sekiyu KK     32,185    
    Total Japan     2,042,002    
        Netherlands — 0.6%  
    137     Heineken NV     6,423    
    6,658     ING Groep NV     207,425    
    Total Netherlands     213,848    
        Norway — 0.7%  
    7,588     StatoilHydro ASA     232,765    
        Singapore — 1.7%  
    1,000     Capitaland Ltd     3,054    
    1,000     City Developments Ltd     7,254    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        Singapore — continued  
    11,000     Cosco Corp     17,582    
    9,000     Keppel Corp Ltd     62,501    
    4,000     Oversea-Chinese Banking Corp     22,667    
    6,800     Singapore Airlines Ltd     72,721    
    11,000     Singapore Exchange Ltd     48,574    
    43,000     Singapore Technologies Engineering Ltd     84,941    
    94,320     Singapore Telecommunications     232,790    
    1,000     United Overseas Bank Ltd     13,310    
    Total Singapore     565,394    
        Spain — 1.0%  
    1,239     Gas Natural SDG SA     57,400    
    1,242     Repsol YPF SA     38,416    
    9,998     Telefonica SA     247,036    
    Total Spain     342,852    
        Sweden — 0.2%  
    1,900     Alfa Laval AB     25,929    
    1,700     Swedbank AB     29,874    
    Total Sweden     55,803    
        Switzerland — 2.8%  
    6,440     ABB Ltd *      157,959    
    1,400     Alcon Inc     238,406    
    1,780     Nestle SA (Registered)     78,426    
    7,319     Novartis AG (Registered)     407,731    
    172     Syngenta AG (Registered)     46,149    
    Total Switzerland     928,671    
        United Kingdom — 8.9%  
    5,245     AstraZeneca Plc     255,704    
    6,762     BAE Systems Plc     59,016    
    23,755     Barclays Plc     152,007    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        United Kingdom — continued  
    16,624     BG Group Plc     368,743    
    2,634     BHP Billiton Plc     82,038    
    16,822     BP Plc     161,685    
    4,485     British American Tobacco Plc     151,522    
    700     Cairn Energy Plc *      37,872    
    6,214     GlaxoSmithKline Plc     146,220    
    24,460     HBOS Plc     140,007    
    2,255     Imperial Tobacco Group Plc     74,349    
    1,622     Next Plc     31,297    
    29,796     Old Mutual Plc     52,695    
    1,178     Reckitt Benckiser Group Plc     59,553    
    2,177     Rio Tinto Plc     206,660    
    100,957     Royal Bank of Scotland Group     429,378    
    2,926     Royal Dutch Shell Plc A Shares (London)     102,256    
    1,595     SABMiller Breweries Plc     34,261    
    2,715     Unilever Plc     72,822    
    1,390     Vedanta Resources Plc     45,895    
    68,742     Vodafone Group Inc     175,667    
    12,410     William Morrison Supermarkets Plc     63,709    
    1,316     Xstrata Plc     73,371    
    Total United Kingdom     2,976,727    
        United States — 55.2%  
    5,200     3M Co.     372,320    
    6,400     Abbott Laboratories     367,552    
    1,800     Accenture Ltd.     74,448    
    800     ACE Ltd.     42,088    
    1,000     Adobe Systems, Inc. *      42,830    
    1,000     Aetna, Inc.     43,140    
    2,200     Aflac, Inc.     124,740    
    500     Air Products & Chemicals, Inc.     45,925    
    1,800     Altera Corp.     40,752    
    1,200     Amazon.com, Inc. *      96,972    
    1,700     Anadarko Petroleum Corp.     104,941    
    1,100     Apache Corp.     125,818    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        United States — continued  
    3,100     Apple, Inc. *      525,543    
    1,900     Archer-Daniels-Midland Co.     48,374    
    700     Assurant, Inc.     40,901    
    700     Autodesk, Inc. *      24,871    
    4,200     Automatic Data Processing, Inc.     186,396    
    1,500     Avon Products, Inc.     64,245    
    2,100     Bank of New York Mellon Corp. (The)     72,681    
    900     Bard (C.R.), Inc.     84,105    
    4,000     Baxter International, Inc.     271,040    
    2,100     Becton, Dickinson & Co.     183,498    
    400     BlackRock, Inc.     86,900    
    700     Bunge Ltd.     62,552    
    1,500     CA, Inc.     35,865    
    700     Cardinal Health, Inc.     38,486    
    1,500     CH Robinson Worldwide, Inc.     78,165    
    1,700     Chesapeake Energy Corp.     82,280    
    3,000     Chevron Corp.     258,960    
    1,000     Chubb Corp.     48,010    
    1,500     Citrix Systems, Inc. *      45,405    
    200     CME Group, Inc.     67,076    
    2,600     Coach, Inc. *      75,374    
    7,900     Coca-Cola Co. (The)     411,353    
    1,500     Coca-Cola Enterprises, Inc.     25,605    
    2,000     Cognizant Technology Solutions Corp.-Class A *      58,640    
    1,200     Colgate-Palmolive Co.     91,236    
    800     ConocoPhillips     66,008    
    600     Consol Energy, Inc.     40,626    
    4,800     Corning, Inc.     98,592    
    700     CSX Corp.     45,276    
    1,300     CVS Caremark Corp.     47,580    
    700     Danaher Corp.     57,099    
    1,500     Deere & Co.     105,855    
    2,900     Dell, Inc. *      63,017    
    1,300     Devon Energy Corp.     132,665    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
        United States — continued  
    600     Diamond Offshore Drilling, Inc.     65,946    
    3,400     eBay, Inc. *      84,762    
    2,200     Ecolab, Inc.     100,628    
    5,200     EMC Corp. *      79,456    
    700     Emerson Electric Co.     32,760    
    1,300     EOG Resources, Inc.     135,746    
    700     Equity Residential REIT     29,540    
    1,900     Expeditors International of Washington, Inc.     68,571    
    1,000     Express Scripts, Inc. *      73,410    
    9,100     Exxon Mobil Corp.     728,091    
    1,000     Fastenal Co.     51,930    
    300     First Solar, Inc. *      82,995    
    400     Fluor Corp.     32,052    
    2,900     Forest Laboratories, Inc. *      103,501    
    700     Freeport-McMoRan Copper & Gold, Inc.     62,524    
    700     GameStop Corp.-Class A *      30,709    
    2,600     Gap (The), Inc.     50,570    
    600     Genentech, Inc. *      59,250    
    2,100     General Dynamics Corp.     193,830    
    1,700     Gilead Sciences, Inc. *      89,556    
    1,000     Google, Inc.-Class A *      463,290    
    800     Halliburton Co.     35,152    
    1,900     Harley-Davidson, Inc.     75,582    
    1,100     Hess Corp.     115,181    
    7,100     Hewlett-Packard Co.     333,132    
    1,000     Honeywell International, Inc.     50,170    
    3,400     Hudson City Bancorp, Inc.     62,696    
    2,000     Illinois Tool Works, Inc.     99,220    
    4,900     Intel Corp.     112,063    
    3,200     International Business Machines Corp.     389,536    
    100     Intuitive Surgical, Inc. *      29,527    
    400     Jacobs Engineering Group, Inc. *      29,528    
    19,200     Johnson & Johnson     1,352,256    
    1,400     Juniper Networks, Inc. *      35,980    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
      United States — continued  
    700     Lockheed Martin Corp.     81,508    
    500     Mastercard, Inc.-Class A     121,275    
    2,200     Mattel Co.     42,526    
    4,600     McDonald's Corp.     285,200    
    2,100     McGraw-Hill Cos. (The), Inc.     89,964    
    500     McKesson Corp.     28,890    
    2,000     Medco Health Solutions, Inc. *      93,700    
    4,100     Medtronic, Inc.     223,860    
    900     MEMC Electronic Materials, Inc. *      44,181    
    7,600     Merck & Co., Inc.     271,092    
    27,300     Microsoft Corp.     745,017    
    700     Molson Coors Brewing Co.-Class B     33,355    
    2,900     Monsanto Co.     331,325    
    1,400     Mosaic Co. (The)     149,436    
    700     Murphy Oil Corp.     54,971    
    1,100     Nabors Industries Ltd *      39,160    
    1,500     National Oilwell Varco, Inc. *      110,595    
    3,100     Nike, Inc.-Class B     187,891    
    700     Noble Corp.     35,203    
    600     Noble Energy Inc.     43,038    
    900     Northern Trust Corp.     72,351    
    1,000     Nucor Corp.     52,500    
    4,600     Occidental Petroleum Corp.     365,056    
    12,200     Oracle Corp. *      267,546    
    4,400     Paychex, Inc.     149,952    
    600     Peabody Energy Corp.     37,770    
    11,700     PepsiCo, Inc.     801,216    
    900     Praxair, Inc.     80,856    
    1,400     Procter & Gamble Co. (The)     97,678    
    700     Raytheon Co.     41,993    
    1,100     Rockwell Collins, Inc.     57,849    
    1,900     Schlumberger Ltd.     179,018    
    700     Sigma-Aldrich Corp.     39,732    
    800     Smith International, Inc.     55,760    

 

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, 2008 (Unaudited)

    Shares   Description   Value ($)  
      United States — continued  
    1,200     Southern Copper Corp.     30,636    
    600     SPX Corp.     71,550    
    1,100     St. Jude Medical, Inc. *      50,413    
    1,400     State Street Corp.     94,738    
    3,200     Stryker Corp.     215,008    
    3,600     Symantec Corp. *      80,316    
    5,400     Sysco Corp.     171,882    
    2,100     TD Ameritrade Holding Corp. *      42,903    
    1,000     Thermo Fisher Scientific, Inc. *      60,560    
    2,200     TJX Cos. (The), Inc.     79,728    
    1,169     Transocean, Inc. *      148,697    
    1,800     Tyco Electronics Ltd.     59,238    
    500     Union Pacific Corp.     41,950    
    3,400     United Parcel Service, Inc.-Class B     218,008    
    4,000     United Technologies Corp.     262,360    
    600     VF Corp.     47,550    
    10,000     Wal-Mart Stores, Inc.     590,700    
    1,700     Walgreen Co.     61,931    
    3,100     Walt Disney Co. (The)     100,285    
    2,000     Weatherford International Ltd. *      77,160    
    1,600     Western Union Co.     44,192    
    2,400     XTO Energy, Inc.     120,984    
    Total United States     18,427,198    
    TOTAL COMMON STOCKS (COST $34,355,706)     32,674,143    
        PREFERRED STOCKS — 0.3%  
        Germany — 0.3%  
    675     Volkswagen AG 1.73%     104,049    
    TOTAL PREFERRED STOCKS (COST $92,768)     104,049    

 

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, 2008 (Unaudited)

    Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 0.9%  
    300,000     Royal Bank of Scotland Time Deposit, 2.30%, due 09/02/08     300,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $300,000)     300,000    
      TOTAL INVESTMENTS — 99.1%
(Cost $34,748,474)
    33,078,192    
      Other Assets and Liabilities (net) — 0.9%     304,261    
    TOTAL NET ASSETS — 100.0%   $ 33,382,453    

 

See accompanying notes to the financial statements.


12



GMO Global Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   AUD     126,521     $ 107,611     $ (6,110 )  
11/21/08   CAD     503,021       473,336       (1,275 )  
11/21/08   CHF     1,616,031       1,468,745       (2,152 )  
11/21/08   DKK     449,493       88,029       (4,336 )  
11/21/08   EUR     271,110       396,061       (19,653 )  
11/21/08   JPY     174,682,297       1,612,438       19,711    
11/21/08   JPY     174,682,297       1,612,438       20,391    
11/21/08   NZD     89,533       61,941       (792 )  
11/21/08   SEK     6,226,739       960,614       (14,377 )  
    $ 6,781,213     $ (8,593 )  
Sales  
11/21/08   AUD     629,544     $ 535,453     $ 7,894    
11/21/08   CAD     351,763       331,004       4,503    
11/21/08   CHF     113,184       102,868       4,030    
11/21/08   DKK     1,975,842       386,949       591    
11/21/08   EUR     738,818       1,079,328       2,139    
11/21/08   GBP     677,386       1,227,675       28,348    
11/21/08   HKD     1,082,641       138,927       (127 )  
11/21/08   NOK     1,308,703       239,430       (144 )  
11/21/08   SGD     49,049       34,729       93    
    $ 4,076,363     $ 47,327    

 

See accompanying notes to the financial statements.


13



GMO Global Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non income-producing security.

As of August 31, 2008, 36.76% 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.


14




GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $34,748,474) (Note 2)   $ 33,078,192    
Cash     39,954    
Foreign currency, at value (cost $214,152) (Note 2)     213,184    
Receivable for Fund shares sold     415    
Dividends and interest receivable     63,519    
Foreign taxes receivable     7,411    
Unrealized appreciation on open forward currency contracts (Note 2)     87,700    
Receivable for expenses reimbursed by Manager (Note 3)     25,513    
Total assets     33,515,888    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     12,779    
Shareholder service fee     4,260    
Trustees and Chief Compliance Officer of GMO Trust fees     132    
Unrealized depreciation on open forward currency contracts (Note 2)     48,966    
Accrued expenses     67,298    
Total liabilities     133,435    
Net assets   $ 33,382,453    
Net assets consist of:  
Paid-in capital   $ 35,327,159    
Accumulated undistributed net investment income     321,328    
Accumulated net realized loss     (633,109 )  
Net unrealized depreciation     (1,632,925 )  
    $ 33,382,453    
Net assets attributable to:  
Class III shares   $ 33,382,453    
Shares outstanding:  
Class III     1,459,186    
Net asset value per share:  
Class III   $ 22.88    

 

See accompanying notes to the financial statements.


15



GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $37,478)   $ 501,502    
Securities lending income     8,747    
Interest     6,568    
Total investment income     516,817    
Expenses:  
Management fee (Note 3)     81,966    
Shareholder service fee – Class III (Note 3)     26,531    
Custodian and fund accounting agent fees     79,120    
Transfer agent fees     13,984    
Audit and tax fees     36,984    
Legal fees     368    
Trustees fees and related expenses (Note 3)     225    
Registration fees     92    
Miscellaneous     460    
Total expenses     239,730    
Fees and expenses reimbursed by Manager (Note 3)     (130,916 )  
Expense reductions (Note 2)     (2,532 )  
Net expenses     106,282    
Net investment income (loss)     410,535    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (245,960 )  
Closed futures contracts     (7 )  
Foreign currency, forward contracts and foreign currency related transactions     (251,503 )  
Net realized gain (loss)     (497,470 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (999,353 )  
Foreign currency, forward contracts and foreign currency related transactions     (42,595 )  
Net unrealized gain (loss)     (1,041,948 )  
Net realized and unrealized gain (loss)     (1,539,418 )  
Net increase (decrease) in net assets resulting from operations   $ (1,128,883 )  

 

See accompanying notes to the financial statements.


16



GMO Global Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 410,535     $ 267,831    
Net realized gain (loss)     (497,470 )     10,165,594    
Change in net unrealized appreciation (depreciation)     (1,041,948 )     (12,289,738 )  
Net increase (decrease) in net assets from operations     (1,128,883 )     (1,856,313 )  
Distributions to shareholders from:  
Net investment income  
Class III           (576,031 )  
Net realized gains  
Class III     (245,432 )     (1,987,132 )  
      (245,432 )     (2,563,163 )  
Net share transactions (Note 7):  
Class III     238,169       (31,353,712 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     25       67,093    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    238,194       (31,286,619 )  
Total increase (decrease) in net assets     (1,136,121 )     (35,706,095 )  
Net assets:  
Beginning of period     34,518,574       70,224,669    
End of period (including accumulated undistributed net investment
income of $321,328 and distributions in excess of net
investment income of $89,207, respectively)
  $ 33,382,453     $ 34,518,574    

 

See accompanying notes to the financial statements.


17




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005(a)   
Net assets value, beginning of period   $ 23.82     $ 24.59     $ 25.13     $ 22.67     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)      0.28       0.40       0.31       0.33       0.15    
Net realized and unrealized gain (loss)     (1.05 )     0.45 (b)      2.56       2.72       2.79    
Total from investment operations     (0.77 )     0.85       2.87       3.05       2.94    
Less distributions to shareholders:  
From net investment income           (0.49 )     (0.17 )     (0.10 )     (0.27 )  
From net realized gains     (0.17 )     (1.13 )     (3.24 )     (0.49 )        
Total distributions     (0.17 )     (1.62 )     (3.41 )     (0.59 )     (0.27 )  
Net asset value, end of period   $ 22.88     $ 23.82     $ 24.59     $ 25.13     $ 22.67    
Total Return(c)      (3.24 )%**      3.10 %     12.45 %     13.61 %     14.72 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 33,382     $ 34,519     $ 70,225     $ 52,195     $ 57,960    
Net expenses to average daily net assets     0.62 %*(d)      0.62 %(d)      0.62 %     0.62 %     0.62 %*   
Net investment income to average daily
net assets
    2.32 %*      1.58 %     1.27 %     1.40 %     1.17 %*   
Portfolio turnover rate     29 %**      158 %     43 %     53 %     40 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:
    0.74 %*      1.37 %     0.37 %     0.34 %     0.51 %*   
Purchase premiums and redemption fees
consisted of the following per share
amounts: 
  $ 0.00 (e)    $ 0.10     $ 0.01     $ 0.02       (f)   

 

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

(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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(d)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(e)  Purchase premiums and redemption fees were less than $0.01 per share.

(f)  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.


18




GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 ("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") 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.


19



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 20,804,908     $ 213,184    
Level 2 - Other Significant Observable Inputs     12,273,284       87,700    
Level 3 - Significant Unobservable Inputs              
Total   $ 33,078,192     $ 300,884    

 

*  Other financial instruments include foreign currency and forward currency contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs           (48,966 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (48,966 )  

 

**  Other financial instruments include forward currency contracts.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.


20



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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


21



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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


22



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.


23



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Securities lending

The Fund may lend its securities to qualified brokers. 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. The Fund had no securities on loan at Aug ust 31, 2008.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


24



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $52,121.

As of August 31, 2008, 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)
 
$ 34,748,474     $ 1,447,030     $ (3,117,312 )   $ (1,670,282 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the


25



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchase and redemption of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.25% of the amount invested or redeemed. An additional purchase premium and redemption fee of 0.005% is charged for any purchases/redemptions (or any portion of a purchase/redemption) effected in a currency other than the U.S. dollar. 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in- kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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, 2008 (Unaudited)

3.  Fees and other transactions with affiliates

Effective June 30, 2008, GMO receives a management fee for investment management services provided to the Fund that is paid monthly at the annual rate of 0.45% of average daily net assets. For the period from March 1, 2008 through June 29, 2008, the management fee rate was 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.45% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $225 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, 2008 aggregated $9,880,370 and $9,813,543, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


27



GMO Global Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 99.60% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.03% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 0.23% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     59     $ 1,415       920,964     $ 23,778,708    
Shares issued to shareholders
in reinvestment of distributions
    10,626       245,346       102,111       2,562,902    
Shares repurchased     (379 )     (8,592 )     (2,430,110 )     (57,695,322 )  
Purchase premiums           4             59,409    
Redemption fees           21             7,684    
Net increase (decrease)     10,306     $ 238,194       (1,407,035 )   $ (31,286,619 )  

 

8.  Subsequent event

Subsequent to August 31, 2008, the Fund received redemption requests in the amount of $19,265,238.


28




GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 comp etence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement, including the fact that the fees payable under the agreement were being reduced in connection with the renewal of the agreement. The Trustees considered information prepared by third-party


29



GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

data services concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


30



GMO Global Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


31



GMO Global Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 967.60     $ 3.07    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.08     $ 3.16    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


32




GMO Taiwan Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO Taiwan Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     90.7 %  
Short-Term Investments     7.3    
Other     2.0    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Information Technology     55.1 %  
Materials     16.7    
Financials     15.8    
Telecommunication Services     8.4    
Industrials     2.9    
Consumer Discretionary     1.1    
Energy     0.0    
Consumer Staples     0.0    
      100.0 %  

 


1




GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 90.7%  
        Taiwan — 90.7%  
    6,968     Altek Corp     8,918    
    9,000     Arima Computer Corp *      1,400    
    2,538,599     Asustek Computer Inc     5,836,186    
    2,282,344     AU Optronics Corp     2,709,757    
    3,607,394     Chi Mei Optoelectronics Corp     3,029,774    
    6,976,000     China Bills Finance Corp *      1,388,498    
    6,012,806     China Development Financial Holding Corp     1,895,088    
    4,530     China Motor Corp     2,644    
    7,522,688     China Steel Corp     9,207,648    
    4,409,000     Chinatrust Financial Holding Co Ltd     2,836,828    
    7,000     Chunghwa Picture Tubes Ltd     1,463    
    3,147,620     Chunghwa Telecom Co Ltd     7,803,099    
    5,405     Chunghwa Telecom Co Ltd ADR *      133,720    
    2,704,831     Compal Electronics Inc     2,426,363    
    5,700     Continental Engineering Corp     2,576    
    1,874     D-Link Corp     2,258    
    448,420     Delta Electronics Inc     1,201,064    
    369,965     DFI Inc     804,887    
    1,707,518     Dimerco Express Taiwan Corp     1,656,863    
    6,767     Elite Semiconductor Memory Technology Inc     8,398    
    831,382     Far Eastern Department Stores Ltd     609,378    
    1,359,685     Far Eastern Textile Co Ltd     1,247,247    
    1,240,507     Far Eastone Telecommunications Co Ltd     1,803,994    
    4,507,448     First Financial Holding Co Ltd     3,402,925    
    1,463,169     Formosa Chemicals & Fibre Co     2,512,523    
    19,077     Formosa Petrochemical Corp     45,848    
    1,640,424     Formosa Plastics Corp     3,196,616    
    2,791,000     Fubon Financial Holding Co Ltd     2,350,677    
    2,000     Gigabyte Technology Co Ltd     1,387    
    45,430     Gloria Material Technology Corp     46,735    
    242,254     High Tech Computer Corp     4,488,685    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    2,744,553     Hon Hai Precision Industry Co Ltd     13,768,148    
    1,000     Hotai Motor Company Ltd     2,512    
    2,882     Innolux Display Corp     4,685    
    2,314,680     KGI Securities Co Ltd     1,153,024    
    25,594     Kinpo Electronics     7,109    
    1,378,588     Les Enphants Co Ltd     993,901    
    2,483,407     Lite-On Technology Corp     2,439,815    
    609,826     MediaTek Inc     7,002,401    
    7,356,000     Mega Financial Holdings Co Ltd     4,625,454    
    5,250     Mercuries & Associates Ltd     2,145    
    1,079     Micro-Star International Co Ltd     749    
    810     Mosel Vitelic Inc *      523    
    1,755,000     Nan Ya Plastics Corp     2,745,597    
    1,000     Nien Hsing Textile Co Ltd     383    
    481,164     Novatek Microelectronics Corp Ltd     1,033,316    
    9,109     Oriental Union Chemical     6,641    
    156,219     Powertech Technology Inc     484,320    
    17,000     Prodisc Technology Inc *      803    
    170     Promos Technologies Inc *      23    
    10,800     Qisda Corp     5,437    
    2,709     Quanta Computer Inc     4,071    
    310,365     Richtek Technology Corp     2,556,905    
    14,802     Sampo Corp *      2,148    
    2,521     Shinkong Synthetic Fibers *      601    
    2,516,885     Siliconware Precision Industries Co     3,441,655    
    206     Sino American Silicon Products Inc     930    
    2,670     Systex Corp     2,255    
    3,745,607     Taiwan Cement Corp     3,660,904    
    765,000     Taiwan Fertilizer Co Ltd     2,353,359    
    1,203,539     Taiwan Mobile Co Ltd     2,151,728    
    13,242,567     Taiwan Semiconductor Manufacturing Co Ltd     24,390,585    
    85,547     Taiwan Semiconductor Manufacturing Co Ltd Sponsored ADR     830,661    
    3,108     Transcend Information Inc     8,087    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        Taiwan — continued  
    9,889     Tsann Kuen Enterprises Co Ltd     8,027    
    2,409     TXC Corp     3,904    
    470,000     U-Ming Marine Transport Corp     1,238,906    
    5,250     Uni-President Enterprises Corp     5,646    
    998,789     Unimicron Technology Corp     1,109,198    
    16,000     USI Corp     7,288    
    9,760     Wan Hai Lines Ltd     5,286    
    5,235,620     Waterland Financial Holdings     1,504,398    
    1,444,000     Wintek Corp     899,036    
    16,786     Wistron Corp     24,304    
    2,968,195     Ya Hsin Industrial Co Ltd * (a) (b)      941    
    14,716     Yang Ming Marine Transport     7,142    
    2,938     Yieh Phui Enterprise     1,179    
    5,898,000     Yuanta Financial Holding Co Ltd     3,370,377    
    2,000     Yungtay Engineering Co Ltd     1,114    
    Total Taiwan     142,531,068    
    TOTAL COMMON STOCKS (COST $168,687,769)     142,531,068    
      SHORT-TERM INVESTMENTS — 7.3%  
    2,500,000     HSBC Time Deposit, 2.15%, due 09/02/08     2,500,000    
    9,000,000     ING Bank Time Deposit, 2.25%, due 09/02/08     9,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $11,500,000)     11,500,000    
          TOTAL INVESTMENTS — 98.0%
(Cost $180,187,769)
    154,031,068    
          Other Assets and Liabilities (net) — 2.0%     3,204,513    
    TOTAL NET ASSETS — 100.0%   $ 157,235,581    

 

See accompanying notes to the financial statements.


4



GMO Taiwan Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

*  Non income-producing security.

(a)  Bankrupt issuer.

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

As of August 31, 2008, 90.03% 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, 2008 (Unaudited)

Assets:  
Investments, at value (cost $180,187,769) (Note 2)   $ 154,031,068    
Cash     74,559    
Foreign currency, at value (cost $2,387,480) (Note 2)     2,379,500    
Receivable for investments sold     950,872    
Dividends and interest receivable     1,163,625    
Total assets     158,599,624    
Liabilities:  
Payable for investments purchased     951,233    
Payable to affiliate for (Note 3):  
Management fee     110,803    
Shareholder service fee     20,520    
Trustees and Chief Compliance Officer of GMO Trust fees     453    
Accrued expenses     281,034    
Total liabilities     1,364,043    
Net assets   $ 157,235,581    
Net assets consist of:  
Paid-in capital   $ 179,242,883    
Accumulated undistributed net investment income     5,233,524    
Accumulated net realized loss     (1,038,105 )  
Net unrealized depreciation     (26,202,721 )  
    $ 157,235,581    
Net assets attributable to:  
Class III shares   $ 157,235,581    
Shares outstanding:  
Class III     8,616,029    
Net asset value per share:  
Class III   $ 18.25    

 

See accompanying notes to the financial statements.


6



GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,676,900)   $ 6,727,605    
Interest     48,819    
Total investment income     6,776,424    
Expenses:  
Management fee (Note 3)     852,257    
Shareholder service fee – Class III (Note 3)     157,825    
Custodian and fund accounting agent fees     340,492    
Transfer agent fees     13,800    
Audit and tax fees     38,916    
Legal fees     2,576    
Trustees fees and related expenses (Note 3)     1,180    
Miscellaneous     1,840    
Total expenses     1,408,886    
Expense reductions (Note 2)     (679 )  
Net expenses     1,408,207    
Net investment income (loss)     5,368,217    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     681,516    
Foreign currency, forward contracts and foreign currency related transactions     (238,188 )  
Net realized gain (loss)     443,328    
Change in net unrealized appreciation (depreciation) on:  
Investments     (36,378,663 )  
Foreign currency, forward contracts and foreign currency related transactions     (73,931 )  
Net unrealized gain (loss)     (36,452,594 )  
Net realized and unrealized gain (loss)     (36,009,266 )  
Net increase (decrease) in net assets resulting from operations   $ (30,641,049 )  

 

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, 2008
(Unaudited)
 
Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 5,368,217     $ 5,859,879    
Net realized gain (loss)     443,328       59,520,538    
Change in net unrealized appreciation (depreciation)     (36,452,594 )     (38,936,381 )  
Net increase (decrease) in net assets from operations     (30,641,049 )     26,444,036    
Distributions to shareholders from:  
Net investment income  
Class III           (6,074,310 )  
Net realized gains  
Class III     (7,935,155 )     (75,886,885 )  
      (7,935,155 )     (81,961,195 )  
Net share transactions (Note 7):  
Class III     (24,694,177 )     (41,624,038 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     146,832       613,631    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (24,547,345 )     (41,010,407 )  
Total increase (decrease) in net assets     (63,123,549 )     (96,527,566 )  
Net assets:  
Beginning of period     220,359,130       316,886,696    
End of period (including accumulated undistributed net
investment income of $5,233,524 and distributions in
excess of net investment income of $134,693, respectively)
  $ 157,235,581     $ 220,359,130    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 22.42     $ 30.98     $ 28.34     $ 26.79     $ 29.67     $ 20.28    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.56       0.61       0.46       0.52       0.13       (0.10 )  
Net realized and unrealized
gain (loss)
    (3.88 )     1.50       4.32       1.91       (1.45 )     10.03    
Total from investment
operations
    (3.32 )     2.11       4.78       2.43       (1.32 )     9.93    
Less distributions to shareholders:  
From net investment income           (0.85 )     (0.39 )     (0.59 )           (0.02 )  
From net realized gains     (0.85 )     (9.82 )     (1.75 )     (0.29 )     (1.56 )     (0.52 )  
Total distributions     (0.85 )     (10.67 )     (2.14 )     (0.88 )     (1.56 )     (0.54 )  
Net asset value, end of period   $ 18.25     $ 22.42     $ 30.98     $ 28.34     $ 26.79     $ 29.67    
Total Return(a)      (14.89 )%**      6.97 %(b)      17.12 %     9.13 %     (3.82 )%     49.53 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 157,236     $ 220,359     $ 316,887     $ 291,250     $ 224,466     $ 181,313    
Net expenses to average daily
net assets
    1.34 %(c)*      1.29 %(c)      1.26 %     1.28 %     1.34 %     1.36 %  
Net investment income to
average daily net assets
    2.57 %(d)**      1.98 %     1.56 %     1.95 %     0.53 %     (0.40 )%  
Portfolio turnover rate     24 %**      94 %     41 %     31 %     88 %     86 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.02     $ 0.06     $ 0.03     $ 0.04     $ 0.05     $ 0.04    

 

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

(b)  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.

(c)  The net expense ratio does not include the effect of expense reductions.

(d)  The ratio for the six months ended August 31, 2008, 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, 2008 (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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the


10



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 12,464,381     $ 2,379,500    
Level 2 - Other Significant Observable Inputs     141,565,746          
Level 3 - Significant Unobservable Inputs     941          
Total   $ 154,031,068     $ 2,379,500    

 

*  Other financial instruments include foreign currency.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 


11



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 960     $    
Realized gain (loss)              
Change in unrealized appreciation/depreciation     (19 )        
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 941     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had no forward currency contracts outstanding at the end of the period.


12



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a


13



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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


14



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 of August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.


15



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 181,495,699     $ 4,050,227     $ (31,514,858 )   $ (27,464,631 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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


16



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

of premiums and accretion of discounts. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Taiwanese companies typically declare dividends in the third calendar quarter of each 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 that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases of Fund shares was 0.15% of the amount invested. In the case of cash redemptions, the fee was 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 amount approximately equal to the fee with respect to that portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection wit h 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.


17



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Investment risks

Investments in emerging countries, such as Taiwan, present certain risks that are not inherent in many other securities. Many emerging countries are subject to 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. 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 that impede the Fund's ability to repatriate amounts it receives. The Fund may acquire interests in securities in some countries based on the Manager's expectations that conditions in those countries will improve. These factors may result in significant volatility in the values of the Fund's 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.   Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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 Trust's independent Trustees and Chief Compliance Officer ("CCO") during the period ended August 31, 2008 was $1,088 and $644, 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, 2008 aggregated $46,602,817 and $82,034,673, respectively.


18



GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.   Principal shareholders and related parties

As of August 31, 2008, 98.02% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold         $       294,310     $ 9,579,509    
Shares issued to shareholders
in reinvestment of distributions
    427,541       7,935,155       3,387,026       81,961,194    
Shares repurchased     (1,639,574 )     (32,629,332 )     (4,083,581 )     (133,164,741 )  
Purchase premiums                       14,390    
Redemption fees           146,832             599,241    
Net increase (decrease)     (1,212,033 )   $ (24,547,345 )     (402,245 )   $ (41,010,407 )  

 


19




GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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


20



GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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. 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 migh t create for the Manager to increase assets under management, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


21



GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


22



GMO Taiwan Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     1.34 %   $ 1,000.00     $ 851.10     $ 6.25    
2) Hypothetical     1.34 %   $ 1,000.00     $ 1,018.45     $ 6.82    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


23




GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO Special Purpose Holding Fund

(A Series of GMO Trust)
Consolidated Investments Concentration Summary
(a)
August 31, 2008 (Unaudited)

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

 

(a)  GMO SPV I, LLC is a 74.9% 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, 2008 (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%     406,386    
TOTAL NET ASSETS — 100.0%   $ 406,386    

 

Notes to Schedule of Investments:

(a)  Owned by GMO SPV I, LLC. GMO SPV I, LLC is a 74.9% 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)


Consolidating Statement of Assets and Liabilities — August 31, 2008 (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)
  $ 276,862     $     $     $ (276,862 )   $    
Cash     192,904       482,374                   675,278    
Interest receivable     181       443                   624    
Receivable for expenses reimbursed
by Manager (Note 3)
    5,053       3,162                   8,215    
Total assets     475,000       485,979             (276,862 )     684,117    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance
Officer of GMO Trust fees
    2                         2    
Accrued expenses     68,612       118,874                   187,486    
Minority interest                 90,243             90,243    
Total liabilities     68,614       118,874       90,243             277,731    
Net assets   $ 406,386     $ 367,105     $ (90,243 )   $ (276,862 )   $ 406,386    
Shares outstanding     554,071                               554,071    
Net asset value per share   $ 0.73                             $ 0.73    

 

See accompanying notes to the financial statements.


3



GMO Special Purpose Holding Fund

(A Series of GMO Trust)


Consolidating Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

    GMO
Special Purpose
Holding Fund
  GMO
SPV I, LLC
  Minority
Interest
  Eliminations   Consolidated
Totals
 
Investment Income:  
Interest   $ 1,940     $ 2,948     $     $     $ 4,888    
Total income     1,940       2,948                   4,888    
Expenses:  
Custodian and transfer agent fees     736       14,168                   14,904    
Audit and tax fees     27,692       4,232                   31,924    
Trustees fees and related expenses (Note 3)     1                         1    
Miscellaneous           276                   276    
Total expenses     28,429       18,676                   47,105    
Fees and expenses reimbursed by
Manager (Note 3)
    (28,428 )     (18,676 )                 (47,104 )  
Net expenses     1                         1    
Net income (loss)     1,939       2,948                   4,887    
Minority Interest                 (707 )           (707 )  
Net investment income (loss)
after minority interest
    1,939       2,948       (707 )           4,180    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers           1,284,719                   1,284,719    
Realized gains distributions from
affiliated issuers
    962,366                   (962,366 )        
Net realized gain (loss)     962,366       1,284,719             (962,366 )     1,284,719    
Change in net unrealized appreciation
(depreciation) on:
 
Investments                                
Net unrealized gain (loss)                                
Net realized and unrealized gain (loss)     962,366       1,284,719             (962,366 )     1,284,719    
Minority interest in realized and
unrealized gain (loss)
                (324,594 )           (324,594 )  
Net increase (decrease) in net assets
resulting from operations
  $ 964,305     $ 1,287,667     $ (325,301 )   $ (962,366 )   $ 964,305    

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,887     $ 36,556    
Net realized gain (loss)     1,284,719       4,638,699    
Change in net unrealized appreciation (depreciation)              
      1,289,606       4,675,255    
Minority Interest     (325,301 )     (1,164,398 )  
Net increase (decrease) in net assets from operations     964,305       3,510,857    
Cash distributions to shareholders     (1,254,756 )     (3,593,689 )  
      (1,254,756 )     (3,593,689 )  
Fund share transactions: (Note 7)  
Proceeds from sale of shares              
Cost of shares repurchased              
Net increase (decrease) from Fund share transactions              
Total increase (decrease) in net assets     (290,451 )     (82,832 )  
Net assets:  
Beginning of period     696,837       779,669    
End of period   $ 406,386     $ 696,837    

 

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, 2008
  Year Ended February 28/29  
    (Unaudited)   2008   2007   2006   2005  
Net asset value, beginning of period   $ 1.26     $ 1.41     $ 8.22     $ 15.51     $ 24.11    
Income from investment operations:  
Net investment income (loss)      0.01       0.06       0.02       (0.08 )     0.41    
Net realized and unrealized gain (loss)     1.72       6.28       41.16       8.57       9.08    
Total from investment operations     1.73       6.34       41.18       8.49       9.49    
Less distributions to shareholders:  
From net investment income                             (0.74 )  
From cash distributions     (2.26 )     (6.49 )     (47.99 )     (15.78 )     (17.29 )  
From return of capital                             (0.06 )  
Total distributions     (2.26 )     (6.49 )     (47.99 )     (15.78 )     (18.09 )  
Net asset value, end of period   $ 0.73     $ 1.26     $ 1.41     $ 8.22     $ 15.51    
Total Return(b)      137.67 %**(c)      517.54 %(c)      3613.95 %(c)      124.75 %(c)      36.35 %(c)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 406     $ 697     $ 780     $ 4,553     $ 8,595    
Net operating expenses to average daily
net assets
    0.00 %*      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 %*(f)      0.00 %(f)      0.85 %     1.26 %     (0.01 )%  
Net investment income to average daily
net assets
    1.45 %*      3.91 %     1.05 %     (0.65 )%     1.83 %  
Portfolio turnover rate     0 %**      0 %     0 %     0 %     0 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:
    14.78 %*      8.84 %     3.74 %     1.39 %     0.67 %  

 

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

(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)  Had the effect of reinvested distributions not been assumed and income from investment operations been retained, the total
returns would have been 1.94% for the six months ended August 31, 2008, 7.61%, 97.84%, 25.27%, and 39.36% for the fiscal years
ended 2008, 2007, 2006, and 2005, respectively.

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

(f)  Total net expenses 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
 
    February 29, 2004(a)    November 30, 2003  
Net asset value, beginning of period   $ 23.89     $ 23.77    
Income from investment operations:  
Net investment income (loss)      0.13       0.75    
Net realized and unrealized gain (loss)     0.09       (0.63 )  
Total from investment operations     0.22       0.12    
Less distributions to shareholders:  
From net investment income              
From cash distributions              
From return of capital              
Total distributions              
Net asset value, end of period   $ 24.11     $ 23.89    
Total Return(b)      0.92 %**      0.50 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 225,727     $ 224,113    
Net operating expenses to average daily
net assets
    0.08 %*      0.13 %  
Interest expense to average daily
net assets
    0.04 %(d)*      0.00 %(d)(e)   
Total net expenses to average daily
net assets
    0.12 %*      0.13 %  
Net investment income to average daily
net assets
    0.49 %*      3.11 %  
Portfolio turnover rate     4 %**      80 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:
    0.11 %*      0.10 %  

 

See accompanying notes to the financial statements.


7




GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements
August 31, 2008 (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 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. 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. The Fund expects that any new investments will be made primarily in cash, cash items, and high quality debt securities.

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 certain the NPF Securities. For the period ended August 31, 2008, the Fund indirectly received $962,366 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing its


8



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The accounting records of the Fund are maintained in U.S. dollars.

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

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.


9



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs*              
Total   $     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

*  The Fund's investments were valued entirely using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding 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.


10



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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 the taxation of partnerships.

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

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 the 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 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the


11



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

average daily cash balances the Fund maintains with State Street. In addition, Boston Global Advisors ("BGA"), the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $1 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Consolidating 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, 2008.


12



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 61.72% of the share outstanding of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Shares sold              
Shares repurchased              
Net decrease              
Fund shares:  
Beginning of period     554,071       554,071    
End of period     554,071       554,071    

 


13




GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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


14



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


15



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 1,019.40     $ 0.00    
  2 ) Hypothetical     0.00 %   $ 1,000.00     $ 1,025.21     $ 0.00    

 

*  Expenses are calculated using the annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


16




GMO U.S. Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Growth Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.6 %  
Short-Term Investments     3.2    
Futures     0.0    
Other     0.2    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Information Technology     21.6 %  
Consumer Staples     21.0    
Health Care     20.7    
Energy     15.3    
Industrials     7.4    
Consumer Discretionary     6.7    
Financials     3.7    
Materials     2.9    
Telecommunication Services     0.6    
Utilities     0.1    
      100.0 %  

 


1




GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.6%  
        Consumer Discretionary — 6.5%  
    1,300     Abercrombie & Fitch Co.-Class A     68,185    
    900     Advance Auto Parts, Inc.     38,736    
    1,600     Amazon.com, Inc. *      129,296    
    1,100     American Eagle Outfitters, Inc.     16,555    
    1,400     Apollo Group, Inc.-Class A *      89,152    
    1,300     AutoNation, Inc. *      14,755    
    370     AutoZone, Inc. *      50,775    
    500     Bally Technologies, Inc. *      17,115    
    3,100     Bed Bath & Beyond, Inc. *      95,046    
    2,400     Best Buy Co., Inc.     107,448    
    200     Black & Decker Corp.     12,650    
    700     Career Education Corp. *      13,125    
    300     Chipotle Mexican Grill, Inc.-Class B *      19,521    
    2,700     Coach, Inc. *      78,273    
    1,700     D.R. Horton, Inc.     21,182    
    400     DeVry, Inc.     20,632    
    800     DirecTV Group (The), Inc. *      22,568    
    700     Dollar Tree, Inc. *      26,852    
    900     Family Dollar Stores, Inc.     22,428    
    1,000     GameStop Corp.-Class A *      43,870    
    1,900     Gap (The), Inc.     36,955    
    1,300     Harley-Davidson, Inc.     51,714    
    500     Hasbro, Inc.     18,700    
    18,700     Home Depot, Inc.     507,144    
    900     International Game Technology     19,287    
    500     ITT Educational Services, Inc. *      44,455    
    1,200     Johnson Controls, Inc.     37,104    
    2,900     Kohl's Corp. *      142,593    
    1,000     Lennar Corp.-Class A     13,150    
    700     LKQ Corp. *      13,111    
    15,468     Lowe's Cos., Inc.     381,132    
    2,500     McDonald's Corp.     155,125    
    800     McGraw-Hill Cos. (The), Inc.     34,272    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Discretionary — continued  
    300     Mohawk Industries, Inc. *      20,715    
    500     NetFlix, Inc. *      15,420    
    2,200     Nike, Inc.-Class B     133,342    
    2,100     Office Depot, Inc. *      14,784    
    900     Omnicom Group, Inc.     38,151    
    1,100     O'Reilly Automotive, Inc. *      32,032    
    200     Panera Bread Co.-Class A *      10,748    
    800     Ross Stores, Inc.     32,168    
    200     Sherwin-Williams Co. (The)     11,710    
    7,400     Staples, Inc.     179,080    
    2,400     Starbucks Corp. *      37,344    
    110     Strayer Education, Inc.     23,082    
    7,300     Target Corp.     387,046    
    900     Thor Industries, Inc.     20,682    
    2,460     TJX Cos. (The), Inc.     89,150    
    800     Toll Brothers, Inc. *      19,904    
    1,300     Urban Outfitters, Inc. *      46,306    
    1,000     Yum! Brands, Inc.     35,680    
    Total Consumer Discretionary     3,510,250    
        Consumer Staples — 20.3%  
    21,084     Altria Group, Inc.     443,397    
    3,400     Anheuser-Busch Cos., Inc.     230,724    
    2,400     Archer-Daniels-Midland Co.     61,104    
    2,400     Avon Products, Inc.     102,792    
    300     Central European Distribution Corp. *      17,307    
    300     Clorox Co.     17,730    
    28,000     Coca-Cola Co. (The)     1,457,960    
    1,100     Coca-Cola Enterprises, Inc.     18,777    
    7,200     Colgate-Palmolive Co.     547,416    
    2,700     Costco Wholesale Corp.     181,062    
    3,300     CVS Caremark Corp.     120,780    
    400     Energizer Holdings, Inc. *      33,976    
    600     Estee Lauder Cos. (The), Inc.-Class A     29,862    
    600     Flowers Foods, Inc.     15,864    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — continued  
    2,100     General Mills, Inc.     138,978    
    1,300     HJ Heinz Co.     65,416    
    1,100     Kellogg Co.     59,884    
    3,400     Kimberly-Clark Corp.     209,712    
    2,344     Kraft Foods, Inc.     73,859    
    1,000     Kroger Co.     27,620    
    500     McCormick & Co., Inc. (Non Voting)     20,225    
    700     Pepsi Bottling Group (The), Inc.     20,706    
    18,500     PepsiCo, Inc.     1,266,880    
    10,684     Philip Morris International, Inc.     573,731    
    24,500     Procter & Gamble Co. (The)     1,709,365    
    400     Supervalu, Inc.     9,276    
    2,200     Sysco Corp.     70,026    
    500     UST, Inc.     26,795    
    12,900     Walgreen Co.     469,947    
    48,800     Wal-Mart Stores, Inc.     2,882,616    
    1,100     WM Wrigley Jr. Co.     87,428    
    Total Consumer Staples     10,991,215    
        Energy — 14.8%  
    200     Alpha Natural Resources, Inc. *      19,820    
    800     Anadarko Petroleum Corp.     49,384    
    2,510     Apache Corp.     287,094    
    400     Arch Coal, Inc.     21,696    
    400     Atwood Oceanics, Inc. *      16,264    
    700     Baker Hughes, Inc.     56,007    
    2,200     BJ Services Co.     59,070    
    400     Cabot Oil & Gas Corp.     17,776    
    800     Cameron International Corp. *      37,272    
    2,800     Chesapeake Energy Corp.     135,520    
    13,400     Chevron Corp.     1,156,688    
    200     Cimarex Energy Co.     11,108    
    300     CNX Gas Corp. *      9,102    
    300     Comstock Resources, Inc. *      19,482    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    4,329     ConocoPhillips     357,186    
    200     Consol Energy, Inc.     13,542    
    1,900     Denbury Resources, Inc. *      47,291    
    900     Devon Energy Corp.     91,845    
    600     Diamond Offshore Drilling, Inc.     65,946    
    500     Encore Acquisition Co. *      25,780    
    200     ENSCO International, Inc.     13,556    
    2,210     EOG Resources, Inc.     230,768    
    800     EXCO Resources, Inc. *      21,184    
    32,900     Exxon Mobil Corp.     2,632,329    
    800     FMC Technologies, Inc. *      42,848    
    300     Forest Oil Corp. *      17,076    
    500     Foundation Coal Holdings, Inc.     29,575    
    400     Frontline Ltd.     24,164    
    1,900     Halliburton Co.     83,486    
    300     Helmerich & Payne, Inc.     17,136    
    2,690     Hess Corp.     281,670    
    200     IHS, Inc.-Class A *      12,832    
    1,300     Murphy Oil Corp.     102,089    
    1,800     Nabors Industries Ltd. *      64,134    
    300     National Oilwell Varco, Inc. *      22,119    
    300     Newfield Exploration Co. *      13,566    
    800     Noble Corp.     40,232    
    600     Noble Energy, Inc.     43,038    
    5,400     Occidental Petroleum Corp.     428,544    
    200     Oceaneering International, Inc. *      12,482    
    1,300     Patterson-UTI Energy, Inc.     36,946    
    700     Peabody Energy Corp.     44,065    
    300     Pioneer Natural Resources Co.     18,951    
    300     Plains Exploration & Production Co. *      16,170    
    800     Quicksilver Resources, Inc. *      19,352    
    700     Range Resources Corp.     32,494    
    1,970     Schlumberger Ltd.     185,613    
    600     Smith International, Inc.     41,820    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    3,100     Southwestern Energy Co. *      118,947    
    200     St. Mary Land & Exploration Co.     8,444    
    1,100     Sunoco, Inc.     48,818    
    2,573     Transocean, Inc. *      327,286    
    400     Unit Corp. *      27,092    
    4,500     Valero Energy Corp.     156,420    
    400     W&T Offshore, Inc.     14,064    
    3,800     Weatherford International Ltd. *      146,604    
    300     Whiting Petroleum Corp. *      28,872    
    2,200     XTO Energy, Inc.     110,902    
    Total Energy     8,013,561    
        Financials — 3.6%  
    5,100     Aflac, Inc.     289,170    
    400     Allstate Corp. (The)     18,052    
    4,800     American International Group, Inc.     103,152    
    1,200     Annaly Capital Management, Inc.     17,952    
    200     Arch Capital Group Ltd. *      13,952    
    500     Assurant, Inc.     29,215    
    1,300     Bank of America Corp.     40,482    
    420     BlackRock, Inc.     91,245    
    1,400     Brown & Brown, Inc.     28,392    
    500     Capital One Financial Corp.     22,070    
    1,800     Charles Schwab Corp. (The)     43,182    
    900     Chubb Corp.     43,209    
    7,500     Citigroup, Inc.     142,425    
    40     CME Group, Inc.     13,415    
    400     Equity Residential REIT     16,880    
    300     Everest Re Group Ltd.     24,639    
    840     Goldman Sachs Group, Inc.     137,735    
    300     Hartford Financial Services Group (The), Inc.     18,924    
    600     HCC Insurance Holdings, Inc.     15,108    
    4,600     Hudson City Bancorp, Inc.     84,824    
    600     Investment Technology Group, Inc. *      19,200    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    500     JPMorgan Chase & Co.     19,245    
    700     Lehman Brothers Holdings, Inc.     11,263    
    500     Leucadia National Corp.     23,145    
    1,300     Merrill Lynch & Co., Inc.     36,855    
    700     MetLife, Inc.     37,940    
    1,800     Morgan Stanley     73,494    
    600     Nasdaq OMX Group (The), Inc. *      19,614    
    300     Northern Trust Corp.     24,117    
    800     Philadelphia Consolidated Holding Corp. *      47,784    
    300     Prudential Financial, Inc.     22,113    
    200     Public Storage     17,664    
    1,100     SEI Investment Co.     25,982    
    200     Simon Property Group, Inc. REIT     18,976    
    1,100     SLM Corp. *      18,161    
    500     State Street Corp.     33,835    
    900     T. Rowe Price Group, Inc.     53,424    
    200     Transatlantic Holdings, Inc.     12,020    
    3,400     Travelers Cos. (The), Inc.     150,144    
    400     Ventas, Inc. REIT     18,168    
    1,300     W.R. Berkley Corp.     30,628    
    600     Waddell and Reed Financial, Inc.     19,320    
    Total Financials     1,927,115    
        Health Care — 20.0%  
    10,400     Abbott Laboratories     597,272    
    700     Aetna, Inc.     30,198    
    900     Allergan, Inc.     50,283    
    600     AmerisourceBergen Corp.     24,606    
    3,500     Amgen, Inc. *      219,975    
    1,000     Applied Biosystems, Inc.     36,490    
    700     Bard (C.R.), Inc.     65,415    
    300     Barr Pharmaceuticals, Inc. *      20,262    
    3,000     Baxter International, Inc.     203,280    
    1,600     Becton, Dickinson & Co.     139,808    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    3,000     Biogen Idec, Inc. *      152,790    
    800     BioMarin Pharmaceutical, Inc. *      24,112    
    8,200     Bristol-Myers Squibb Co.     174,988    
    2,800     Cardinal Health, Inc.     153,944    
    800     Covance, Inc. *      75,472    
    3,200     Coventry Health Care, Inc. *      112,064    
    900     DENTSPLY International, Inc.     35,271    
    300     Edwards Lifesciences Corp. *      17,763    
    6,200     Eli Lilly & Co.     289,230    
    700     Endo Pharmaceuticals Holdings, Inc. *      15,904    
    5,600     Express Scripts, Inc. *      411,096    
    5,100     Forest Laboratories, Inc. *      182,019    
    3,000     Genentech, Inc. *      296,250    
    500     Gen-Probe, Inc. *      29,875    
    1,300     Genzyme Corp. *      101,790    
    14,900     Gilead Sciences, Inc. *      784,932    
    700     Health Net, Inc. *      19,355    
    500     Humana, Inc. *      23,200    
    600     Idexx Laboratories, Inc. *      33,780    
    600     Illumina, Inc. *      51,678    
    340     Intuitive Surgical, Inc. *      100,392    
    700     Invitrogen Corp. *      29,722    
    23,764     Johnson & Johnson     1,673,699    
    1,300     King Pharmaceuticals, Inc. *      14,872    
    2,800     McKesson Corp.     161,784    
    2,600     Medco Health Solutions, Inc. *      121,810    
    8,800     Medtronic, Inc.     480,480    
    9,400     Merck & Co., Inc.     335,298    
    400     OSI Pharmaceuticals, Inc. *      20,200    
    700     Patterson Cos., Inc. *      22,778    
    1,500     Perrigo Co.     52,485    
    45,376     Pfizer, Inc.     867,135    
    600     Pharmaceutical Product Development, Inc.     24,480    
    400     Quest Diagnostics, Inc.     21,620    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    5,000     Stryker Corp.     335,950    
    300     Techne Corp. *      23,151    
    3,200     Tenet Healthcare Corp. *      19,296    
    170     United Therapeutics Corp. *      18,042    
    37,394     UnitedHealth Group, Inc.     1,138,647    
    1,100     Varian Medical Systems, Inc. *      69,476    
    400     Waters Corp. *      27,300    
    3,800     WellPoint, Inc. *      200,602    
    5,200     Wyeth     225,056    
    6,400     Zimmer Holdings, Inc. *      463,296    
    Total Health Care     10,820,673    
        Industrials — 7.1%  
    5,300     3M Co.     379,480    
    300     AGCO Corp. *      18,489    
    200     Alliant Techsystems, Inc. *      21,046    
    300     Boeing Co.     19,668    
    200     Brink's Co. (The)     13,956    
    1,200     Burlington Northern Santa Fe Corp.     128,880    
    1,900     CH Robinson Worldwide, Inc.     99,009    
    1,400     Copart, Inc. *      61,614    
    2,600     CSX Corp.     168,168    
    2,400     Danaher Corp.     195,768    
    5,500     Deere & Co.     388,135    
    500     Donaldson Co., Inc.     21,955    
    4,900     Emerson Electric Co.     229,320    
    500     Fastenal Co.     25,965    
    500     FedEx Corp.     41,410    
    610     Flowserve Corp.     80,593    
    1,500     Fluor Corp.     120,195    
    400     FTI Consulting, Inc. *      29,360    
    400     Gardner Denver, Inc. *      18,056    
    3,200     General Dynamics Corp.     295,360    
    400     Goodrich Corp.     20,500    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    500     Harsco Corp.     26,320    
    900     Iron Mountain, Inc. *      26,019    
    800     Jacobs Engineering Group, Inc. *      59,056    
    500     JB Hunt Transport Services, Inc.     18,225    
    500     Joy Global, Inc.     35,520    
    500     Kirby Corp. *      22,895    
    800     L-3 Communications Holdings, Inc.     83,152    
    200     Landstar System, Inc.     9,804    
    740     Lockheed Martin Corp.     86,166    
    400     Manpower, Inc.     19,224    
    300     MSC Industrial Direct Co., Inc.-Class A     15,279    
    300     Nordson Corp.     16,089    
    300     Norfolk Southern Corp.     22,059    
    1,475     Paccar, Inc.     63,513    
    900     Parker-Hannifin Corp.     57,663    
    200     Precision Castparts Corp.     20,652    
    500     Raytheon Co.     29,995    
    700     Rockwell Collins, Inc.     36,813    
    200     Ryder Systems, Inc.     12,904    
    160     SPX Corp.     19,080    
    500     Stericycle, Inc. *      29,650    
    1,300     Textron, Inc.     53,430    
    900     Union Pacific Corp.     75,510    
    3,600     United Parcel Service, Inc.-Class B     230,832    
    6,500     United Technologies Corp.     426,335    
    Total Industrials     3,873,112    
        Information Technology — 20.9%  
    1,600     Accenture Ltd.     66,176    
    2,500     Adobe Systems, Inc. *      107,075    
    200     Affiliated Computer Services, Inc.-Class A *      10,648    
    700     Amphenol Corp.-Class A     33,264    
    500     Ansys, Inc. *      22,175    
    6,690     Apple, Inc. *      1,134,156    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    2,100     Automatic Data Processing, Inc.     93,198    
    1,200     BMC Software, Inc. *      39,072    
    56,000     Cisco Systems, Inc. *      1,346,800    
    1,700     Citrix Systems, Inc. *      51,459    
    600     Cognizant Technology Solutions Corp.-Class A *      17,592    
    600     Cypress Semiconductor Corp. *      19,452    
    12,900     Dell, Inc. *      280,317    
    15,200     eBay, Inc. *      378,936    
    300     Electronic Arts, Inc. *      14,643    
    2,100     EMC Corp. *      32,088    
    400     Factset Research Systems, Inc.     25,084    
    1,900     Fiserv, Inc. *      98,534    
    1,300     FLIR Systems, Inc. *      46,410    
    900     Global Payments, Inc.     43,389    
    1,750     Google, Inc.-Class A *      810,757    
    9,400     Hewlett-Packard Co.     441,048    
    1,200     Ingram Micro, Inc.-Class A *      22,692    
    10,308     Intel Corp.     235,744    
    7,190     International Business Machines Corp.     875,239    
    100     Itron, Inc. *      10,358    
    1,500     Juniper Networks, Inc. *      38,550    
    500     Lam Research Corp. *      18,380    
    600     Lexmark International, Inc. *      21,582    
    860     MasterCard, Inc.-Class A     208,593    
    78,200     Microsoft Corp.     2,134,078    
    100     National Instruments Corp.     3,228    
    52,800     Oracle Corp. *      1,157,904    
    1,200     QLogic Corp. *      22,416    
    20,800     Qualcomm, Inc.     1,095,120    
    500     Salesforce.com, Inc. *      28,010    
    700     Silicon Laboratories, Inc. *      23,597    
    300     Sybase, Inc. *      10,323    
    1,100     Texas Instruments, Inc.     26,961    
    1,400     Total System Services, Inc.     27,888    

 

See accompanying notes to the financial statements.


11



GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    500     VeriSign, Inc. *      15,985    
    3,300     Western Digital Corp. *      89,958    
    4,200     Western Union Co. (The)     116,004    
    Total Information Technology     11,294,883    
        Materials — 2.8%  
    300     Air Products & Chemicals, Inc.     27,555    
    300     Compass Minerals International, Inc.     20,781    
    600     Ecolab, Inc.     27,444    
    600     FMC Corp.     44,124    
    300     Freeport-McMoRan Copper & Gold, Inc.     26,796    
    8,310     Monsanto Co.     949,417    
    1,800     Newmont Mining Corp.     81,180    
    1,800     Nucor Corp.     94,500    
    600     Owens-IIlinois, Inc. *      26,760    
    600     Packaging Corp. of America     15,450    
    1,300     Praxair, Inc.     116,792    
    300     Reliance Steel & Aluminum Co.     17,103    
    1,100     Sigma-Aldrich Corp.     62,436    
    100     United States Steel Corp.     13,307    
    Total Materials     1,523,645    
        Telecommunication Services — 0.5%  
    4,045     AT&T, Inc.     129,400    
    400     Crown Castle International Corp. *      14,960    
    4,400     Verizon Communications, Inc.     154,528    
    Total Telecommunication Services     298,888    
        Utilities — 0.1%  
    300     Exelon Corp.     22,788    
    300     FirstEnergy Corp.     21,792    
    Total Utilities     44,580    
    TOTAL COMMON STOCKS (COST $54,454,098)     52,297,922    

 

See accompanying notes to the financial statements.


12



GMO U.S. Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 3.2%        
    Money Market Funds — 3.2%        
  1,693,542     State Street Institutional Treasury Money Market Fund-Institutional Class     1,693,542    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,693,542)     1,693,542    
    TOTAL INVESTMENTS — 99.8%
(Cost $56,147,640)
    53,991,464    
    Other Assets and Liabilities (net) — 0.2%     133,684    
    TOTAL NET ASSETS — 100.0%   $ 54,125,148    

 

See accompanying notes to the financial statements.


13



GMO U.S. Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  15     S&P 500 E-Mini   September 2008   $ 961,950     $ (17,696 )  

 

As of August 31, 2008, 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.

See accompanying notes to the financial statements.


14




GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $56,147,640) (Note 2)   $ 53,991,464    
Dividends and interest receivable     183,412    
Receivable for collateral on open futures contracts (Note 2)     54,000    
Receivable for expenses reimbursed by Manager (Note 3)     17,112    
Total assets     54,245,988    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     22,644    
Shareholder service fee – Class III     10,711    
Administration fee – Class M     328    
Trustees and Chief Compliance Officer of GMO Trust fees     402    
Payable for 12b-1 fee – Class M     841    
Payable for variation margin on open futures contracts (Note 2)     11,625    
Accrued expenses     74,289    
Total liabilities     120,840    
Net assets   $ 54,125,148    
Net assets consist of:  
Paid-in capital   $ 71,571,207    
Accumulated undistributed net investment income     210,269    
Accumulated net realized loss     (15,482,456 )  
Net unrealized depreciation     (2,173,872 )  
    $ 54,125,148    
Net assets attributable to:  
Class III shares   $ 52,234,305    
Class M shares   $ 1,890,843    
Shares outstanding:  
Class III     3,282,906    
Class M     119,286    
Net asset value per share:  
Class III   $ 15.91    
Class M   $ 15.85    

 

See accompanying notes to the financial statements.


15



GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 1,278,008    
Interest     37,671    
Total investment income     1,315,679    
Expenses:  
Management fee (Note 3)     262,964    
Shareholder service fee – Class III (Note 3)     93,116    
12b-1 fee – Class M (Note 3)     56,875    
Administration fee – Class M (Note 3)     45,500    
Custodian, fund accounting agent and transfer agent fees     54,372    
Audit and tax fees     27,508    
Legal fees     2,300    
Trustees fees and related expenses (Note 3)     1,062    
Registration fees     9,200    
Miscellaneous     1,564    
Total expenses     554,461    
Fees and expenses reimbursed by Manager (Note 3)     (94,392 )  
Expense reductions (Note 2)     (14 )  
Net expenses     460,055    
Net investment income (loss)     855,624    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (10,537,458 )  
Closed futures contracts     (378,542 )  
Net realized gain (loss)     (10,916,000 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     12,208,626    
Open futures contracts     115,125    
Net unrealized gain (loss)     12,323,751    
Net realized and unrealized gain (loss)     1,407,751    
Net increase (decrease) in net assets resulting from operations   $ 2,263,375    

 

See accompanying notes to the financial statements.


16



GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 855,624     $ 2,313,049    
Net realized gain (loss)     (10,916,000 )     15,904,427    
Change in net unrealized appreciation (depreciation)     12,323,751       (25,882,761 )  
Net increase (decrease) in net assets from operations     2,263,375       (7,665,285 )  
Distributions to shareholders from:  
Net investment income  
Class III     (650,575 )     (1,963,020 )  
Class M     (238,835 )     (451,426 )  
Total distributions from net investment income     (889,410 )     (2,414,446 )  
Net realized gains  
Class III           (3,938,829 )  
Class M           (1,625,736 )  
Total distributions from net realized gains           (5,564,565 )  
      (889,410 )     (7,979,011 )  
Net share transactions (Note 7):  
Class III     (77,502,692 )     (85,518,384 )  
Class M     (68,143,669 )     (10,707,607 )  
Increase (decrease) in net assets resulting from net share
transactions
    (145,646,361 )     (96,225,991 )  
Total increase (decrease) in net assets     (144,272,396 )     (111,870,287 )  
Net assets:  
Beginning of period     198,397,544       310,267,831    
End of period (including accumulated undistributed net investment
income of $210,269 and $244,055, respectively)
  $ 54,125,148     $ 198,397,544    

 

See accompanying notes to the financial statements.


17




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 15.82     $ 17.24     $ 18.17     $ 18.26     $ 19.03     $ 14.29    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.09       0.17       0.15       0.15       0.16       0.10    
Net realized and unrealized
gain (loss)
    0.08       (1.06 )     0.07       0.86       (0.02 )(a)      5.14    
Total from investment
operations
    0.17       (0.89 )     0.22       1.01       0.14       5.24    
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.17 )     (0.15 )     (0.16 )     (0.14 )     (0.14 )  
From net realized gains           (0.36 )     (1.00 )     (0.94 )     (0.77 )     (0.36 )  
Total distributions     (0.08 )     (0.53 )     (1.15 )     (1.10 )     (0.91 )     (0.50 )  
Net asset value, end of period   $ 15.91     $ 15.82     $ 17.24     $ 18.17     $ 18.26     $ 19.03    
Total Return(b)      1.07 %**      (5.49 )%     1.24 %     5.64 %     0.94 %     36.93 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 52,234     $ 129,666     $ 224,554     $ 342,203     $ 357,499     $ 437,200    
Net expenses to average daily
net assets
    0.46 %(c)*      0.46 %(c)      0.46 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    1.09 %*      0.94 %     0.85 %     0.84 %     0.89 %     0.62 %  
Portfolio turnover rate     37 %**      97 %     111 %     94 %     136 %     97 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.11 %*      0.07 %     0.05 %     0.04 %     0.04 %     0.05 %  

 

(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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


18



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 15.76     $ 17.16     $ 18.10     $ 18.19     $ 18.97     $ 14.25    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.06       0.11       0.10       0.10       0.11       0.09    
Net realized and unrealized
gain (loss)
    0.09       (1.05 )     0.06       0.85       (0.02 )(a)      5.09    
Total from investment
operations
    0.15       (0.94 )     0.16       0.95       0.09       5.18    
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.10 )     (0.10 )     (0.10 )     (0.10 )     (0.10 )  
From net realized gains           (0.36 )     (1.00 )     (0.94 )     (0.77 )     (0.36 )  
Total distributions     (0.06 )     (0.46 )     (1.10 )     (1.04 )     (0.87 )     (0.46 )  
Net asset value, end of period   $ 15.85     $ 15.76     $ 17.16     $ 18.10     $ 18.19     $ 18.97    
Total Return(b)      0.92 %**      (5.79 )%     0.91 %     5.33 %     0.65 %     36.58 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,891     $ 68,732     $ 85,714     $ 253,332     $ 269,227     $ 199,865    
Net expenses to average daily
net assets
    0.76 %(c)*      0.76 %(c)      0.76 %     0.77 %     0.78 %     0.78 %  
Net investment income to average
daily net assets
    0.79 %*      0.64 %     0.56 %     0.54 %     0.61 %     0.29 %  
Portfolio turnover rate     37 %**      97 %     111 %     94 %     136 %     97 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.11 %*      0.07 %     0.05 %     0.04 %     0.04 %     0.05 %  

 

(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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


19




GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 in companies with similar market capitalizations.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.


20



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 52,297,922     $    
Level 2 - Other Significant Observable Inputs     1,693,542          
Level 3 - Significant Unobservable Inputs              
Total   $ 53,991,464     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $     $ (17,696 )  
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $ (17,696 )  

 

*  Other financial instruments include futures contracts.


21



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.


22



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, the Fund did not participate in securities lending.


23



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $215,010.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/28/2011   $ (2,843,668 )  
2/29/2012     (782,016 )  
Total   $ (3,625,684 )  

 

As of August 31, 2008, 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)
 
$ 57,757,233     $ 1,652,871     $ (5,418,640 )   $ (3,765,769 )  

 


24



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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.

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities


25



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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 for support services provided to Class M shareholders. That fee is paid monthly at the annual rate of 0.20% of the average daily Class M net assets. 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 services to Class M shareholders. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily Class M net assets.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, administration and distribution (12b-1) 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 invest ment 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $970 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.


26



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 aggregated $57,840,922 and $198,474,578, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 90.64% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 0.04% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
     
Class III:   Shares   Amount   Shares   Amount  
Shares sold     104,267     $ 1,671,895       302,944     $ 5,156,583    
Shares issued to shareholders
in reinvestment of distributions
    40,457       650,291       327,572       5,900,873    
Shares repurchased     (5,059,039 )     (79,824,878 )     (5,457,694 )     (96,575,840 )  
Net increase (decrease)     (4,914,315 )   $ (77,502,692 )     (4,827,178 )   $ (85,518,384 )  

 


27



GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
     
Class M:   Shares   Amount   Shares   Amount  
Shares sold     93,626     $ 1,517,348       290,213     $ 5,119,051    
Shares issued to shareholders
in reinvestment of distributions
    14,906       238,835       115,575       2,077,162    
Shares repurchased     (4,349,680 )     (69,899,852 )     (1,039,952 )     (17,903,820 )  
Net increase (decrease)     (4,241,148 )   $ (68,143,669 )     (634,164 )   $ (10,707,607 )  

 


28




GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those services to have similar objectives. In


29



GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


30



GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


31



GMO U.S. Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 1,010.70     $ 2.33    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    
Class M      
1) Actual     0.76 %   $ 1,000.00     $ 1,009.20     $ 3.85    
2) Hypothetical     0.76 %   $ 1,000.00     $ 1,021.37     $ 3.87    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


32




GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     92.0 %  
Short-Term Investments     9.5    
Options Purchased     1.1    
Futures     1.0    
Loan Participations     0.2    
Loan Assignments     0.1    
Swaps     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.3 )  
Written Options     (0.5 )  
Forward Currency Contracts     (0.8 )  
Other     (2.3 )  
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region***     70.3 %  
United States     18.0    
Switzerland     6.9    
Canada     3.5    
Emerging     2.6    
United Kingdom     2.2    
Sweden     1.0    
Japan     (1.3 )  
Australia     (3.2 )  
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Principal Amount /
Shares /
Par Value ($)
  Description   Value ($)  
      OPTIONS PURCHASED — 0.2%        
      Currency Options — 0.2%        
JPY 840,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     169,445    
JPY 832,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     167,822    
    Total Currency Options     337,267    
    TOTAL OPTIONS PURCHASED (COST $510,111)     337,267    
      MUTUAL FUNDS — 97.5%        
      United States — 97.5%        
        Affiliated Issuers        
  477,940     GMO Emerging Country Debt Fund, Class III     4,559,546    
  4,649,939     GMO Short-Duration Collateral Fund     109,366,575    
  5,496     GMO Special Purpose Holding Fund (a) (b)      4,012    
  1,107,222     GMO World Opportunity Overlay Fund     29,274,955    
    Total United States     143,205,088    
    TOTAL MUTUAL FUNDS (COST $150,077,261)     143,205,088    
      SHORT-TERM INVESTMENTS — 3.5%        
      Money Market Funds — 0.8%        
  1,100,285     State Street Institutional Liquid Cash Reserves
Fund-Institutional Class
    1,100,285    
        Other Short-Term Investments — 2.7%        
  4,000,000     U.S. Treasury Bill, 1.69%, due 09/25/08 (c) (d)      3,995,386    
    TOTAL SHORT-TERM INVESTMENTS (COST $5,095,671)     5,095,671    
        TOTAL INVESTMENTS — 101.2%
(Cost $155,683,043)
    148,638,026    
        Other Assets and Liabilities (net) — (1.2%)     (1,818,437    
    TOTAL NET ASSETS — 100.0%   $ 146,819,589    

 

See accompanying notes to the financial statements.


2



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
9/09/08   AUD     7,900,000     $ 6,777,905     $ (766,595 )  
9/02/08   CAD     3,029       2,853       (11 )  
9/16/08   CAD     1,800,000       1,694,884       (27,274 )  
10/07/08   CHF     1,700,000       1,544,463       (18,770 )  
10/07/08   CHF     1,600,000       1,453,612       (854 )  
10/21/08   EUR     9,400,000       13,754,997       (690,641 )  
10/21/08   EUR     1,900,000       2,780,265       (36,181 )  
9/02/08   GBP     75,160       137,005       (6,623 )  
9/23/08   GBP     2,400,000       4,368,171       (417,429 )  
10/28/08   JPY     240,000,000       2,212,230       15,795    
10/14/08   NZD     2,800,000       1,947,491       (47,509 )  
    $ 36,673,876     $ (1,996,092 )  
Sales  
9/09/08   AUD     600,000     $ 514,778     $ 65,182    
9/09/08   AUD     7,700,000       6,606,313       48,733    
9/09/08   AUD     2,000,000       1,715,925       19,255    
9/02/08   CAD     145       136       93    
9/16/08   CAD     7,100,000       6,685,377       344,256    
9/16/08   CAD     2,400,000       2,259,846       31,514    
10/07/08   CHF     900,000       817,657       46,896    
9/23/08   GBP     1,200,000       2,184,086       122,266    
9/23/08   GBP     1,900,000       3,458,135       68,419    
10/28/08   JPY     1,414,600,000       13,039,253       (18,266 )  
10/28/08   JPY     150,000,000       1,382,644       3,511    
9/02/08   NOK     405,635       74,802       503    
    $ 38,738,952     $ 732,362    

 

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, 2008 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date
  Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)
 
9/02/08   EUR 4,200,000     NOK 33,669,635     $ 47,349    
9/30/08   EUR 9,500,000     SEK 89,406,673       (81,565 )  
11/04/08   EUR 4,200,000     NOK 33,357,240       (27,774 )  
9/02/08   NOK 33,264,000     EUR 4,200,000       27,453    
    $ (34,537 )  

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  56     Canadian Government Bond 10 Yr.   December 2008   $ 6,300,396     $ (9,659 )  
  258     Euro BOBL   September 2008     40,949,796       301,050    
  555     Euro Bund   September 2008     92,950,528       1,264,223    
  800     Federal Fund 30 day   September 2008     326,642,796       (1,204 )  
  32     U.S. Long Bond (CBT)   December 2008     3,754,000       (19,846 )  
  31     U.S. Treasury Note 5 Yr. (CBT)   December 2008     3,470,062       (271 )  
  36     UK Gilt Long Bond   December 2008     7,345,138       16,960    
                $ 481,412,716     $ 1,551,253    
Sales      
  62     Australian Government Bond 10 Yr.   September 2008   $ 5,436,278     $ (88,059 )  
  45     Australian Government Bond 3 Yr.   September 2008     3,901,525       (18,382 )  
  2
  Japanese Government Bond
10 Yr. (TSE)
  September 2008     2,542,981       (8,027)    
  8     U.S. Treasury Note 10 Yr.   December 2008     924,000       2,039    
  54     U.S. Treasury Note 2 Yr. (CBT)   December 2008     11,463,188       (2,694 )  
                $ 24,267,972     $ (115,123 )  

 

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, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

Principal
Amount
  Expiration
Date
  Description   Premiums   Market
Value
 
JPY     840,000,000     01/21/2009   JPY Call/USD Put Currency Option,
Strike 95.00
  $ (80,895 )   $ (32,626 )  
JPY     832,000,000     01/21/2009   JPY Call/USD Put Currency Option,
Strike 95.00
    (75,565 )     (32,306 )  
        $ (156,460 )   $ (64,932 )  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  4,000,000     SEK   9/17/2013   Deutsche Bank AG   Receive     4.40 %   3 month    
   
                                SEK STIBOR   $ (16,290 )  
  13,200,000     SEK   9/17/2013   JP Morgan Chase Bank   Receive     4.40 %   3 month
SEK STIBOR
    (53,756 )  
  9,500,000     CHF   9/17/2013   Deutsche Bank AG   Receive     2.90 %   6 month
CHF LIBOR
    (86,743 )  
  9,400,000     CHF   9/17/2013   JP Morgan Chase Bank   Receive     2.90 %   6 month
CHF LIBOR
    (85,830 )  
  4,200,000     AUD   3/19/2018   JP Morgan Chase Bank   Receive     7.07 %   6 month
AUD BBSW
    113,829    
    Premiums to (Pay) Receive   $ 245,413     $ (128,790 )  

 

As of August 31, 2008, for the futures and/or swap 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.


5



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

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)  Underlying investment represents interests in defaulted securities.

(c)  Rate shown represents yield-to-maturity.

(d)  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
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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $5,605,782) (Note 2)   $ 5,432,938    
Investments in affiliated issuers, at value (cost $150,077,261) (Notes 2 and 8)     143,205,088    
Foreign currency, at value (cost $67,634) (Note 2)     65,327    
Dividends and interest receivable     2,969    
Unrealized appreciation on open forward currency contracts (Note 2)     841,225    
Receivable for open swap contracts (Note 2)     113,829    
Receivable for expenses reimbursed by Manager (Note 3)     15,158    
Total assets     149,676,534    
Liabilities:  
Written options outstanding, at value (premiums $156,460) (Note 2)     64,932    
Payable to affiliate for (Note 3):  
Management fee     31,428    
Shareholder service fee     18,857    
Trustees and Chief Compliance Officer of GMO Trust fees     301    
Unrealized depreciation on open forward currency contracts (Note 2)     2,139,492    
Interest payable for open swap contracts     17,005    
Payable for open swap contracts (Note 2)     242,619    
Payable for variation margin on open futures contracts (Note 2)     279,055    
Accrued expenses     63,256    
Total liabilities     2,856,945    
Net assets   $ 146,819,589    
Net assets consist of:  
Paid-in capital   $ 162,280,000    
Distributions in excess of net investment income     (21,008,814 )  
Accumulated net realized gain     12,249,713    
Net unrealized depreciation     (6,701,310 )  
    $ 146,819,589    
Net assets attributable to:  
Class III shares   $ 146,819,589    
Shares outstanding:  
Class III     17,174,714    
Net asset value per share:  
Class III   $ 8.55    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 759,314    
Dividends     19,423    
Interest     14,275    
Total investment income     793,012    
Expenses:  
Management fee (Note 3)     188,460    
Shareholder service fee – Class III (Note 3)     113,076    
Custodian, fund accounting agent and transfer agent fees     44,252    
Audit and tax fees     33,856    
Legal fees     2,484    
Trustees fees and related expenses (Note 3)     822    
Registration fees     368    
Miscellaneous     1,012    
Total expenses     384,330    
Fees and expenses reimbursed by Manager (Note 3)     (80,868 )  
Expense reductions (Note 2)     (7 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (9,991 )  
Shareholder service fee waived (Note 3)     (3,520 )  
Net expenses     289,944    
Net investment income (loss)     503,068    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (694 )  
Investments in affiliated issuers     (1,954,788 )  
Realized gains distributions from affiliated issuers (Note 8)     111,247    
Closed futures contracts     (1,560,241 )  
Closed swap contracts     306,147    
Foreign currency, forward contracts and foreign currency related transactions     1,135,982    
Net realized gain (loss)     (1,962,347 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (172,844 )  
Investments in affiliated issuers     215,478    
Open futures contracts     (1,109,964 )  
Open swap contracts     93,710    
Written options     91,528    
Foreign currency, forward contracts and foreign currency related transactions     (1,790,444 )  
Net unrealized gain (loss)     (2,672,536 )  
Net realized and unrealized gain (loss)     (4,634,883 )  
Net increase (decrease) in net assets resulting from operations   $ (4,131,815 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 503,068     $ 7,963,490    
Net realized gain (loss)     (1,962,347 )     (14,143,454 )  
Change in net unrealized appreciation (depreciation)     (2,672,536 )     (1,305,226 )  
Net increase (decrease) in net assets from operations     (4,131,815 )     (7,485,190 )  
Distributions to shareholders from:  
Net investment income  
Class III           (315,341 )  
Return of capital  
Class III           (2,600,431 )  
            (2,915,772 )  
Net share transactions (Note 7):  
Class III     (5,000,391 )     (108,068,985 )  
Total increase (decrease) in net assets     (9,132,206 )     (118,469,947 )  
Net assets:  
Beginning of period     155,951,795       274,421,742    
End of period (including distributions in excess of net investment
income of $21,008,814 and $21,511,882, respectively)
  $ 146,819,589     $ 155,951,795    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 8.79     $ 9.21     $ 9.04     $ 9.59     $ 9.16     $ 8.85    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.03       0.33       0.17       0.18       0.14       0.06    
Net realized and unrealized gain (loss)     (0.27 )     (0.62 )     0.15       0.39       0.44       0.76    
Total from investment operations     (0.24 )     (0.29 )     0.32       0.57       0.58       0.82    
Less distributions to shareholders:  
From net investment income           (0.01 )           (1.00 )(b)      (0.15 )     (0.51 )  
From net realized gains                 (0.14 )     (0.12 )              
Return of capital           (0.12 )     (0.01 )                    
Total distributions           (0.13 )     (0.15 )     (1.12 )     (0.15 )     (0.51 )  
Net asset value, end of period   $ 8.55     $ 8.79     $ 9.21     $ 9.04     $ 9.59     $ 9.16    
Total Return(c)      (2.73 )%**      (3.08 )%     3.58 %     6.01 %     6.35 %     9.53 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 146,820     $ 155,952     $ 274,422     $ 953,894     $ 1,015,009     $ 222,872    
Net expenses to average daily
net assets(d) 
    0.38 %*(e)      0.38 %(e)      0.39 %     0.39 %     0.39 %     0.38 %  
Net investment income to average
daily net assets(a) 
    0.67 %*      3.62 %     1.93 %     1.91 %     1.51 %     0.68 %  
Portfolio turnover rate     18 %**      55 %     25 %     49 %     44 %     36 %  
Fees and expenses reimbursed and/or
waived by the Manager to average
daily net assets:
    0.13 %*      0.09 %     0.06 %     0.06 %     0.09 %     0.24 %  

 

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

(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).

(e)  The net expense ratio does not include the effect of expense reductions.

†  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, 2008 (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 seeking to exploit differences in global interest rates and currency and emerging country debt markets. The Fund may invest a substantial portion of its assets in shares of GMO 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-backed securities issued by private issuers; shares of GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO 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 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.


11



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 35.13% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $12,445 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


12



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 4,559,546     $ 1,649,599    
Level 2 - Other Significant Observable Inputs     144,074,468       955,054    
Level 3 - Significant Unobservable Inputs     4,012          
Total   $ 148,638,026     $ 2,604,653    

 

*  Other financial instruments include foreign currency, forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (148,142 )  
Level 2 - Other Significant Observable Inputs           (2,447,043 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (2,595,185 )  

 

**  Other financial instruments include forward currency contracts, futures contracts, swap agreements and written options.


13



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 6,924     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     9,506            
Realized gain distributions paid     (12,445 )          
Change in unrealized appreciation/depreciation     27          
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 4,012     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the


14



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


15



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

For the period ended August 31, 2008, 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   $     $           $    
Options written               JPY (1,672,000,000 )     (156,460 )  
Options exercised                          
Options expired                          
Options sold                          
Outstanding, end of period   $     $     JPY (1,672,000,000 )   $ (156,460 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan


16



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them are based upon the best available information and because of the uncertainty of the valuation, these values may differ


17



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 exposes the Fund, to varying degrees, to 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 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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


18



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $2,100,592.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/28/2009   $ (876,665 )  
Total   $ (876,665 )  

 


19



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 163,290,179     $ 583,284     $ (15,235,437 )   $ (14,652,153 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the


20



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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


21



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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"). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 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 a nd 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, 2008, 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
 
  0.016 %     0.005 %     0.009 %     0.030 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $730 and $368, 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, 2008, aggregated $25,318,226 and $30,300,000, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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


22



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 99.20% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 99.20% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     311     $ 2,741       5,140,961     $ 46,315,270    
Shares issued to shareholders
in reinvestment of distributions
                335,743       2,900,816    
Shares repurchased     (576,030 )     (5,003,132 )     (17,538,414 )     (157,285,071 )  
Net increase (decrease)     (575,719 )   $ (5,000,391 )     (12,061,710 )   $ (108,068,985 )  

 


23



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 4,677,363     $ 123,955     $     $ 25,154     $ 98,802     $ 4,559,546    
GMO Short-Duration
Collateral Fund
    114,475,125       23,784,160       26,500,000       734,160             109,366,575    
GMO Special Purpose
Holding Fund
    6,924                         12,445       4,012    
GMO World Opportunity
Overlay Fund
    31,276,870       900,000       3,800,000                   29,274,955    
Totals   $ 150,436,282     $ 24,808,115     $ 30,300,000     $ 759,314     $ 111,247     $ 143,205,088    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.93% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


24




GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In


25



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. 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, for example, by attracting new clien ts, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 advisory fees, shareholder fees and most other expenses 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 associ ated 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


26



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


27



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.41 %   $ 1,000.00     $ 972.70     $ 2.04    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


28




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Quality Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.6 %  
Short-Term Investments     2.8    
Other     0.6    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     30.8 %  
Consumer Staples     26.7    
Information Technology     20.1    
Energy     12.5    
Industrials     4.5    
Consumer Discretionary     3.1    
Telecommunication Services     2.3    
      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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.6%  
        Consumer Discretionary — 3.0%  
    7,470,000     Home Depot, Inc.     202,586,400    
    2,275,000     Lowe's Cos., Inc.     56,056,000    
    429,000     McDonald's Corp.     26,619,450    
    358,700     Target Corp.     19,018,274    
    Total Consumer Discretionary     304,280,124    
        Consumer Staples — 25.8%  
    744,600     Avon Products, Inc.     31,891,218    
    350,500     Campbell Soup Co.     12,901,905    
    262,900     Clorox Co.     15,537,390    
    11,025,700     Coca-Cola Co. (The)     574,108,199    
    1,291,700     Colgate-Palmolive Co.     98,207,951    
    194,300     Energizer Holdings, Inc. *      16,503,842    
    536,600     Estee Lauder Cos. (The), Inc.-Class A     26,706,582    
    367,800     General Mills, Inc.     24,341,004    
    179,500     Hershey Co. (The)     6,478,155    
    248,200     HJ Heinz Co.     12,489,424    
    426,600     Kellogg Co.     23,224,104    
    1,200,300     Kimberly-Clark Corp.     74,034,504    
    1,048,700     Kraft Foods, Inc.     33,044,537    
    7,348,900     PepsiCo, Inc.     503,252,672    
    5,374,900     Procter & Gamble Co. (The)     375,006,773    
    2,732,100     Walgreen Co.     99,530,403    
    10,594,300     Wal-Mart Stores, Inc.     625,805,301    
    490,300     WM Wrigley Jr. Co.     38,969,044    
    Total Consumer Staples     2,592,033,008    
        Energy — 12.1%  
    5,688,200     Chevron Corp.     491,005,424    
    1,649,100     ConocoPhillips     136,067,241    
    7,298,300     Exxon Mobil Corp.     583,936,983    
    Total Energy     1,211,009,648    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — 29.7%  
    2,497,105     Abbott Laboratories     143,408,740    
    1,621,160     Amgen, Inc. *      101,889,906    
    823,500     Bristol-Myers Squibb Co.     17,573,490    
    1,107,400     Coventry Health Care, Inc. *      38,781,148    
    4,155,873     Eli Lilly & Co.     193,871,476    
    436,300     Express Scripts, Inc. *      32,028,783    
    872,800     Forest Laboratories, Inc. *      31,150,232    
    8,984,100     Johnson & Johnson     632,750,163    
    2,021,430     Medtronic, Inc.     110,370,078    
    5,961,000     Merck & Co., Inc.     212,628,870    
    32,893,500     Pfizer, Inc.     628,594,785    
    597,100     Stryker Corp.     40,119,149    
    14,564,394     UnitedHealth Group, Inc.     443,485,797    
    1,436,600     WellPoint, Inc. *      75,838,114    
    3,251,920     Wyeth     140,743,098    
    1,988,700     Zimmer Holdings, Inc. *      143,961,993    
    Total Health Care     2,987,195,822    
        Industrials — 4.4%  
    1,693,500     3M Co.     121,254,600    
    845,700     Danaher Corp.     68,983,749    
    785,600     General Dynamics Corp.     72,510,880    
    367,200     L-3 Communications Holdings, Inc.     38,166,768    
    904,400     United Parcel Service, Inc.-Class B     57,990,128    
    1,285,200     United Technologies Corp.     84,296,268    
    Total Industrials     443,202,393    
        Information Technology — 19.4%  
    8,252,600     Cisco Systems, Inc. *      198,475,030    
    623,700     Citrix Systems, Inc. *      18,879,399    
    1,599,100     Dell, Inc. *      34,748,443    
    5,226,273     eBay, Inc. *      130,290,986    
    437,100     Fiserv, Inc. *      22,668,006    
    284,760     Google, Inc.-Class A *      131,926,460    

 

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, 2008 (Unaudited)

Shares/
Par Value ($)
  Description   Value ($)  
        Information Technology — continued  
    324,500     Hewlett-Packard Co.     15,225,540    
    1,198,600     International Business Machines Corp.     145,905,578    
    24,049,500     Microsoft Corp.     656,310,855    
    12,622,500     Oracle Corp. *      276,811,425    
    6,101,000     Qualcomm, Inc.     321,217,650    
    Total Information Technology     1,952,459,372    
        Telecommunication Services — 2.2%  
    3,126,595     AT&T, Inc.     100,019,774    
    3,392,700     Verizon Communications, Inc.     119,151,624    
    Total Telecommunication Services     219,171,398    
    TOTAL COMMON STOCKS (COST $10,096,497,300)     9,709,351,765    
        SHORT-TERM INVESTMENTS — 2.8%  
        Money Market Funds — 0.2%  
    25,387,112     State Street Institutional Treasury Money Market Fund-Institutional Class     25,387,112    
        Other Short-Term Investments — 2.6%  
    75,877,248     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     75,877,248    
    187,410,000     U.S. Treasury Bill, 1.70%, due 01/22/09 (a)      186,164,473    
    Total Other Short-Term Investments     262,041,721    
    TOTAL SHORT-TERM INVESTMENTS (COST $287,334,379)     287,428,833    
            TOTAL INVESTMENTS — 99.4%
(Cost $10,383,831,679)
    9,996,780,598    
            Other Assets and Liabilities (net) — 0.6%     55,720,589    
    TOTAL NET ASSETS — 100.0%   $ 10,052,501,187    

 

See accompanying notes to the financial statements.


4



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  Rate shown represents yield-to-maturity.

See accompanying notes to the financial statements.


5




GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $10,383,831,679) (Note 2)   $ 9,996,780,598    
Receivable for Fund shares sold     29,194,331    
Dividends and interest receivable     34,314,445    
Receivable for expenses reimbursed by Manager (Note 3)     120,249    
Total assets     10,060,409,623    
Liabilities:  
Payable for Fund shares repurchased     4,100,011    
Payable to affiliate for (Note 3):  
Management fee     2,802,882    
Shareholder service fee     669,292    
Trustees and Chief Compliance Officer of GMO Trust fees     17,194    
Accrued expenses     319,057    
Total liabilities     7,908,436    
Net assets   $ 10,052,501,187    

 

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, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 10,414,923,909    
Accumulated undistributed net investment income     35,867,439    
Distributions in excess of net realized gain     (11,239,080 )  
Net unrealized depreciation     (387,051,081 )  
    $ 10,052,501,187    
Net assets attributable to:  
Class III shares   $ 2,065,943,956    
Class IV shares   $ 340,943,714    
Class V shares   $ 713,781,517    
Class VI shares   $ 6,931,832,000    
Shares outstanding:  
Class III     102,388,650    
Class IV     16,886,850    
Class V     35,374,447    
Class VI     343,483,702    
Net asset value per share:  
Class III   $ 20.18    
Class IV   $ 20.19    
Class V   $ 20.18    
Class VI   $ 20.18    

 

See accompanying notes to the financial statements.


7



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 103,582,665    
Interest     3,321,103    
Total investment income     106,903,768    
Expenses:  
Management fee (Note 3)     14,992,775    
Shareholder service fee – Class III (Note 3)     1,523,037    
Shareholder service fee – Class IV (Note 3)     241,269    
Shareholder service fee – Class V (Note 3)     290,309    
Shareholder service fee – Class VI (Note 3)     1,626,123    
Custodian, fund accounting agent and transfer agent fees     463,312    
Audit and tax fees     27,508    
Legal fees     99,452    
Trustees fees and related expenses (Note 3)     48,737    
Registration fees     21,160    
Miscellaneous     53,544    
Total expenses     19,387,226    
Fees and expenses reimbursed by Manager (Note 3)     (640,872 )  
Expense reductions (Note 2)     (11,321 )  
Net expenses     18,735,033    
Net investment income (loss)     88,168,735    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     6,611,618    
Closed futures contracts     3,645,207    
Net realized gain (loss)     10,256,825    
Change in net unrealized appreciation (depreciation) on:  
Investments     (94,641,319 )  
Open futures contracts     1,766,065    
Net unrealized gain (loss)     (92,875,254 )  
Net realized and unrealized gain (loss)     (82,618,429 )  
Net increase (decrease) in net assets resulting from operations   $ 5,550,306    

 

See accompanying notes to the financial statements.


8



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 88,168,735     $ 121,864,661    
Net realized gain (loss)     10,256,825       186,050,940    
Change in net unrealized appreciation (depreciation)     (92,875,254 )     (588,383,993 )  
Net increase (decrease) in net assets from operations     5,550,306       (280,468,392 )  
Distributions to shareholders from:  
Net investment income  
Class III     (16,818,662 )     (31,023,169 )  
Class IV     (3,931,673 )     (11,111,773 )  
Class V     (5,841,017 )     (7,018,463 )  
Class VI     (51,290,655 )     (60,979,925 )  
Total distributions from net investment income     (77,882,007 )     (110,133,330 )  
Net realized gains  
Class III     (11,560,804 )     (50,769,370 )  
Class IV     (2,647,196 )     (13,927,910 )  
Class V     (3,886,453 )     (12,819,629 )  
Class VI     (33,978,058 )     (101,916,040 )  
Total distributions from net realized gains     (52,072,511 )     (179,432,949 )  
      (129,954,518 )     (289,566,279 )  
Net share transactions (Note 7):  
Class III     95,175,420       572,435,769    
Class IV     (82,625,222 )     (356,639,901 )  
Class V     58,378,703       450,705,666    
Class VI     1,769,193,595       3,017,011,171    
Increase (decrease) in net assets resulting from net share
transactions
    1,840,122,496       3,683,512,705    
Total increase (decrease) in net assets     1,715,718,284       3,113,478,034    
Net assets:  
Beginning of period     8,336,782,903       5,223,304,869    
End of period (including accumulated undistributed net investment
income of $35,867,439 and $25,580,711, respectively)
  $ 10,052,501,187     $ 8,336,782,903    

 

See accompanying notes to the financial statements.


9




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value, beginning
of period
  $ 20.56     $ 21.78     $ 20.81     $ 20.03     $ 19.93     $ 20.00    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.19       0.39       0.35       0.32       0.39       0.01    
Net realized and unrealized
gain (loss)
    (0.28 )     (0.70 )     1.12       0.72       (0.05 )     (0.08 )  
Total from investment
operations
    (0.09 )     (0.31 )     1.47       1.04       0.34       (0.07 )  
Less distributions to shareholders:  
From net investment income     (0.17 )     (0.36 )     (0.34 )     (0.22 )     (0.24 )        
From net realized gains     (0.12 )     (0.55 )     (0.16 )     (0.04 )              
Total distributions     (0.29 )     (0.91 )     (0.50 )     (0.26 )     (0.24 )        
Net asset value, end of period   $ 20.18     $ 20.56     $ 21.78     $ 20.81     $ 20.03     $ 19.93    
Total Return(b)      (0.40 )%**      (1.76 )%     7.18 %     5.28 %     1.72 %     (0.35 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,065,944     $ 2,003,758     $ 1,575,300     $ 1,108,088     $ 463,848     $ 18,966    
Net expenses to average daily
net assets
    0.48 %(c)*      0.48 %(c)      0.48 %     0.48 %     0.48 %     0.47 %*   
Net investment income to average
daily net assets
    1.84 %*      1.74 %     1.64 %     1.58 %     1.98 %     1.22 %*   
Portfolio turnover rate     14 %**      46 %     50 %     52 %     66 %     2 %**   
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.02 %     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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value, beginning
of period
  $ 20.57     $ 21.80     $ 20.82     $ 20.03     $ 19.93     $ 20.00    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.19       0.40       0.37       0.32       0.38       0.01    
Net realized and unrealized
gain (loss)
    (0.27 )     (0.71 )     1.11       0.74       (0.03 )     (0.08 )  
Total from investment
operations
    (0.08 )     (0.31 )     1.48       1.06       0.35       (0.07 )  
Less distributions to shareholders:  
From net investment income     (0.18 )     (0.37 )     (0.34 )     (0.23 )     (0.25 )        
From net realized gains     (0.12 )     (0.55 )     (0.16 )     (0.04 )              
Total distributions     (0.30 )     (0.92 )     (0.50 )     (0.27 )     (0.25 )        
Net asset value, end of period   $ 20.19     $ 20.57     $ 21.80     $ 20.82     $ 20.03     $ 19.93    
Total Return(b)      (0.37 )%**      (1.77 )%     7.19 %     5.37 %     1.75 %     (0.35 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 340,944     $ 432,046     $ 800,458     $ 2,005,417     $ 938,586     $ 137,835    
Net expenses to average daily
net assets
    0.43 %(c)*      0.44 %(c)      0.44 %     0.44 %     0.44 %     0.44 %*   
Net investment income to average
daily net assets
    1.86 %*      1.78 %     1.79 %     1.62 %     1.92 %     0.99 %*   
Portfolio turnover rate     14 %**      46 %     50 %     52 %     66 %     2 %**   
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.02 %     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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  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 V share outstanding throughout each period)

    Six Months
Ended
August 31, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 20.56     $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)      0.20       0.41       0.07    
Net realized and unrealized gain (loss)     (0.28 )     (0.72 )     0.04    
Total from investment operations     (0.08 )     (0.31 )     0.11    
Less distributions to shareholders:  
From net investment income     (0.18 )     (0.37 )     (0.09 )  
From net realized gains     (0.12 )     (0.55 )     (0.14 )  
Total distributions     (0.30 )     (0.92 )     (0.23 )  
Net asset value, end of period   $ 20.18     $ 20.56     $ 21.79    
Total Return(b)      (0.36 )%**      (1.75 )%     0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 713,782     $ 663,616     $ 259,430    
Net expenses to average daily net assets     0.42 %(c)*      0.42 %(c)      0.42 %*   
Net investment income to average daily net assets     1.93 %*      1.83 %     1.40 %*   
Portfolio turnover rate     14 %**      46 %     50 %***   
Fees and expenses reimbursed by the Manager to average
daily net assets:
    0.01 %*      0.02 %     0.02 %*  

 

(a)  Period from December 8, 2006 (commencement of operations) through February 28, 2007.

(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 net expense ratio does not include the effect of expense reductions.

†  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.


12



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 20.57     $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)      0.20       0.41       0.07    
Net realized and unrealized gain (loss)     (0.29 )     (0.70 )     0.04    
Total from investment operations     (0.09 )     (0.29 )     0.11    
Less distributions to shareholders:  
From net investment income     (0.18 )     (0.38 )     (0.09 )  
From net realized gains     (0.12 )     (0.55 )     (0.14 )  
Total distributions     (0.30 )     (0.93 )     (0.23 )  
Net asset value, end of period   $ 20.18     $ 20.57     $ 21.79    
Total Return(b)      (0.39 )%**      (1.67 )%     0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 6,931,832     $ 5,237,363     $ 2,588,116    
Net expenses to average daily net assets     0.39 %(c)*      0.39 %(c)      0.39 %*   
Net investment income to average daily net assets     1.98 %*      1.84 %     1.43 %*   
Portfolio turnover rate     14 %**      46 %     50 %***   
Fees and expenses reimbursed by the Manager to average
daily net assets:
    0.01 %*      0.02 %     0.02 %*   

 

(a)  Period from December 8, 2006 (commencement of operations) through February 28, 2007.

(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 net expense ratio does not include the effect of expense reductions.

†  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)

Notes to Financial Statements
August 31, 2008 (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, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.


14



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 9,971,393,486     $    
Level 2 - Other Significant Observable Inputs     25,387,112          
Level 3 - Significant Unobservable Inputs              
Total   $ 9,996,780,598     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures


15



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

clearing broker 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. The Fund had 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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


16



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

differences could be material. Entering into these agreements exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, if any, at least annually. All distributions are paid


17



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 10,422,239,509     $ 373,110,763     $ (798,569,674 )   $ (425,458,911 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.


18



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclo sures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Expenses include 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


19



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $42,297 and $24,104, 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.

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, 2008 aggregated $3,065,740,468 and $1,176,506,023, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 30.71% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of this shareholder may have a material effect on the Fund.

As of August 31, 2008, 0.31% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 65.33% of the Fund's shares were held by accounts for which the Manager has investment discretion.


20



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     15,007,671     $ 302,701,237       50,996,071     $ 1,139,966,142    
Shares issued to shareholders
in reinvestment of distributions
    1,161,272       22,875,584       3,122,803       70,870,252    
Shares repurchased     (11,229,700 )     (230,401,401 )     (28,982,283 )     (638,400,625 )  
Net increase (decrease)     4,939,243     $ 95,175,420       25,136,591     $ 572,435,769    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     4,299,288     $ 88,393,057       28,155,555     $ 619,378,521    
Shares issued to shareholders
in reinvestment of distributions
    184,919       3,638,175       821,509       18,645,946    
Shares repurchased     (8,595,967 )     (174,656,454 )     (44,697,168 )     (994,664,368 )  
Net increase (decrease)     (4,111,760 )   $ (82,625,222 )     (15,720,104 )   $ (356,639,901 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class V:   Shares   Amount   Shares   Amount  
Shares sold     5,684,661     $ 111,584,274       32,154,927     $ 708,017,030    
Shares issued to shareholders
in reinvestment of distributions
    463,498       9,142,204       832,035       18,891,284    
Shares repurchased     (3,044,533 )     (62,347,775 )     (12,624,095 )     (276,202,648 )  
Net increase (decrease)     3,103,626     $ 58,378,703       20,362,867     $ 450,705,666    

 


21



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     92,759,575     $ 1,848,379,939       143,722,533     $ 3,181,476,095    
Shares issued to shareholders
in reinvestment of distributions
    4,168,024       82,227,922       6,951,875       157,780,829    
Shares repurchased     (8,104,597 )     (161,414,266 )     (14,796,108 )     (322,245,753 )  
Net increase (decrease)     88,823,002     $ 1,769,193,595       135,878,300     $ 3,017,011,171    

 


22




GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 comp etence 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. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


24



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


25



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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.


26



GMO U.S. Quality Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2008 (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     $ 996.00     $ 2.41    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    
Class IV      
1) Actual     0.43 %   $ 1,000.00     $ 996.30     $ 2.16    
2) Hypothetical     0.43 %   $ 1,000.00     $ 1,023.04     $ 2.19    
Class V      
1) Actual     0.42 %   $ 1,000.00     $ 996.40     $ 2.11    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class VI      
1) Actual     0.39 %   $ 1,000.00     $ 996.10     $ 1.96    
2) Hypothetical     0.39 %   $ 1,000.00     $ 1,023.24     $ 1.99    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


27




GMO Foreign Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Foreign Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.2 %  
Short-Term Investments     2.3    
Preferred Stocks     0.5    
Other     1.0    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     25.5 %  
Japan     20.7    
Germany     10.7    
France     9.7    
Switzerland     5.4    
Italy     4.9    
Finland     4.2    
Netherlands     3.5    
Hong Kong     3.4    
Spain     2.8    
Australia     1.7    
Norway     1.6    
Belgium     1.3    
Singapore     1.1    
Brazil     0.8    
South Korea     0.5    
Taiwan     0.5    
Greece     0.4    
Ireland     0.4    
Austria     0.3    
India     0.1    
Malaysia     0.1    
Mexico     0.1    
Philippines     0.1    
Sweden     0.1    
Thailand     0.1    
Canada     0.0    
New Zealand     0.0    
      100.0 %  

 


1



GMO Foreign Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Financials     21.2 %  
Industrials     12.6    
Consumer Discretionary     10.8    
Energy     10.7    
Consumer Staples     8.8    
Utilities     8.1    
Telecommunication Services     7.9    
Health Care     7.5    
Information Technology     6.5    
Materials     5.9    
      100.0 %  

 


2




GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.2%  
        Australia — 1.6%  
    336,500     Aristocrat Leisure Ltd     1,690,228    
    643,600     Australia and New Zealand Banking Group Ltd     9,062,950    
    298,000     Billabong International Ltd     3,261,198    
    459,494     Brambles Ltd     3,014,930    
    1,036,986     Coca Cola Amatil Ltd     7,574,074    
    98,546     Commonwealth Bank of Australia     3,546,586    
    427,430     Crown Ltd     3,341,075    
    168,000     CSL Ltd     5,863,253    
    2,152,100     Fairfax Media Ltd (a)      5,174,977    
    1,726,600     Foster's Group Ltd     8,240,762    
    949,000     Goodman Group     2,557,502    
    2,506,996     Insurance Australia Group Ltd     8,474,545    
    1,234,100     Metcash Ltd     4,153,049    
    131,000     National Australia Bank Ltd     2,718,269    
    750,002     Publishing & Broadcasting Ltd     2,083,491    
    213,900     QBE Insurance Group Ltd     4,350,309    
    622,986     SP AusNet     612,099    
    855,351     TABCORP Holdings Ltd     6,248,379    
    4,190,629     Telstra Corp Ltd     15,555,926    
    237,487     Westfarmers Ltd     6,226,373    
    153,527     Westpac Banking Corp     3,068,190    
    149,800     Woolworths Ltd     3,616,550    
    Total Australia     110,434,715    
        Austria — 0.3%  
    28,010     Flughafen Wien AG     2,271,902    
    128,290     OMV AG     8,219,093    
    368,100     Telekom Austria AG     7,912,173    
    122,240     Wienerberger AG (a)      3,207,769    
    Total Austria     21,610,937    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Belgium — 1.2%  
    260,170     Belgacom SA     10,359,738    
    415,712     CIE Francois d' Enterprises     43,627,681    
    427,431     Fortis     5,918,343    
    734,028     Fortis VVPR Strip *      10,769    
    67,475     Groupe Bruxelles Lambert SA     7,016,137    
    59,785     KBC Groep NV     5,680,075    
    54,437     Solvay SA     6,665,002    
    125,369     UCB SA     4,902,530    
    Total Belgium     84,180,275    
        Brazil — 0.6%  
    605,800     Banco ABC Brasil SA     2,824,589    
    1,029,300     Banco Panamericano SA     4,464,510    
    1,140,000     Brasil Brokers Participacoes SA *      6,993,865    
    82,400     Cia Providencia Industria e Comercio SA     250,233    
    857,900     Datasul SA     4,447,396    
    1,012,000     Hypermarcas SA *      9,840,613    
    29,000     MPX Mineracao e Energia SA *      8,166,258    
    316,100     Sul America SA     5,003,300    
    455,100     Trisul SA     1,368,092    
    Total Brazil     43,358,856    
        Canada — 0.0%  
    220,100     KAP Resources Ltd * (b) (c)      2,073    
        Finland — 4.1%  
    365,700     Fortum Oyj     15,010,471    
    470,200     KCI Konecranes Oyj     15,519,345    
    5,132,700     Nokia Oyj     128,509,508    
    1,352,398     Nokian Renkaat Oyj     48,162,461    
    241,700     Outokumpu Oyj     5,787,694    
    732,400     Poyry Oyj     17,772,873    
      213,000     Sampo Oyj Class A     5,358,529    
      1,427,600     UPM-Kymmene Oyj *      24,391,342    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Finland — continued  
      531,800     Uponor Oyj (a)      7,312,211    
      499,259     YIT Oyj     7,765,966    
    Total Finland     275,590,400    
        France — 9.4%  
    95,860     Accor SA     6,339,327    
    256,771     Arcelor Mittal     20,144,190    
    781,740     AXA     24,943,336    
    123,105     BIC SA     7,427,224    
    491,008     BNP Paribas     44,045,931    
    127,141     Cap Gemini SA     7,506,455    
    65,310     Casino Guichard-Perrachon SA     6,399,975    
    132,096     Cie de Saint-Gobain     8,070,522    
    174,786     Essilor International SA     9,298,218    
    1,804,192     France Telecom SA     53,196,452    
    1,414,523     GDF Suez     81,430,320    
    131,586     GDF Suez VVPR Strip *      1,930    
    251,752     Groupe Danone     17,548,773    
    11,475     Guyenne et Gascogne SA     1,368,832    
    110,492     Imerys SA     7,076,406    
    139,000     L'Oreal SA     13,797,081    
    97,278     Lafarge SA     11,735,439    
    61,066     Lagardere SCA     3,408,807    
    170,604     Michelin SA Class B     11,058,550    
    30,331     Neopost SA     3,162,177    
    84,438     Pernod-Ricard     7,893,251    
    97,744     Peugeot SA     4,643,973    
    54,000     Renault SA     4,509,179    
    646,633     Sanofi-Aventis     45,875,709    
    222,873     Schneider Electric SA     22,402,947    
    201,537     Societe Generale     19,440,762    
    402,881     Suez Environnement SA *      11,572,692    
    71,140     Technip SA     5,838,450    
    124,414     Thales SA     7,011,894    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    1,415,100     Total SA     101,655,346    
    61,400     Union du Credit-Bail Immobilier     12,748,498    
    939,800     Vivendi Universal SA     36,307,295    
    101,396     Wendel Investissement     11,179,591    
    Total France     629,039,532    
        Germany — 10.1%  
    347,364     Adidas AG     20,289,840    
    287,176     Allianz SE (Registered)     47,873,886    
    82,200     Axel Springer AG     8,491,463    
    226,900     BASF AG     13,094,117    
    643,799     Bayer AG     50,815,011    
    315,500     Bayerische Motoren Werke AG     13,022,451    
    435,101     Commerzbank AG     12,783,022    
    59,520     Continental AG (a)      6,451,725    
    402,081     Daimler AG (Registered)     23,478,594    
    209,600     Deutsche Bank AG (Registered)     17,797,581    
    87,600     Deutsche Boerse AG     8,210,848    
    941,200     Deutsche Post AG (Registered)     22,015,413    
    3,421,938     Deutsche Telekom (Registered)     56,359,765    
    1,074,130     E.ON AG     62,618,764    
    114,300     Fraport AG     7,356,255    
    495,700     Fresenius Medical Care AG & Co     26,544,791    
    300,518     Heidelberger Druckmaschinen (a)      6,125,869    
    1,162,900     Infineon Technologies AG *      9,929,962    
    152,100     Merck KGaA     17,394,992    
    270,900     Metro AG     15,060,536    
    259,574     Muenchener Rueckversicherungs AG (Registered)     40,251,295    
    30,380     Puma AG Rudolf Dassler Sport     9,555,362    
    331,500     RWE AG     35,701,708    
    1,229,300     SAP AG     68,868,138    
    697,137     Siemens AG (Registered)     75,764,299    
    Total Germany     675,855,687    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Greece — 0.4%  
    504,532     EFG Eurobank Ergasias     10,149,483    
    227,542     OPAP SA     7,968,576    
    240,000     Piraeus Bank SA     6,468,705    
    Total Greece     24,586,764    
        Hong Kong — 3.3%  
    3,238,500     Cheung Kong Holdings Ltd     46,031,879    
    3,801,000     CLP Holdings Ltd     30,835,458    
    8,596,000     Foxconn International Holdings Ltd *      6,379,319    
    1,988,000     Great Eagle Holdings Ltd     5,507,361    
    2,064,700     Hang Seng Bank Ltd     40,722,653    
    6,964,867     Link REIT     16,373,408    
    2,272,000     MTR Corp Ltd     7,314,672    
    16,768,606     New World Development Co Ltd     25,450,699    
    11,069,000     Shun Tak Holdings Ltd     6,442,332    
    5,367,092     Sino Land     9,394,783    
    1,844,000     Sun Hung Kai Properties Ltd     25,143,786    
    Total Hong Kong     219,596,350    
        India — 0.1%  
    900,000     Satyam Computer Services Ltd     8,512,390    
        Ireland — 0.4%  
    996,840     Allied Irish Banks Plc     12,562,722    
    812,149     Bank of Ireland     6,510,274    
    230,518     CRH Plc     6,013,272    
    8,800     DCC Plc     212,867    
    19,600     FBD Holdings Plc     408,646    
    173,000     Grafton Group Plc *      969,464    
    35,800     Irish Life & Permanent Plc     333,336    
    Total Ireland     27,010,581    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Italy — 4.7%  
    823,700     Alleanza Assicurazioni SPA     7,817,803    
    784,544     Assicurazioni Generali SPA     26,139,918    
    1,235,623     Banca Intesa SPA - Di RISP     5,979,803    
    2,364,948     Banca Monte dei Paschi di Siena SPA (a)      6,212,134    
    403,600     Banca Popolare di Milano Scarl     4,019,599    
    342,454     Buzzi Unicem SPA     6,780,000    
    4,681,135     Enel SPA     42,981,366    
    2,413,621     ENI SPA     78,291,483    
    1,082,010     Fiat SPA     16,727,629    
    590,720     Finmeccanica SPA     15,799,532    
    265,146     Grouppo Editoriale L'Espresso (a)      662,048    
    3,160,728     Intesa San Paolo     16,966,122    
    655,270     Italcementi SPA-Di RISP     7,508,342    
    347,400     Mediobanca SPA     4,948,681    
    2,551,000     Pirelli & Co SPA     1,722,647    
    1,329,200     Snam Rete Gas SPA     8,303,502    
    15,357,198     Telecom Italia SPA     24,699,395    
    15,758,576     Telecom Italia SPA-Di RISP     19,974,487    
    3,632,082     UniCredito Italiano SPA     19,543,141    
    Total Italy     315,077,632    
        Japan — 20.0%  
    716,900     Asahi Breweries     13,278,989    
    1,129,000     Asahi Glass Co Ltd     11,985,498    
    821,700     Astellas Pharma Inc     37,010,851    
    1,191,600     Bridgestone Corp     20,046,516    
    1,352,600     Canon Inc     60,655,665    
    1,868,000     Chiba Bank Ltd     10,236,427    
    849,700     Daiichi Sankyo Co Ltd     25,563,177    
    2,332,000     Daiwa Securities Group Inc     18,004,056    
    1,196,300     Denso Corp     31,012,280    
    135,500     Disco Corp (a)      5,039,190    
    5,807     East Japan Railway Co     46,189,268    
    4,927     Fuji Television Network Inc     7,071,893    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    158,400     Hokkaido Electric Power     3,539,503    
    1,843,400     Honda Motor Co Ltd     59,869,328    
    3,822,000     Itochu Corp     30,747,111    
    6,400     Japan Tobacco Inc     30,373,830    
    618,400     JFE Holdings Inc     26,133,582    
    775,800     JSR Corp     13,365,261    
    4,937     Jupiter Telecommunications Co Ltd     3,747,444    
    1,721,000     Kansai Electric Power Co Inc     42,231,197    
    825,000     Kao Corp     23,358,230    
    4,667     KDDI Corp     27,176,897    
    523,000     Komatsu Ltd     10,946,128    
    469,300     Kyushu Electric Power Co Inc     10,333,838    
    329,200     Lawson Inc     15,088,642    
    1,687,000     Marubeni Corp     10,438,102    
    3,398,000     Matsushita Electric Industrial Co Ltd     69,841,975    
    1,282,000     Minebea Co Ltd     5,621,738    
    214,400     Miraca Holdings Inc     4,781,865    
    1,447,900     Mitsubishi Corp     39,772,477    
    7,664,000     Mitsubishi Electric Corp     64,997,601    
    1,389,000     Mitsui OSK Lines Ltd     16,462,533    
    3,947,000     Mitsui Trust Holding Inc     21,760,543    
    116,800     Nihon Kohden Corp     2,546,678    
    77,800     Nintendo Co Ltd     36,523,979    
    1,575     Nippon Commercial Investment Corp (REIT)     3,216,721    
    1,692,000     Nippon Express Co Ltd     7,911,347    
    2,474,000     Nippon Oil Corp     15,430,110    
    2,251     Nippon Paper Group Inc     6,428,562    
    3,294,000     Nippon Steel Corp     15,625,504    
    754,600     Nomura Holdings Inc     10,007,178    
    951     Nomura Real Estate Office Fund (REIT)     6,826,712    
    397,900     Nomura Research Institute     9,028,974    
    30,487     NTT Docomo Inc     48,048,060    
    45,320     ORIX Corp     5,520,981    
    729     ORIX JREIT Inc (REIT)     3,948,696    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,328,000     Sekisui Chemical Co Ltd     8,224,977    
    735,800     Seven & I Holdings Co Ltd     21,432,057    
    4,833     Seven Bank Ltd     12,278,778    
    405,000     Shionogi and Co Ltd     9,130,281    
    901,000     Shiseido Co Ltd     21,095,802    
    3,279     Sony Financial Holdings Inc     12,171,984    
    3,006,000     Sumitomo Chemical Co Ltd     18,445,159    
    2,536,400     Sumitomo Electric Industries Ltd     29,106,619    
    5,356     Sumitomo Mitsui Financial Group Inc     32,426,414    
    310,500     Takeda Pharmaceutical Co Ltd     16,220,609    
    484,700     Tohoku Electric Power Co Inc     11,548,851    
    2,182,000     Tokyo Gas Co Ltd     9,103,895    
    1,142,000     Tokyo Tatemono Co Ltd     5,483,195    
    3,475,000     Toshiba Corp     19,382,983    
    2,146,300     Toyota Motor Corp     95,764,453    
    159,000     Uni-Charm Corp     11,828,771    
    4,335     West Japan Railway Co     20,948,031    
    Total Japan     1,342,337,996    
        Malaysia — 0.1%  
    3,046,600     IJM Corp Berhad *      4,509,794    
        Mexico — 0.1%  
    453,600     Megacable Holdings SAB de CV *      895,488    
    1,526,200     Urbi Desarrollos Urbanos SAB de CV * (a)      4,277,560    
    Total Mexico     5,173,048    
        Netherlands — 3.4%  
    1,687,585     Aegon NV     19,879,703    
    126,274     Hal Trust (Participating Units)     14,099,287    
    199,800     Heineken NV     9,367,215    
    1,658,922     ING Groep NV     51,682,510    
    1,902,700     Koninklijke KPN NV     32,283,428    
    1,159,932     Philips Electronics NV     37,686,387    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Netherlands — continued  
    655,418     Reed Elsevier NV     10,958,665    
    228,887     TNT NV     8,537,830    
    348,449     TomTom NV * (a)      8,606,533    
    1,264,945     Unilever NV     34,903,454    
    Total Netherlands     228,005,012    
        New Zealand — 0.0%  
    355,877     Air New Zealand     285,464    
    1,088,383     Telecom Corp of New Zealand (a)      2,491,131    
    Total New Zealand     2,776,595    
        Norway — 1.6%  
    378,000     DnB NOR ASA     4,382,367    
    6,800,800     DNO International ASA * (a)      10,922,666    
    5,289,020     Prosafe ASA * (a)      47,622,979    
    5,890,920     Prosafe Production Public Ltd * (a)      27,158,361    
    231,400     Yara International ASA     14,327,696    
    Total Norway     104,414,069    
        Philippines — 0.1%  
    36,000,000     Alliance Global Group Inc *      3,623,365    
    4,795,800     First Gen Corp     2,590,776    
    50,780,000     Vista Land & Lifescapes Inc     2,419,612    
    Total Philippines     8,633,753    
        Singapore — 1.0%  
    2,612,380     DBS Group Holdings Ltd     33,032,260    
    1,472,800     Keppel Corp Ltd     10,227,960    
    8,599,000     People's Food Holdings Ltd     5,540,910    
    1,161,300     Singapore Airlines Ltd     12,419,243    
    4,594,000     Singapore Technologies Engineering Ltd     9,074,856    
    Total Singapore     70,295,229    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Korea — 0.5%  
    73,800     Kookmin Bank     4,037,467    
    136,500     KT Corp ADR     2,779,140    
    81,500     Samsung Card Co Ltd     2,970,300    
    52,700     Samsung Electronics Co Ltd     24,720,082    
    Total South Korea     34,506,989    
        Spain — 2.7%  
    80,740     ACS Actividades de Construccion y Servicios SA     3,575,141    
    1,316,492     Banco Bilbao Vizcaya Argentaria SA     22,214,305    
    2,089,532     Banco Santander Central Hispano SA     35,520,878    
    134,600     Gas Natural SDG SA     6,235,765    
    18,470     Grupo Ferrovial SA     922,866    
    2,005,272     Iberdrola SA     24,162,167    
    50,900     Inditex SA     2,367,196    
    635,000     Mapfre SA     3,036,754    
    89,750     Red Electrica de Espana     5,295,255    
    577,629     Repsol YPF SA     17,866,382    
    2,723     Tecnicas Reunidas SA     179,679    
    2,066,361     Telefonica SA     51,056,673    
    378,204     Union Fenosa SA     9,583,712    
    Total Spain     182,016,773    
        Sweden — 0.1%  
    210,040     Autoliv Inc SDR     8,002,714    
        Switzerland — 5.2%  
    60,670     Baloise Holding Ltd     5,190,507    
    162,000     Bank Sarasin & Cie AG Class B (Registered)     6,981,381    
    2,822     Banque Cantonale Vaudoise     854,158    
    2,666     Belimo Holding AG (Registered)     2,505,575    
    20,560     Bobst Group AG (Registered)     1,448,056    
    192,250     Credit Suisse Group     8,917,072    
    93,350     Energiedienst Holding AG (Registered) *      5,757,486    
    6,697     Forbo Holdings AG (Registered) * (a)      2,822,225    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued  
    46,520     Geberit AG (Registered)     6,771,071    
    224,405     Holcim Ltd     16,134,926    
    880     Jelmoli Holding AG (Bearer)     2,152,501    
    4,836     Jelmoli Holding AG (Registered)     2,375,551    
    2,313,300     Nestle SA (Registered)     101,923,013    
    1,327,184     Novartis AG (Registered)     73,935,533    
    585     SGS SA (Registered)     749,573    
    72,748     Swatch Group AG     17,097,990    
    73,600     Swiss Life Holding *      13,389,652    
    504     Swiss National Insurance Co (Registered)     324,641    
    245,601     Swiss Reinsurance Co (Registered)     15,106,530    
    64,300     Swisscom AG (Registered)     20,603,918    
    18,941     Valora Holding AG     4,489,894    
    162,404     Zurich Financial Services AG     42,398,218    
    Total Switzerland     351,929,471    
        Taiwan — 0.5%  
    5,630,022     Asustek Computer Inc     12,943,303    
    4,550,320     Chinatrust Financial Holding Co Ltd     2,927,755    
    5,510,856     E.Sun Financial Holdings Co Ltd     2,122,670    
    812,000     Hon Hai Precision Industry Co Ltd     4,073,427    
    1,497,104     Novatek Microelectronics Corp Ltd     3,215,081    
    678,000     Taiwan Semiconductor Manufacturing Co Ltd     1,248,762    
    473,028     Taiwan Semiconductor Manufacturing Co Ltd Sponsored ADR     4,593,102    
    Total Taiwan     31,124,100    
        Thailand — 0.1%  
    42,385,700     Charoen Pokphand Foods Pcl (Foreign Registered)     4,809,490    
        United Kingdom — 24.6%  
    582,514     Anglo American Plc     30,963,977    
    450,945     Associated British Foods Plc     6,615,661    
    992,200     AstraZeneca Plc     48,371,676    
    3,648,075     Aviva Plc     34,053,440    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    6,075,910     BAE Systems Plc     53,028,255    
    4,496,536     Barclays Plc     28,773,031    
    800,036     BBA Aviation Plc     1,933,912    
    2,738,946     BG Group Plc     60,753,520    
    1,364,718     BHP Billiton Plc     42,505,431    
    14,983,440     BP Plc     144,013,685    
    182,300     British American Tobacco Plc     6,158,851    
    540,000     British Energy Group Plc     7,211,268    
    798,876     British Sky Broadcasting Plc     6,768,708    
    5,392,101     BT Group Plc     16,923,557    
    442,365     Bunzl Plc     5,750,108    
    510,720     Cadbury Plc     5,861,082    
    195,400     Capita Group Plc     2,514,060    
    530,249     Cattle's Plc     1,150,308    
    2,861,457     Centrica Plc     17,033,914    
    3,104,700     Cobham Plc     12,978,142    
    2,052,700     Compass Group Plc     13,660,433    
    1,525,810     Diageo Plc     28,180,084    
    247,734     Experian Group     1,866,027    
    831,981     Filtrona Plc     2,732,264    
    694,000     Fresnillo Plc     5,120,322    
    366,300     GKN Plc     1,633,819    
    4,255,199     GlaxoSmithKline Plc     100,128,263    
    1,216,971     Group 4 Securicor Plc     5,164,554    
    1,161,908     Hays Plc     2,015,685    
    1,612,624     HBOS Plc     9,230,549    
    7,253,430     HSBC Holdings Plc     114,130,247    
    1,015,670     ICAP Plc     8,745,525    
    1,479,077     Imperial Tobacco Group Plc     48,766,351    
    52,632     InterContinental Hotels Group Plc     710,351    
    1,685,800     International Power Plc     12,101,319    
    541,000     ITV Plc     440,025    
    1,195,411     J Sainsbury Plc     7,560,885    
    320,270     Johnson Matthey Plc     9,476,835    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    403,803     Kesa Electricals Plc     1,185,886    
    920,418     Kingfisher Plc     2,223,231    
    723,158     Ladbrokes Plc     2,972,297    
    845,000     Lamprell Plc     7,396,098    
    308,600     Land Securities Group Plc     7,624,271    
    9,281,744     Legal & General Group Plc     16,934,454    
    3,822,865     Lloyds TSB Group Plc     21,097,859    
    68,138     Lonmin Plc     4,303,542    
    1,148,500     Marks & Spencer Group Plc     5,473,359    
    1,240,500     Misys Plc     3,778,767    
    66,744     Mondi Ltd     433,575    
    68,761     Mondi Plc     408,223    
    2,343,467     National Grid Plc     30,504,417    
    418,532     Next Plc     8,075,672    
    1,165,400     Northern Foods Plc     1,380,402    
    2,729,034     Old Mutual Plc     4,826,376    
    1,103,300     Pearson Plc     13,627,153    
    171,000     Persimmon Plc (a)      1,157,494    
    2,333,417     Prudential Plc     23,172,475    
    836,403     Reed Elsevier Plc     9,559,323    
    505,836     Rexam Plc     3,733,249    
    397,928     Rio Tinto Plc     37,774,804    
    696,700     Rolls-Royce Group Plc *      5,028,357    
    1,526,308     Royal & Sun Alliance Insurance Group     4,178,632    
    12,454,743     Royal Bank of Scotland Group     52,970,939    
    2,367,000     Royal Dutch Shell Plc A Shares (London)     82,720,296    
    2,055,597     Royal Dutch Shell Plc B Shares (London)     70,684,631    
    575,400     SABMiller Breweries Plc     12,359,649    
    720,000     Sage Group Plc     2,745,256    
    297,700     Schroders Plc     5,489,628    
    974,960     Scottish & Southern Energy Plc     25,679,736    
    563,626     Segro Plc     4,482,879    
    612,668     Serco Group Plc     4,793,090    
    535,575     Severn Trent (Ordinary Shares)     13,278,971    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    650,100     Shire Ltd     11,453,124    
    607,432     Smith (David S.) Holdings Plc     1,417,954    
    105,800     Smiths Group Plc     2,199,849    
    190,270     Standard Chartered Plc     5,145,590    
    2,833,177     Tesco Plc     19,637,847    
    99,387     Thomson Reuters Plc     2,776,303    
    279,364     Travis Perkins Plc     3,402,122    
    827,339     Unilever Plc     22,191,006    
    260,677     United Utilities Group Plc     3,391,800    
    47,411,285     Vodafone Group Inc     121,157,330    
    68,539     WH Smith Plc     478,981    
    170,071     Whitbread Plc     3,489,424    
    291,300     William Hill Plc     1,498,524    
    1,239,836     William Morrison Supermarkets Plc     6,364,937    
    259,728     Wolseley Plc     2,095,658    
    2,266,250     Wood Group (John) Plc     19,650,915    
    789,400     WPP Group Plc     7,683,603    
    413,664     Xstrata Plc     23,063,068    
    Total United Kingdom     1,654,179,150    
    TOTAL COMMON STOCKS (COST $6,049,979,814)     6,467,570,375    
        PREFERRED STOCKS — 0.5%  
        Brazil — 0.1%  
    1,073,500     Randon Participacoes SA 0.64%     8,759,233    
        France — 0.0%  
    24,058     Casino Guichard-Perrachon SA 4.68%     1,737,601    

 

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, 2008 (Unaudited)

Shares /
Par Value($)
  Description   Value ($)  
        Germany — 0.3%  
    244,070     Henkel KGaA 1.95%     9,583,589    
    53,776     Volkswagen AG 1.73%     8,289,357    
    Total Germany     17,872,946    
        Italy — 0.1%  
    198,933     Fiat SPA 5.11%     2,115,319    
    92,171     IFI Istituto Finanziario Industries *      1,986,050    
    Total Italy     4,101,369    
    TOTAL PREFERRED STOCKS (COST $20,381,019)     32,471,149    
        SHORT-TERM INVESTMENTS — 2.3%  
    58,363,972     Bank of New York Mellon Institutional Cash Reserves Fund (d)      58,363,972    
    97,900,000     ING Bank Time Deposit, 2.08%, due 09/02/08     97,900,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $156,263,972)     156,263,972    
            TOTAL INVESTMENTS — 99.0%
(Cost $6,226,624,805)
    6,656,305,496    
          Other Assets and Liabilities (net) — 1.0%     65,317,622    
    TOTAL NET ASSETS — 100.0%   $ 6,721,623,118    

 

See accompanying notes to the financial statements.


17



GMO Foreign Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

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

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)  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)  Bankrupt issuer.

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

As of August 31, 2008, 95.01% 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, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $55,257,005
(cost $6,226,624,805) (Note 2)
  $ 6,656,305,496    
Cash     20,401    
Foreign currency, at value (cost $126,539,587) (Note 2)     123,639,016    
Receivable for investments sold     16,595,260    
Receivable for Fund shares sold     110,561    
Dividends and interest receivable     26,878,462    
Foreign taxes receivable     2,328,360    
Receivable for expenses reimbursed by Manager (Note 3)     312,117    
Total assets     6,826,189,673    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     58,363,972    
Payable for investments purchased     15,403,057    
Payable for Fund shares repurchased     25,247,188    
Payable to affiliate for (Note 3):  
Management fee     3,524,361    
Shareholder service fee     775,678    
Administration fee – Class M     1,092    
Trustees and Chief Compliance Officer of GMO Trust fees     17,594    
Payable for 12b-1 fee – Class M     2,760    
Accrued expenses     1,230,853    
Total liabilities     104,566,555    
Net assets   $ 6,721,623,118    

 

See accompanying notes to the financial statements.


19



GMO Foreign Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 5,872,735,853    
Accumulated undistributed net investment income     153,568,067    
Accumulated net realized gain     269,254,538    
Net unrealized appreciation     426,064,660    
    $ 6,721,623,118    
Net assets attributable to:  
Class II shares   $ 695,024,807    
Class III shares   $ 3,288,038,173    
Class IV shares   $ 2,732,122,402    
Class M shares   $ 6,437,736    
Shares outstanding:  
Class II     49,160,102    
Class III     231,447,649    
Class IV     192,252,002    
Class M     453,871    
Net asset value per share:  
Class II   $ 14.14    
Class III   $ 14.21    
Class IV   $ 14.21    
Class M   $ 14.18    

 

See accompanying notes to the financial statements.


20



GMO Foreign Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $19,231,608)   $ 198,461,960    
Securities lending income     6,977,507    
Interest     4,130,477    
Total investment income     209,569,944    
Expenses:  
Management fee (Note 3)     24,183,098    
Shareholder service fee – Class II (Note 3)     868,127    
Shareholder service fee – Class III (Note 3)     2,906,240    
Shareholder service fee – Class IV (Note 3)     1,525,437    
12b-1 fee – Class M (Note 3)     8,723    
Administration fee – Class M (Note 3)     6,979    
Custodian and fund accounting agent fees     1,830,800    
Transfer agent fees     36,340    
Audit and tax fees     55,660    
Legal fees     95,864    
Trustees fees and related expenses (Note 3)     44,277    
Registration fees     16,744    
Miscellaneous     68,632    
Total expenses     31,646,921    
Fees and expenses reimbursed by Manager (Note 3)     (2,059,098 )  
Expense reductions (Note 2)     (42,721 )  
Net expenses     29,545,102    
Net investment income (loss)     180,024,842    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     265,094,404    
Foreign currency, forward contracts and foreign currency related transactions     6,055,063    
Net realized gain (loss)     271,149,467    
Change in net unrealized appreciation (depreciation) on:  
Investments     (1,256,138,558 )  
Foreign currency, forward contracts and foreign currency related transactions     (11,392,482 )  
Net unrealized gain (loss)     (1,267,531,040 )  
Net realized and unrealized gain (loss)     (996,381,573 )  
Net increase (decrease) in net assets resulting from operations   $ (816,356,731 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 180,024,842     $ 198,735,620    
Net realized gain (loss)     271,149,467       936,210,706    
Change in net unrealized appreciation (depreciation)     (1,267,531,040 )     (1,176,011,293 )  
Net increase (decrease) in net assets from operations     (816,356,731 )     (41,064,967 )  
Distributions to shareholders from:  
Net investment income  
Class II     (326,897 )     (21,412,395 )  
Class III     (2,078,566 )     (104,621,491 )  
Class IV     (2,122,645 )     (96,288,052 )  
Class M           (177,321 )  
Total distributions from net investment income     (4,528,108 )     (222,499,259 )  
Net realized gains  
Class II     (30,952,457 )     (81,212,536 )  
Class III     (153,074,862 )     (384,092,710 )  
Class IV     (132,725,396 )     (323,497,643 )  
Class M     (278,249 )     (736,740 )  
Total distributions from net realized gains     (317,030,964 )     (789,539,629 )  
      (321,559,072 )     (1,012,038,888 )  
Net share transactions (Note 7):  
Class II     (42,029,841 )     (67,333,012 )  
Class III     (246,615,232 )     (1,411,331 )  
Class IV     (357,698,096 )     620,525,429    
Class M     86,985       72,341    
Increase (decrease) in net assets resulting from net share
transactions
    (646,256,184 )     551,853,427    
Total increase (decrease) in net assets     (1,784,171,987 )     (501,250,428 )  
Net assets:  
Beginning of period     8,505,795,105       9,007,045,533    
End of period (including accumulated undistributed net investment
income of $153,568,067 and distributions in excess of net
investment income of $21,928,667, respectively)
  $ 6,721,623,118     $ 8,505,795,105    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 16.52     $ 18.56     $ 16.70     $ 15.13     $ 13.29     $ 8.88    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.35       0.40       0.38       0.28       0.26       0.17    
Net realized and unrealized
gain (loss)
    (2.06 )     (0.36 )     3.06       2.46       2.28       4.46    
Total from investment
operations
    (1.71 )     0.04       3.44       2.74       2.54       4.63    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.44 )     (0.43 )     (0.33 )     (0.34 )     (0.22 )  
From net realized gains     (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )        
Total distributions     (0.67 )     (2.08 )     (1.58 )     (1.17 )     (0.70 )     (0.22 )  
Net asset value, end of period   $ 14.14     $ 16.52     $ 18.56     $ 16.70     $ 15.13     $ 13.29    
Total Return(a)      (10.49 )%**      (0.78 )%     21.21 %     19.01 %     19.40 %     52.49 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 695,025     $ 848,359     $ 1,018,021     $ 1,213,447     $ 808,149     $ 781,448    
Net expenses to average daily
net assets
    0.82 %(b)*      0.82 %(b)      0.82 %     0.82 %     0.82 %     0.82 %  
Net investment income to average
daily net assets
    2.21 %(c)**      2.10 %     2.17 %     1.82 %     1.92 %     1.47 %  
Portfolio turnover rate     19 %**      29 %     23 %     25 %     23 %     25 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.05 %     0.05 %     0.06 %     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.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning of
period
  $ 16.59     $ 18.64     $ 16.76     $ 15.18     $ 13.34     $ 8.90    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.36       0.41       0.38       0.30       0.26       0.19    
Net realized and unrealized
gain (loss)
    (2.07 )     (0.36 )     3.09       2.45       2.30       4.47    
Total from investment
operations
    (1.71 )     0.05       3.47       2.75       2.56       4.66    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.46 )     (0.44 )     (0.33 )     (0.36 )     (0.22 )  
From net realized gains     (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )        
Total distributions     (0.67 )     (2.10 )     (1.59 )     (1.17 )     (0.72 )     (0.22 )  
Net asset value, end of period   $ 14.21     $ 16.59     $ 18.64     $ 16.76     $ 15.18     $ 13.34    
Total Return(a)      (10.43 )%**      (0.75 )%     21.36 %     19.07 %     19.41 %     52.76 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,288,038     $ 4,078,545     $ 4,556,742     $ 3,800,326     $ 3,663,370     $ 2,260,046    
Net expenses to average daily
net assets
    0.75 %(b)*      0.75 %(b)      0.75 %     0.75 %     0.75 %     0.75 %  
Net investment income to average
daily net assets
    2.24 %(c)**      2.16 %     2.11 %     1.97 %     1.87 %     1.67 %  
Portfolio turnover rate     19 %**      29 %     23 %     25 %     23 %     25 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.05 %     0.05 %     0.06 %     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.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 16.59     $ 18.64     $ 16.77     $ 15.18     $ 13.34     $ 8.90    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.37       0.40       0.36       0.31       0.28       0.19    
Net realized and unrealized
gain (loss)
    (2.08 )     (0.34 )     3.11       2.47       2.28       4.48    
Total from investment
operations
    (1.71 )     0.06       3.47       2.78       2.56       4.67    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.47 )     (0.45 )     (0.35 )     (0.36 )     (0.23 )  
From net realized gains     (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )        
Total distributions     (0.67 )     (2.11 )     (1.60 )     (1.19 )     (0.72 )     (0.23 )  
Net asset value, end of period   $ 14.21     $ 16.59     $ 18.64     $ 16.77     $ 15.18     $ 13.34    
Total Return(a)      (10.42 )%**      (0.68 )%     21.36 %     19.22 %     19.47 %     52.84 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,732,122     $ 3,571,516     $ 3,424,024     $ 2,007,037     $ 1,169,805     $ 923,221    
Net expenses to average daily
net assets
    0.69 %(b)*      0.69 %(b)      0.69 %     0.69 %     0.69 %     0.70 %  
Net investment income to average
daily net assets
    2.28 %(c)**      2.08 %     2.04 %     1.98 %     2.00 %     1.65 %  
Portfolio turnover rate     19 %**      29 %     23 %     25 %     23 %     25 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.05 %     0.05 %     0.06 %     0.09 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of period   $ 16.58     $ 18.63     $ 16.75     $ 15.19     $ 13.25     $ 8.86    
Income (loss) from investment operations:  
Net investment income (loss)      0.33       0.35       0.30       0.24       0.30       0.14    
Net realized and unrealized gain (loss)     (2.07 )     (0.36 )     3.12       2.46       2.21       4.45    
Total from investment operations     (1.74 )     (0.01 )     3.42       2.70       2.51       4.59    
Less distributions to shareholders:  
From net investment income           (0.40 )     (0.39 )     (0.30 )     (0.21 )     (0.20 )  
From net realized gains     (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )        
Total distributions     (0.66 )     (2.04 )     (1.54 )     (1.14 )     (0.57 )     (0.20 )  
Net asset value, end of period   $ 14.18     $ 16.58     $ 18.63     $ 16.75     $ 15.19     $ 13.25    
Total Return(a)      (10.61 )%**      (1.05 )%     21.04 %     18.66 %     19.18 %     52.10 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 6,438     $ 7,375     $ 8,258     $ 5,673     $ 3,508     $ 12,878    
Net expenses to average daily net assets     1.05 %(b)*      1.05 %(b)      1.05 %     1.05 %     1.05 %     1.05 %  
Net investment income to average
daily net assets
    2.07 %(c)**      1.81 %     1.69 %     1.56 %     2.24 %     1.23 %  
Portfolio turnover rate     19 %**      29 %     23 %     25 %     23 %     25 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.05 %     0.05 %     0.06 %     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.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


26




GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 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 cash equivalents 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, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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


27



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

are readily available are generally valued at the most recent quoted bid price. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 206,414,754     $ 123,639,016    
Level 2 - Other Significant Observable Inputs     6,449,888,669          
Level 3 - Significant Unobservable Inputs     2,073          
Total   $ 6,656,305,496     $ 123,639,016    

 

*  Other financial instruments include foreign currency.


28



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments*
 
Balance as of February 29, 2008   $ 678,951     $    
Realized gain (loss)     (261,458 )        
Change in unrealized appreciation/depreciation     175,922          
Net purchases (sales)     (591,342 )        
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 2,073     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


29



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a


30



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Securities lending

The Fund may lend its securities to qualified brokers. 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, 2008, the Fund had loane d securities valued by the Fund at $55,257,005, collateralized by cash in the amount of $58,363,972, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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.


31



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some 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, 2008, the Fund incurred no CPMF tax.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 6,264,657,984     $ 980,629,179     $ (588,981,667 )   $ 391,647,512    

 

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, 2008, the Fund had net realized gains attributed to redemption in-kind transactions of $26,305,243.


32



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increase s or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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.


33



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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.

Class M shares of the Fund pay GMO an administration fee for support services provided to Class M shareholders. That fee is paid monthly at the annual rate of 0.20% of the average daily Class M net assets. 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 for the provision of services to Class M shareholders. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily Class M net assets.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.60% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, administration and distribution (12b-1) 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 invest ment 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $40,229 and $23,276, 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.


34



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 aggregated $1,466,238,389 and $2,100,564,667, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, the Fund had no shareholders individually holding more than 10% of the Fund's outstanding shares.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 0.62% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class II:   Shares   Amount   Shares   Amount  
Shares sold     3,507,325     $ 56,481,955       16,492,099     $ 297,811,599    
Shares issued to shareholders
in reinvestment of distributions
    1,994,551       29,180,278       4,944,763       92,077,263    
Shares repurchased     (7,709,759 )     (127,692,074 )     (24,912,687 )     (457,221,874 )  
Net increase (decrease)     (2,207,883 )   $ (42,029,841 )     (3,475,825 )   $ (67,333,012 )  

 


35



GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,748,212     $ 125,482,036       40,267,613     $ 743,943,093    
Shares issued to shareholders
in reinvestment of distributions
    10,222,023       150,263,734       24,148,643       451,660,303    
Shares repurchased     (32,398,674 )     (522,361,002 )     (63,056,039 )     (1,197,014,727 )  
Net increase (decrease)     (14,428,439 )   $ (246,615,232 )     1,360,217     $ (1,411,331 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     1,184,041     $ 18,853,092       35,986,533     $ 684,663,196    
Shares issued to shareholders
in reinvestment of distributions
    9,043,697       132,942,351       20,380,015       379,339,109    
Shares repurchased     (33,254,699 )     (509,493,539 )     (24,769,071 )     (443,476,876 )  
Net increase (decrease)     (23,026,961 )   $ (357,698,096 )     31,597,477     $ 620,525,429    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class M:   Shares   Amount   Shares   Amount  
Shares sold     34,451     $ 536,297       90,342     $ 1,706,341    
Shares issued to shareholders
in reinvestment of distributions
    18,954       278,249       48,969       914,061    
Shares repurchased     (44,373 )     (727,561 )     (137,839 )     (2,548,061 )  
Net increase (decrease)     9,032     $ 86,985       1,472     $ 72,341    

 


36




GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


38



GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


39



GMO Foreign Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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, 2008 (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     $ 895.10     $ 3.92    
2) Hypothetical     0.82 %   $ 1,000.00     $ 1,021.07     $ 4.18    
Class III      
1) Actual     0.75 %   $ 1,000.00     $ 895.70     $ 3.58    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.42     $ 3.82    
Class IV      
1) Actual     0.69 %   $ 1,000.00     $ 895.80     $ 3.30    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.73     $ 3.52    
Class M      
1) Actual     1.05 %   $ 1,000.00     $ 893.90     $ 5.01    
2) Hypothetical     1.05 %   $ 1,000.00     $ 1,019.91     $ 5.35    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


41




GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.8 %  
Short-Term Investments     7.1    
Preferred Stocks     1.0    
Other     (3.9 )  
      100.0 %  
Country Summary   % of Equity Investments  
Japan     20.1 %  
United Kingdom     19.4    
Germany     9.3    
France     6.4    
Italy     5.9    
Switzerland     5.8    
Canada     4.9    
Finland     3.3    
South Korea     3.3    
Norway     2.3    
Brazil     2.1    
Hong Kong     2.1    
Netherlands     2.1    
Spain     1.7    
Australia     1.6    
Taiwan     1.6    
Sweden     1.3    
Mexico     1.2    
Singapore     1.1    
Belgium     0.8    
Greece     0.7    
Austria     0.6    
China     0.6    
Ireland     0.6    
Philippines     0.5    
India     0.2    
Malaysia     0.2    
Thailand     0.2    
New Zealand     0.1    
      100.0 %  

 


1



GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Industrials     19.8 %  
Consumer Discretionary     18.0    
Financials     15.5    
Information Technology     10.0    
Materials     9.6    
Consumer Staples     9.1    
Energy     7.2    
Health Care     6.0    
Utilities     3.4    
Telecommunication Services     1.4    
      100.0 %  

 


2




GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.8%  
        Australia — 1.5%  
    658,714     Australian Vintage Ltd *      543,239    
    283,000     Billabong International Ltd     3,097,043    
    421,897     Consolidated Rutile Ltd     130,132    
    361,987     Goodman Group     975,535    
    702,000     Insurance Australia Group Ltd     2,373,012    
    525,000     Metcash Ltd     1,766,754    
    438,800     PMP Ltd     467,455    
    188,000     Seven Network Ltd     1,270,498    
    81,300     SP AusNet     79,879    
    245,000     West Australian Newspapers Holdings Ltd (a)      1,903,321    
    Total Australia     12,606,868    
        Austria — 0.6%  
    11,900     Agrana Beteiligungs AG     933,447    
    61,600     EVN AG     1,620,854    
    20,677     Flughafen Wien AG     1,677,120    
    35,000     Wienerberger AG     918,455    
    Total Austria     5,149,876    
        Belgium — 0.8%  
    102,000     AGFA-Gevaert NV * (a)      812,286    
    24,928     Bekaert NV     4,347,018    
    64,200     Fortis VVPR Strip *      942    
    26,964     Omega Pharma SA     1,364,727    
    Total Belgium     6,524,973    
        Brazil — 2.1%  
    630,000     Cia Hering     3,401,227    
    216,400     Helbor Empreendimentos SA     781,961    
    253,500     Hypermarcas SA *      2,465,015    
    700,000     Industrias Romi SA     5,819,018    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Brazil — continued  
    586,000     JHSF Participacoes SA     2,408,712    
    7,500     MPX Mineracao e Energia SA *      2,111,963    
    Total Brazil     16,987,896    
        Canada — 4.7%  
    330,300     Air Canada Class A * (a)      1,514,938    
    272,800     Flint Energy Services Ltd *      4,506,416    
    412,100     Gammon Gold Inc *      3,834,571    
    138,900     ING Canada Inc     5,232,624    
    90,600     KAP Resources Ltd * (b) (c)      853    
    291,800     Kingsway Financial Services Inc     2,583,274    
    333,500     Linamar Corp     3,709,394    
    218,900     Penn West Energy Trust     6,425,987    
    316,900     Precision Drilling Trust     6,727,186    
    749,300     Western Canadian Coal Corp * (a)      4,474,065    
    Total Canada     39,009,308    
        China — 0.6%  
    5,000,000     Franshion Properties China Ltd     1,812,073    
    6,900,000     Uni-President China Holding Ltd *      2,741,929    
    Total China     4,554,002    
        Finland — 3.2%  
    62,500     Atria Group Plc     1,282,037    
    243,000     Hk-Ruokatalo Oyj Class A     2,291,538    
    187,133     KCI Konecranes Oyj     6,176,482    
    957,072     M-real Oyj B shares     1,735,012    
    150,783     Marimekko Oyj     2,879,286    
    173,729     Nokian Renkaat Oyj     6,186,948    
    171,083     Poyry Oyj     4,151,606    
    56,000     Uponor Oyj (a)      769,996    
    77,305     YIT Oyj     1,202,478    
    Total Finland     26,675,383    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — 6.1%  
    11,272     BIC SA     680,067    
    140,088     Boursorama * (a)      1,413,519    
    87,000     Cap Gemini SA     5,136,515    
    3,700     Casino Guichard-Perrachon SA     362,577    
    23,271     Christian Dalloz     2,801,908    
    6,450     Damartex SA     141,708    
    115,000     Essilor International SA     6,117,739    
    47,808     Eurazeo     4,696,250    
    6,300     Gaumont SA     539,030    
    9,000     Guyenne et Gascogne SA     1,073,594    
    54,812     Klepierre     2,184,953    
    44,700     Lisi (a)      3,604,218    
    43,579     Neopost SA     4,543,355    
    1,351     SAGA     154,575    
    18,182     Seb SA     986,649    
    6,813     Sequana Capital     111,171    
    50,000     Sodexo     3,373,855    
    21,000     Thales SA     1,183,547    
    15,244     Union du Credit-Bail Immobilier     3,165,116    
    45,472     Virbac SA     3,992,349    
    84,141     Zodiac SA (a)      4,219,147    
    Total France     50,481,842    
        Germany — 8.3%  
    46,080     Aareal Bank AG     1,099,331    
    37,464     Adidas AG     2,188,305    
    125,000     Altana AG     1,992,236    
    11,527     Axel Springer AG     1,190,768    
    55,800     Beiersdorf AG (Bearer)     3,248,276    
    140,655     Cat Oil AG * (a)      1,342,995    
    29,100     Celesio AG     1,118,709    
    48,400     Commerzbank AG     1,421,965    
    16,900     Continental AG (a)      1,831,891    
    61,100     Douglas Holdings AG (a)      2,708,643    
    162,216     Eurocastle Investment (a)      1,349,912    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    37,287     Fielmann AG     2,839,559    
    200,000     Francotyp-Postalia Holdings AG (a)      601,696    
    48,000     Fraport AG     3,089,241    
    68,000     Fresenius Medical Care AG & Co     3,641,408    
    127,500     Gagfah SA     1,745,185    
    80,000     Gerresheimer AG     4,033,308    
    114,367     Grenkeleasing AG     3,817,781    
    87,220     Heidelberger Druckmaschinen (a)      1,777,924    
    615,000     Infineon Technologies AG *      5,251,463    
    15,000     MAN AG     1,464,736    
    28,500     Metro AG     1,584,442    
    65,146     Nemetschek AG     1,572,214    
    303,600     Patrizia Immobilien AG * (a)      1,223,147    
    297,184     Praktiker Bau-Und Heim     4,458,457    
    5,588     Puma AG Rudolf Dassler Sport     1,757,583    
    375,000     Symrise AG     6,493,127    
    100,000     Wacker Construction Equipment AG (a)      1,010,240    
    40,000     Wincor Nixdorf AG     2,928,995    
    Total Germany     68,783,537    
        Greece — 0.7%  
    87,745     Bank of Cyprus Public Co Ltd     1,075,946    
    29,718     Folli-Follie Abee     679,384    
    75,000     Metka SA     1,392,524    
    75,000     Mytilineos Holdings SA     869,161    
    50,000     Piraeus Bank SA     1,347,647    
    Total Greece     5,364,662    
        Hong Kong — 2.0%  
    3,988,198     Hong Kong & Shanghai Hotels     5,681,979    
    2,686,307     Industrial & Commercial Bank of China     5,884,880    
    1,200,000     Ming An Holdings Co Ltd (The)     156,984    
    9,972,000     TPV Technology Ltd     4,855,674    
    Total Hong Kong     16,579,517    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        India — 0.2%  
    200,000     Welspun Gujarat Stahl Ltd     1,440,144    
        Ireland — 0.6%  
    46,346     Anglo Irish Bank Corp     401,458    
    507,600     Blackrock International *      96,510    
    28,051     CRH Plc     731,736    
    41,500     DCC Plc     1,003,862    
    30,000     FBD Holdings Plc     625,478    
    46,000     Grafton Group Plc *      257,777    
    379,440     IFG Group Plc     861,093    
    9,500     Irish Life & Permanent Plc     88,455    
    25,000     Kerry Group Plc     677,979    
    Total Ireland     4,744,348    
        Italy — 5.7%  
    355,000     Arnoldo Mondadori Editore SPA (a)      1,942,803    
    107,000     Banco Popolare Scarl     2,038,202    
    157,000     Brembo SPA     1,790,952    
    179,200     Buzzi Unicem SPA     3,547,852    
    436,100     Campari     3,640,223    
    232,700     Finmeccanica SPA     6,223,847    
    307,716     Grouppo Editoriale L'Espresso (a)      768,342    
    1,228,700     IFIL SPA     8,004,287    
    300,300     Indesit Company SPA (a)      3,424,082    
    621,425     Intesa San Paolo     3,335,678    
    100,000     Italcementi SPA (a)      1,400,505    
    600,000     Snam Rete Gas SPA     3,748,195    
    2,359,364     Telecom Italia SPA-Di RISP     2,990,568    
    187,500     Unione di Banche Italiane ScpA     4,191,298    
    Total Italy     47,046,834    
        Japan — 19.5%  
    370,000     Asics Corp     3,259,802    
    600,000     Capcom (a)      18,341,547    
    2,000,000     Daicel Chemical Industries Ltd     10,142,061    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    3,000,000     Dainippon Ink and Chemicals Inc     6,648,634    
    120,000     Diamond Lease Co Ltd     4,201,471    
    16,300     Disco Corp     606,190    
    599     Fuji Television Network Inc     859,765    
    300,000     Hisamitsu Pharmaceutical Co Inc     13,324,938    
    625,000     Hitachi Chemical Co Ltd     11,369,802    
    200,000     Hitachi Koki Co Ltd     2,350,828    
    300,000     Hitachi Transport System Ltd     4,061,051    
    550,000     Izumi Co Ltd (a)      8,014,182    
    600     Japan Retail Fund Investment Corp     2,483,507    
    160,000     Keihin Corp (a)      2,651,487    
    750,000     Keiyo Bank Ltd (The)     3,504,313    
    300,000     KOSE Corp     8,156,639    
    120,000     Micronics Japan Co Ltd (a)      2,483,885    
    207,200     Musashi Seimitsu Industry Co Ltd     4,567,635    
    600,000     Nabtesco Corp     6,224,768    
    700,000     NHK Spring Co Ltd     4,706,619    
    458     Nippon Commercial Investment Corp (REIT)     935,402    
    306,500     Nippon System Development Co Ltd     3,389,042    
    480,000     Rohto Pharmaceutical Co Ltd     5,729,898    
    450,000     Sanwa Shutter Corp     1,675,408    
    593     Seven Bank Ltd     1,506,583    
    725,000     Shimadzu Corp     6,794,799    
    1,250,000     Snow Brand Milk Products Co Ltd (a)      3,798,954    
    300,000     Sumitomo Rubber Industries     2,393,319    
    270,000     Taiyo Ink Manufacturing Co Ltd     5,222,787    
    437,000     Toyo Suisan Kaisha Ltd     10,897,974    
    1,254     USJ Co Ltd     749,195    
    Total Japan     161,052,485    
        Malaysia — 0.2%  
    2,241,200     Eastern & Oriental Berhad     671,798    
    700,000     IJM Corp Berhad *      1,036,190    
    Total Malaysia     1,707,988    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Mexico — 1.1%  
    1,000,000     Controladora Comercial Mexicana SA de CV     2,496,414    
    3,000,000     Genomma Lab Internacional SA Class B *      4,764,290    
    335,800     Megacable Holdings SAB de CV *      662,930    
    1,600,000     Sare Holding SA de CV *      1,244,803    
    Total Mexico     9,168,437    
        Netherlands — 2.0%  
    28,345     CSM     759,099    
    131,100     Imtech NV     3,363,452    
    96,449     Koninklijke Ten Cate NV     3,800,216    
    170,000     Koninklijke Wessanen NV     1,623,210    
    25,000     Nutreco Holding NV *      1,543,337    
    40,621     Randstad Holdings NV     1,245,572    
    61,736     Reed Elsevier NV     1,032,233    
    121,400     TomTom NV * (a)      2,998,525    
    Total Netherlands     16,365,644    
        New Zealand — 0.1%  
    485,400     Air New Zealand     389,360    
        Norway — 2.2%  
    1,442,334     Ability Drilling ASA *      2,400,960    
    3,000,000     DNO International ASA * (a)      4,818,256    
    832,085     Prosafe ASA *      7,492,195    
    832,085     Prosafe Production Public Ltd *      3,836,084    
    Total Norway     18,547,495    
        Philippines — 0.5%  
    17,000,000     Aboitiz Power Corp     2,059,290    
    5,100,000     Alliance Global Group Inc *      513,310    
    1,147,500     First Gen Corp     619,900    
    23,400,000     Pepsi-Cola Products Philippines Inc *      1,109,226    
    Total Philippines     4,301,726    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Singapore — 1.1%  
    17,296,000     Anwell Technologies Ltd *      546,813    
    375,000     ARA Asset Management Ltd 144A     172,542    
    575,000     Banyan Tree Holdings Inc     402,161    
    3,569,000     Chemoil Energy Ltd     1,175,272    
    3,307,000     Financial One Corp     985,764    
    3,250,000     First Ship Lease Trust     2,587,294    
    2,962,000     LMA International NV *      353,463    
    1,097,000     People's Food Holdings Ltd     706,870    
    2,000,000     Petra Foods Ltd     1,235,101    
    350,000     SembCorp Marine Ltd     927,652    
    Total Singapore     9,092,932    
        South Korea — 3.0%  
    38,980     Asia Cement Co Ltd     2,072,239    
    20,000     Cheil Industries Inc     947,619    
    298,849     Handsome Corp     3,034,055    
    4,420     Hie Brewery Co Ltd *      848,361    
    5,580     Hite Brewery Co Ltd     175,753    
    10,000     KCC Engineering & Construction Co     259,722    
    144,000     Kooksoondang Co Ltd     561,920    
    81,100     Korea Electric Terminal Co     1,236,703    
    320,963     Kortek Corp     2,051,888    
    76,110     Kumho Tire Co Inc     572,700    
    22,000     Nong Shim Co Ltd     4,427,833    
    37,210     Pulmuone Co Ltd *      908,978    
    23,790     Pulmuone Holdings Co Ltd     813,695    
    134,800     Pusan Bank     1,499,098    
    78,000     Samsung Card Co Ltd     2,842,741    
    60,000     Samsung Techwin Co Ltd     1,711,772    
    25,000     Samwhan Corp     385,935    
    Total South Korea     24,351,012    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Spain — 1.7%  
    32,000     ACS Actividades de Construccion y Servicios SA     1,416,950    
    20,000     Fomento de Construcciones y Contratas SA     1,001,840    
    15,597     Gas Natural SDG SA     722,580    
    5,000     Grupo Ferrovial SA     249,828    
    209,000     Mapfre SA     999,498    
    30,000     Red Electrica de Espana     1,770,002    
    65,000     Tecnicas Reunidas SA     4,289,061    
    131,592     Union Fenosa SA     3,334,549    
    Total Spain     13,784,308    
        Sweden — 1.2%  
    57,950     Autoliv Inc SDR     2,207,947    
    277,200     SAAB AB Class B     6,680,036    
    1,000,000     Trigon Agri A/S *      1,392,817    
    Total Sweden     10,280,800    
        Switzerland — 5.6%  
    213,100     Bank Sarasin & Cie AG Class B (Registered)     9,183,533    
    14,450     Bobst Group AG (Registered)     1,017,724    
    86,286     Charles Voegele Holding AG *      4,480,313    
    2,389     Forbo Holdings AG (Registered) * (a)      1,006,764    
    18,940     Geberit AG (Registered)     2,756,752    
    17,510     Helvetia Patria Holding (Registered)     5,426,885    
    1,000     Jelmoli Holding AG (Bearer)     2,446,024    
    3,250     Jelmoli Holding AG (Registered)     1,596,472    
    200,309     Kardex AG *      10,883,101    
    552     SGS SA (Registered)     707,289    
    8,800     Swatch Group AG     2,068,267    
    7,600     Swisscom AG (Registered)     2,435,300    
    9,350     Valora Holding AG     2,216,383    
    Total Switzerland     46,224,807    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — 1.5%  
    160,000     104 Corp     508,084    
    1,594,840     Advanced Semiconductor Engineering Inc     1,149,920    
    263,900     Catcher Technology Co Ltd     885,625    
    2,040,150     China Motor Corp     1,190,698    
    1,000,000     Continental Engineering Corp     451,877    
    444,475     E.Sun Financial Holdings Co Ltd     171,203    
    4,769,280     Gold Circuit Electronics Ltd     2,436,464    
    420,090     Kinsus Interconnect Technology Corp     807,362    
    272,567     Novatek Microelectronics Corp Ltd     585,347    
    1,582,795     Phoenix Precision Technology Corp     883,611    
    3,143,322     Tsann Kuen Enterprises Co Ltd     2,551,345    
    1,339,019     Yulon Motor Co Ltd     1,074,285    
    Total Taiwan     12,695,821    
        Thailand — 0.2%  
    836,000     Esso Thailand Pcl (Foreign Registered)     191,665    
    11,100,000     Home Product Center Pcl (Foreign Registered)     1,526,768    
    Total Thailand     1,718,433    
        United Kingdom — 18.8%  
    45,000     Alliance & Leicester Plc     266,863    
    145,000     AMEC Plc     2,224,196    
    150,000     Aquarius Platinum Ltd     1,339,603    
    488,989     Balfour Beatty Plc     3,662,126    
    180,327     BBA Aviation Plc     435,901    
    687,250     Bodycote International Plc     2,904,885    
    483,333     Brit Insurance Holdings Plc     1,701,912    
    438,800     British Airways Plc     1,995,587    
    135,000     British Energy Group Plc     1,802,817    
    223,403     Cattle's Plc     484,645    
    269,000     Centrica Plc     1,601,325    
    144,888     Chemring Group     6,143,019    
    550,000     Cobham Plc     2,299,088    
    742,000     Compass Group Plc     4,937,907    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    66,951     Computacenter Plc     152,857    
    200,000     Davis Service Group (Ordinary)     1,239,429    
    1,403,503     Dawnay Day Treveria Plc     622,850    
    132,333     De La Rue Plc     2,117,409    
    3,300,000     Dimension Data Holdings Plc     3,171,923    
    11,400     Experian Group     85,869    
    95,200     Filtrona Plc     312,641    
    307,600     Fyffes Plc     173,427    
    1,003,000     Galliford Try Plc     1,180,911    
    115,027     Go-Ahead Group Plc     4,071,172    
    621,109     Group 4 Securicor Plc     2,635,848    
    1,216,252     Hays Plc     2,109,962    
    10,000     Homeserve Plc *      262,297    
    386,049     ICAP Plc     3,324,112    
    593,466     Inmarsat Plc     5,524,209    
    126,277     Intermediate Capital Group Plc     3,172,696    
    115,000     International Personal Finance     648,672    
    117,207     Interserve Plc     895,645    
    64,000     ITV Plc     52,055    
    150,000     JJB Sports Plc     347,526    
    115,000     Johnson Matthey Plc     3,402,866    
    104,929     Kazakhmys Plc     2,462,293    
    310,000     Kesa Electricals Plc     910,406    
    191,649     Kier Group Plc     4,024,377    
    97,000     Lamprell Plc     849,020    
    30,000     Lonmin Plc     1,894,776    
    146,000     Misys Plc     444,740    
    464,498     Mitie Group Plc     1,890,365    
    207,142     N Brown Group     792,181    
    101,000     Next Plc     1,948,818    
    497,357     Pennon Group Plc     5,546,351    
    196,076     Petrofac Ltd     2,325,642    
    305,555     Playtech Ltd     3,032,037    
    57,500     Provident Financial Plc     949,268    
    600,000     Qinetiq Plc     2,452,645    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    200,000     Record Plc     339,159    
    375,736     Rexam Plc     2,773,065    
    750,000     RM Plc     2,327,552    
    1,091,496     Royal & Sun Alliance Insurance Group     2,988,231    
    1,000,000     Sage Group Plc     3,812,855    
    275,000     Savills Plc     1,434,724    
    50,000     Schroders Plc     922,007    
    245,858     Segro Plc     1,955,466    
    419,930     Serco Group Plc     3,285,242    
    90,000     Severn Trent (Ordinary Shares)     2,231,447    
    144,000     Shire Ltd     2,536,917    
    755,160     Smith (David S.) Holdings Plc     1,762,802    
    35,600     Smith News Plc     52,109    
    50,000     Smiths Group Plc     1,039,626    
    100,000     Smurfit Kappa Plc     642,040    
    23,796     Soco International Plc *      652,136    
    147,500     Spice Plc     1,471,474    
    58,600     Tate & Lyle Plc     472,279    
    41,300     Tomkins Plc     111,563    
    307,600     Total Produce     239,815    
    110,181     Travis Perkins Plc     1,341,795    
    1,049,754     TT Group Plc     1,949,710    
    155,700     Ultra Electronics Holdings     3,912,683    
    221,206     United Business Media Ltd     2,390,804    
    66,179     Venture Production (Ordinary Shares)     993,485    
    151,495     VT Group Plc     1,700,603    
    177,097     WH Smith Plc     1,237,632    
    170,366     William Hill Plc     876,408    
    1,036,882     William Morrison Supermarkets Plc     5,323,033    
    33,800     Wolseley Plc     272,721    
    850,000     Wood Group (John) Plc     7,370,448    
    Total United Kingdom     155,247,000    
    TOTAL COMMON STOCKS (COST $751,724,626)     790,877,438    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        PREFERRED STOCKS — 1.0%  
        France — 0.1%  
    6,800     Casino Guichard-Perrachon SA 4.68% (a)      491,134    
        Germany — 0.7%  
    36,500     Henkel KGaA 1.95%     1,433,200    
    40,000     Hugo Boss AG 6.06%     1,400,628    
    200,000     ProSiebenSat.1 Media AG 18.09%     2,038,847    
    5,200     Volkswagen AG 1.73%     801,559    
    Total Germany     5,674,234    
        Italy — 0.0%  
    10,000     IFI Istituto Finanziario Industries *      215,474    
        South Korea — 0.2%  
    320,000     Daishin Securities Co 18.22%     2,208,828    
    TOTAL PREFERRED STOCKS (COST $13,293,369)     8,589,670    
        SHORT-TERM INVESTMENTS — 7.1%  
    47,554,381     Bank of New York Mellon Institutional Cash Reserves Fund (d)      47,554,381    
    10,800,000     HSBC Time Deposit, 2.15%, due 09/02/08     10,800,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $58,354,381)     58,354,381    
          TOTAL INVESTMENTS — 103.9%
(Cost $823,372,376)
    857,821,489    
          Other Assets and Liabilities (net) — (3.9)%     (32,406,095 )  
    TOTAL NET ASSETS — 100.0%   $ 825,415,394    

 

See accompanying notes to the financial statements.


15



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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.

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

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.

As of August 31, 2008, 87.90% 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, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $44,680,334
(cost $823,372,376) (Note 2)
  $ 857,821,489    
Foreign currency, at value (cost $12,925,205) (Note 2)     12,670,323    
Receivable for investments sold     3,763,038    
Dividends and interest receivable     1,295,570    
Foreign taxes receivable     276,506    
Receivable for expenses reimbursed by Manager (Note 3)     82,752    
Total assets     875,909,678    
Liabilities:  
Due to custodian     171,670    
Collateral on securities loaned, at value (Note 2)     47,554,381    
Payable for investments purchased     1,765,694    
Payable to affiliate for (Note 3):  
Management fee     516,423    
Shareholder service fee     85,778    
Trustees and Chief Compliance Officer of GMO Trust fees     2,013    
Accrued expenses     398,325    
Total liabilities     50,494,284    
Net assets   $ 825,415,394    
Net assets consist of:  
Paid-in capital   $ 746,914,488    
Accumulated undistributed net investment income     9,277,310    
Accumulated net realized gain     35,055,134    
Net unrealized appreciation     34,168,462    
    $ 825,415,394    
Net assets attributable to:  
Class III shares   $ 248,413,888    
Class IV shares   $ 577,001,506    
Shares outstanding:  
Class III     19,903,368    
Class IV     46,184,584    
Net asset value per share:  
Class III   $ 12.48    
Class IV   $ 12.49    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $2,057,480)   $ 18,386,452    
Securities lending income     1,204,750    
Interest     900,892    
Total investment income     20,492,094    
Expenses:  
Management fee (Note 3)     3,422,397    
Shareholder service fee – Class III (Note 3)     243,581    
Shareholder service fee – Class IV (Note 3)     326,527    
Custodian and fund accounting agent fees     425,500    
Transfer agent fees     21,068    
Audit and tax fees     40,204    
Legal fees     11,316    
Trustees fees and related expenses (Note 3)     5,212    
Registration fees     460    
Miscellaneous     8,369    
Total expenses     4,504,634    
Fees and expenses reimbursed by Manager (Note 3)     (486,786 )  
Expense reductions (Note 2)     (15,826 )  
Net expenses     4,002,022    
Net investment income (loss)     16,490,072    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     35,476,068    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $139) (Note 2)
    (111,157 )  
Net realized gain (loss)     35,364,911    
Change in net unrealized appreciation (depreciation) on:  
Investments     (148,831,890 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,344,299 )  
Net unrealized gain (loss)     (150,176,189 )  
Net realized and unrealized gain (loss)     (114,811,278 )  
Net increase (decrease) in net assets resulting from operations   $ (98,321,206 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 16,490,072     $ 19,366,409    
Net realized gain (loss)     35,364,911       177,097,003    
Change in net unrealized appreciation (depreciation)     (150,176,189 )     (210,550,516 )  
Net increase (decrease) in net assets from operations     (98,321,206 )     (14,087,104 )  
Distributions to shareholders from:  
Net investment income  
Class III           (8,928,275 )  
Class IV           (16,347,910 )  
Total distributions from net investment income           (25,276,185 )  
Net realized gains  
Class III     (14,677,906 )     (71,469,472 )  
Class IV     (29,250,469 )     (126,085,967 )  
Total distributions from net realized gains     (43,928,375 )     (197,555,439 )  
      (43,928,375 )     (222,831,624 )  
Net share transactions (Note 7):  
Class III     (42,381,110 )     46,586,423    
Class IV     4,250,469       79,691,450    
Increase (decrease) in net assets resulting from net share
transactions
    (38,130,641 )     126,277,873    
Total increase (decrease) in net assets     (180,380,222 )     (110,640,855 )  
Net assets:  
Beginning of period     1,005,795,616       1,116,436,471    
End of period (including accumulated undistributed net investment
income of $9,277,310 and distributions in excess of net
investment income of $7,212,762, respectively)
  $ 825,415,394     $ 1,005,795,616    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 14.63     $ 18.38     $ 17.98     $ 17.19     $ 14.79     $ 9.13    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.24       0.31       0.28       0.26       0.26       0.20    
Net realized and unrealized
gain (loss)
    (1.72 )     (0.36 )     4.51       3.19       3.76       5.77    
Total from investment
operations
    (1.48 )     (0.05 )     4.79       3.45       4.02       5.97    
Less distributions to shareholders:  
From net investment income           (0.41 )     (0.44 )     (0.32 )     (0.38 )     (0.31 )  
From net realized gains     (0.67 )     (3.29 )     (3.95 )     (2.34 )     (1.24 )        
Total distributions     (0.67 )     (3.70 )     (4.39 )     (2.66 )     (1.62 )     (0.31 )  
Net asset value, end of period   $ 12.48     $ 14.63     $ 18.38     $ 17.98     $ 17.19     $ 14.79    
Total Return(a)      (10.32 )%**      (1.96 )%     29.94 %     22.32 %     28.40 %     65.76 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 248,414     $ 338,804     $ 375,565     $ 364,551     $ 426,758     $ 480,966    
Net expenses to average daily
net assets
    0.85 %(b)*      0.86 %(b)      0.86 %     0.85 %     0.85 %     0.85 %  
Net investment income to average
daily net assets
    3.34 %*      1.69 %     1.53 %     1.52 %     1.71 %     1.71 %  
Portfolio turnover rate     20 %**      42 %     37 %     40 %     25 %     31 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.10 %*      0.09 %     0.09 %     0.09 %     0.09 %     0.11 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 14.64     $ 18.39     $ 17.99     $ 17.20     $ 14.80     $ 9.13    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.25       0.31       0.28       0.26       0.26       0.21    
Net realized and unrealized
gain (loss)
    (1.73 )     (0.35 )     4.52       3.20       3.76       5.77    
Total from investment
operations
    (1.48 )     (0.04 )     4.80       3.46       4.02       5.98    
Less distributions to shareholders:  
From net investment income           (0.42 )     (0.45 )     (0.33 )     (0.38 )     (0.31 )  
From net realized gains     (0.67 )     (3.29 )     (3.95 )     (2.34 )     (1.24 )        
Total distributions     (0.67 )     (3.71 )     (4.40 )     (2.67 )     (1.62 )     (0.31 )  
Net asset value, end of period   $ 12.49     $ 14.64     $ 18.39     $ 17.99     $ 17.20     $ 14.80    
Total Return(a)      (10.31 )%**      (1.91 )%     30.00 %     22.37 %     28.44 %     65.92 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 577,002     $ 666,991     $ 740,872     $ 638,634     $ 567,048     $ 333,731    
Net expenses to average daily
net assets
    0.80 %(b)*      0.81 %(b)      0.81 %     0.80 %     0.81 %     0.80 %  
Net investment income to average
daily net assets
    3.39 %*      1.70 %     1.54 %     1.55 %     1.69 %     1.78 %  
Portfolio turnover rate     20 %**      42 %     37 %     40 %     25 %     31 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.10 %*      0.09 %     0.09 %     0.09 %     0.09 %     0.11 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  Calculated using average shares outstanding throughout the period.

*  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, 2008 (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, 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 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 normally does not take temporary defensive positions, but may hold up to 10% of its total assets in cash and cash equivalents 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.

As of August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair


22



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fu nd generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 82,983,283     $ 12,670,323    
Level 2 - Other Significant Observable Inputs     774,837,353          
Level 3 - Significant Unobservable Inputs     853          
Total   $ 857,821,489     $ 12,670,323    

 

*  Other financial instruments include foreign currency.


23



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 921     $    
Realized gain (loss)              
Change in unrealized appreciation/depreciation     (68 )        
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 853     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


24



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had no open written option contracts during the period.


25



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Securities lending

The Fund may lend its securities to qualified brokers. 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, 2008, the Fund had loane d securities valued by the Fund at $44,680,334, collateralized by cash in the amount of $47,554,381, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.


26



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some 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, 2008, the Fund incurred $139 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.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October currency losses of $1,310,798.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 829,414,285     $ 163,094,757     $ (134,687,553 )   $ 28,407,204    

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


27



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.


28



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.70% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $4,752 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, 2008 aggregated $183,946,828 and $215,611,312, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


29



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 59.83% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold         $       8,563,923     $ 166,900,000    
Shares issued to shareholders
in reinvestment of distributions
    1,121,620       14,558,631       4,631,692       78,154,241    
Shares repurchased     (4,376,129 )     (56,939,741 )     (10,469,794 )     (198,467,818 )  
Net increase (decrease)     (3,254,509 )   $ (42,381,110 )     2,725,821     $ 46,586,423    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $       6,619,129     $ 126,292,990    
Shares issued to shareholders
in reinvestment of distributions
    2,251,768       29,250,469       8,449,525       140,398,460    
Shares repurchased     (1,625,211 )     (25,000,000 )     (9,792,130 )     (187,000,000 )  
Net increase (decrease)     626,557     $ 4,250,469       5,276,524     $ 79,691,450    

 


30




GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those 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. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided


31



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 th e 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


32



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 896.80     $ 4.06    
2) Hypothetical     0.85 %   $ 1,000.00     $ 1,020.92     $ 4.33    
Class IV      
1) Actual     0.80 %   $ 1,000.00     $ 896.90     $ 3.82    
2) Hypothetical     0.80 %   $ 1,000.00     $ 1,021.17     $ 4.08    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


33




GMO Special Situations Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO Special Situations Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Short-Term Investments     99.0 %  
Forward Currency Contracts     1.0    
Other     0.0    
      100.0 %  

 


1




GMO Special Situations Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        SHORT-TERM INVESTMENTS — 99.0%        
        Money Market Funds — 1.8%        
  12,470,394     State Street Institutional Treasury Money Market Fund-Institutional Class     12,470,394    
        Other Short-Term Investments — 97.2%        
  31,263,164     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     31,263,164    
  600,000,000     U.S. Treasury Bill, 1.60%, due 11/06/08 (a)      598,239,600    
  38,000,000     U.S. Treasury Bill, 1.37%, due 10/16/08 (a)      37,934,450    
    Total Other Short-Term Investments     667,437,214    
    TOTAL SHORT-TERM INVESTMENTS (COST $679,809,009)     679,907,608    
        TOTAL INVESTMENTS — 99.0%
(Cost $679,809,009)
    679,907,608    
        Other Assets and Liabilities (net) — 1.0%     6,922,600    
    TOTAL NET ASSETS — 100.0%   $ 686,830,208    

 

See accompanying notes to the financial statements.


2



GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   CHF     44,123,773     $ 40,102,172     $ (153,524 )  
11/21/08   CHF     35,157,156       31,952,805       (64,130 )  
11/21/08   CHF     35,157,156       31,952,805       (71,917 )  
11/21/08   CHF     35,157,156       31,952,805       (53,928 )  
11/21/08   JPY     3,643,641,278       33,631,906       413,070    
11/21/08   JPY     3,643,641,278       33,631,906       400,042    
11/21/08   JPY     3,643,641,278       33,631,906       412,767    
11/21/08   JPY     3,643,641,278       33,631,906       408,405    
11/21/08   SGD     48,857,250       34,593,114       (121,430 )  
11/21/08   SGD     48,857,250       34,593,114       (112,652 )  
11/21/08   SGD     48,857,250       34,593,114       (93,088 )  
11/21/08   SGD     48,857,250       34,593,114       (113,046 )  
    $ 408,860,667     $ 850,569    
Sales  
11/21/08   AUD     22,732,486     $ 19,335,702     $ 288,730    
11/21/08   CAD     20,581,166       19,366,720       51,875    
11/21/08   CHF     44,123,773       40,102,171       182,312    
11/21/08   CHF     35,157,156       31,952,805       135,374    
11/21/08   CHF     35,157,156       31,952,805       222,652    
11/21/08   CHF     35,157,156       31,952,805       8,246    
11/21/08   EUR     24,089,000       35,192,059       29,793    
11/21/08   EUR     24,089,000       35,192,059       68,937    
11/21/08   GBP     8,100,000       14,680,577       495,318    
11/21/08   GBP     27,741,316       50,278,831       1,159,672    
11/21/08   GBP     27,741,316       50,278,831       1,155,511    
11/21/08   GBP     27,741,316       50,278,831       1,115,286    
11/21/08   GBP     27,741,316       50,278,831       1,130,960    
11/21/08   NZD     26,177,670       18,111,194       313,697    
    $ 478,954,221     $ 6,358,363    

 

See accompanying notes to the financial statements.


3



GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Note to Schedule of Investments:

(a)  Rate shown represents yield-to-maturity.

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NZD - New Zealand Dollar

SGD - Singapore Dollar

See accompanying notes to the financial statements.


4




GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $679,809,009) (Note 2)   $ 679,907,608    
Interest receivable     18,451    
Unrealized appreciation on open forward currency contracts (Note 2)     7,992,646    
Receivable for expenses reimbursed by Manager (Note 3)     13,237    
Total assets     687,931,942    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     213,335    
Shareholder service fee     38,249    
Trustees and Chief Compliance Officer of GMO Trust fees     1,303    
Unrealized depreciation on open forward currency contracts (Note 2)     783,715    
Accrued expenses     65,132    
Total liabilities     1,101,734    
Net assets   $ 686,830,208    
Net assets attributable to:  
Class III shares   $ 81,955,607    
Class VI shares   $ 604,874,601    
Shares outstanding:  
Class III     3,778,518    
Class VI     27,854,340    
Net asset value per share:  
Class III   $ 21.69    
Class VI   $ 21.72    

 

See accompanying notes to the financial statements.


5



GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Interest   $ 5,922,506    
Dividends     86,409    
Total investment income     6,008,915    
Expenses:  
Management fee (Note 3)     1,272,444    
Shareholder service fee – Class III (Note 3)     62,387    
Shareholder service fee – Class VI (Note 3)     166,272    
Custodian, fund accounting agent and transfer agent fees     44,528    
Audit and tax fees     29,256    
Legal fees     8,924    
Trustees fees and related expenses (Note 3)     8,649    
Miscellaneous     4,232    
Total expenses     1,596,692    
Fees and expenses reimbursed by Manager (Note 3)     (83,812 )  
Net expenses     1,512,880    
Net investment income (loss)     4,496,035    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Foreign currency, forward contracts and foreign currency related transactions     8,312,348    
Net realized gain (loss)     8,312,348    
Change in net unrealized appreciation (depreciation) on:  
Investments     26,449    
Foreign currency, forward contracts and foreign currency related transactions     (502,874 )  
Net unrealized gain (loss)     (476,425 )  
Net realized and unrealized gain (loss)     7,835,923    
Net increase (decrease) in net assets resulting from operations   $ 12,331,958    

 

See accompanying notes to the financial statements.


6



GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Period from
July 31, 2007
(commencement of operations)
through February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,496,035     $ 8,357,568    
Net realized gain (loss)     8,312,348       28,532,325    
Change in net unrealized appreciation (depreciation)     (476,425 )     7,783,956    
Net increase (decrease) in net assets from operations     12,331,958       44,673,849    
Net share transactions (Note 7):  
Class III     (7,886,492 )     85,973,660    
Class VI     1,050,000       550,687,233    
Increase (decrease) in net assets resulting from
net share transactions
    (6,836,492 )     636,660,893    
Total increase (decrease) in net assets     5,495,466       681,334,742    
Net assets:  
Beginning of period     681,334,742          
End of period   $ 686,830,208     $ 681,334,742    

 

See accompanying notes to the financial statements.


7




GMO Special Situations Fund

(A Series of GMO Trust)

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

    Six Months Ended
August 31, 2008
(Unaudited)
  Period from
August 13, 2007
(commencement of
operations) through
February 29, 2008
 
Net asset value, beginning of period   $ 21.32     $ 20.09    
Income (loss) from investment operations:  
Net investment income (loss)      0.13       0.31    
Net realized and unrealized gain (loss)     0.24       0.92    
Total from investment operations     0.37       1.23    
Net asset value, end of period   $ 21.69     $ 21.32    
Total Return(a)      1.74 %**      6.12 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 81,956     $ 88,204    
Net expenses to average daily net assets     0.52 %*      0.53 %*   
Net investment income to average daily net assets     1.24 %*      2.71 %*   
Portfolio turnover rate     0 %**      0 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.02 %*      0.05 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods 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 February 29, 2008.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8



GMO Special Situations Fund

(A Series of GMO Trust)

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

    Six Months Ended
August 31, 2008
(Unaudited)
  Period from
July 31, 2007
(commencement of
operations) through
February 29, 2008
 
Net asset value, beginning of period   $ 21.33     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)      0.14       0.34    
Net realized and unrealized gain (loss)     0.25       0.99    
Total from investment operations     0.39       1.33    
Net asset value, end of period   $ 21.72     $ 21.33    
Total Return(a)      1.83 %**      6.65 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 604,875     $ 593,131    
Net expenses to average daily net assets     0.43 %*      0.43 %*   
Net investment income to average daily net assets     1.32 %*      2.84 %*   
Portfolio turnover rate     0 %**      0 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.02 %*      0.05 %*   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods 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 February 29, 2008.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9




GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2008 (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 complement long-only investments in global equities and fixed income instruments. The Fund may have long or short 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 exposed (long or short) to a single asset class (e.g., equity securities or fixed income securities). In addition, the Fund is not restricted in its exposure (long or short) to any particular market. The Fund may have substantial exposure (long or short) to a particular country or type of country (e.g., emerging countries). The Fund could be subject to material losses from a single investment. 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 does not seek "relative" return).

As of August 31, 2008, 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.

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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.


10



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 629,502,764     $    
Level 2 - Other Significant Observable Inputs     50,404,844       7,992,646    
Level 3 - Significant Unobservable Inputs              
Total   $ 679,907,608     $ 7,992,646    

 

*  Other financial instruments include forward currency contracts.


11



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs           (783,715 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (783,715 )  

 

**  Other financial instruments include forward currency contracts.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


12



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had no open written options 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 for a


13



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchase options contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender has sold the participation in th e loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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


14



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward 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 obligations. 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 iss uer's default. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.


15



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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, 2008, 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)
 
$ 679,809,009     $ 98,599     $     $ 98,599    

 

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have


16



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

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 the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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.


17



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about Funds' derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives management fee for investment management services provided to the Fund that is 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.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.37% of the Fund's average daily net assets. Excluded Expenses include 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).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $8,189 and $1,932, 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, 2008 aggregated $0 and $0, respectively.


18



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 79.71% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Two of the shareholders are other funds of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and all of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
  Period from August 13, 2007,
(commencement of operations)
through February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     107,900     $ 2,361,097       4,137,904     $ 85,973,660    
Shares issued to shareholders
in reinvestment of distributions
                         
Shares repurchased     (467,286 )     (10,247,589 )              
Net increase (decrease)     (359,386 )   $ (7,886,492 )     4,137,904     $ 85,973,660    

 


19



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Period from July 31, 2007,
(commencement of operations)
through February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     155,257     $ 3,350,000       30,240,773     $ 602,709,982    
Shares issued to shareholders
in reinvestment of distributions
                         
Shares repurchased     (108,103 )     (2,300,000 )     (2,433,587 )     (52,022,749 )  
Net increase (decrease)     47,154     $ 1,050,000       27,807,186     $ 550,687,233    

 


20




GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's performance since inception in 2007, 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 those 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. 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


21



GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


22



GMO Special Situations Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

Actual Expenses

The first line of the table below for each class 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 for each class 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     $ 1,017.40     $ 2.64    
  2 ) Hypothetical     0.52 %   $ 1,000.00     $ 1,022.58     $ 2.65    
Class VI      
  1 ) Actual     0.43 %   $ 1,000.00     $ 1,018.30     $ 2.19    
  2 ) Hypothetical     0.43 %   $ 1,000.00     $ 1,023.04     $ 2.19    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


23




GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.1 %  
Short-Term Investments     1.9    
Preferred Stocks     0.6    
Futures Contracts     (0.1 )  
Other     1.5    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     23.3 %  
United Kingdom     21.6    
France     13.6    
Germany     7.5    
Switzerland     7.0    
Australia     3.6    
Canada     3.6    
Netherlands     3.4    
Italy     3.1    
Finland     2.6    
Singapore     2.1    
Hong Kong     1.7    
Spain     1.3    
Sweden     1.2    
Belgium     1.0    
Austria     0.9    
Denmark     0.9    
Norway     0.9    
Ireland     0.4    
Greece     0.2    
New Zealand     0.1    
India     0.0    
Philippines     0.0    
Taiwan     0.0    
      100.0 %  

 


1



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Health Care     18.1 %  
Energy     14.8    
Financials     12.5    
Materials     12.2    
Consumer Discretionary     11.5    
Industrials     7.6    
Consumer Staples     7.4    
Information Technology     6.0    
Telecommunication Services     5.7    
Utilities     4.2    
      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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.1%  
        Australia — 3.5%  
    84,857     Australia and New Zealand Banking Group Ltd     1,194,927    
    93,265     BHP Billiton Ltd     3,275,632    
    143,976     BlueScope Steel Ltd     1,132,088    
    53,010     CSL Ltd     1,850,066    
    177,240     Fortescue Metals Group Ltd*      1,151,469    
    8,324     Incitec Pivot Ltd     1,132,423    
    20,217     Rio Tinto Ltd     2,191,993    
    146,634     Santos Ltd     2,508,395    
    217,526     Stockland     973,491    
    117,663     Suncorp-Metway Ltd     1,142,387    
    96,605     TABCORP Holdings Ltd     705,704    
    862,850     Telstra Corp Ltd     3,202,963    
    129,756     Woodside Petroleum Ltd     6,969,569    
    141,450     Woolworths Ltd     3,414,960    
    Total Australia     30,846,067    
        Austria — 0.9%  
    87,050     OMV AG     5,576,990    
    36,992     Voestalpine AG     2,002,416    
    Total Austria     7,579,406    
        Belgium — 1.0%  
    7,614     Colruyt SA     2,075,883    
    192,808     Dexia     2,724,837    
    147,719     Fortis     2,045,363    
    9,957     Solvay SA     1,219,087    
    19,465     UCB SA     761,175    
    Total Belgium     8,826,345    
        Canada — 3.5%  
    25,600     Agrium Inc     2,165,319    
    68,600     Bank of Montreal     3,006,176    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued  
    23,764     Canadian Natural Resources     2,028,601    
    21,800     Canadian Pacific Railway Ltd     1,330,010    
    12,471     EnCana Corp     937,380    
    22,800     Magna International Inc Class A     1,309,422    
    46,700     National Bank of Canada     2,199,976    
    31,400     Petro-Canada     1,388,425    
    50,400     Potash Corp of Saskatchewan Inc     8,769,923    
    44,500     Research In Motion Ltd*      5,421,892    
    55,700     Sun Life Financial Inc     2,148,159    
    Total Canada     30,705,283    
        Denmark — 0.9%  
    62,525     Novo-Nordisk A/S Class B     3,490,263    
    31,600     Vestas Wind Systems A/S*      4,287,912    
    Total Denmark     7,778,175    
        Finland — 2.5%  
    40,242     Fortum Oyj     1,651,767    
    377,242     Nokia Oyj     9,445,162    
    23,177     Nokian Renkaat Oyj     825,394    
    78,032     Outokumpu Oyj     1,868,537    
    58,040     Rautaruukki Oyj     1,968,655    
    208,062     Sampo Oyj Class A     5,234,302    
    54,294     Tietoenator Oyj     1,066,015    
    Total Finland     22,059,832    
        France — 13.1%  
    29,767     Air France     716,165    
    19,146     Air Liquide SA     2,325,479    
    35,046     Alstom     3,560,050    
    112,877     Arcelor Mittal     8,855,422    
    101,868     BNP Paribas     9,138,081    
    4,173     Bongrain SA     336,254    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    12,971     Cap Gemini SA     765,813    
    33,710     Casino Guichard-Perrachon SA     3,303,371    
    24,309     Cie de Saint-Gobain     1,485,180    
    35,628     Essilor International SA     1,895,328    
    2,228     Esso SAF     447,213    
    130,301     France Telecom SA     3,841,914    
    16,002     GDF Suez*      929,169    
    89,429     GDF Suez     5,148,189    
    16,002     GDF Suez VVPR Strip*      235    
    24,355     Hermes International     3,458,743    
    10,797     L'Oreal SA     1,071,706    
    4,045     NYSE Euronext     159,455    
    33,110     Peugeot SA     1,573,109    
    32,709     Renault SA     2,731,310    
    345,318     Sanofi-Aventis     24,498,762    
    50,744     Societe Generale     4,894,893    
    4,196     Suez Environnement Company*      121,699    
    13,742     Suez Environnement SA*      394,737    
    20     Suez SA VVPR Strip*         
    431,871     Total SA     31,023,953    
    7,399     Vallourec SA     2,058,333    
    Total France     114,734,563    
        Germany — 6.7%  
    41,494     Adidas AG     2,423,701    
    45,334     BASF AG     2,616,169    
    62,482     Bayerische Motoren Werke AG     2,578,982    
    24,000     Deutsche Boerse AG     2,249,548    
    50,258     Deutsche Post AG (Registered)     1,175,574    
    136,842     E.ON AG     7,977,504    
    41,277     Gildemeister AG     987,804    
    36,072     Hannover Rueckversicherungs AG (Registered)     1,530,128    
    50,561     Heidelberger Druckmaschinen     1,030,654    
    39,249     K&S AG     4,705,406    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    15,132     Kloeckner & Co AG     597,297    
    19,612     Linde AG     2,460,859    
    7,961     MAN AG     777,384    
    9,129     Merck KGaA     1,044,043    
    21,039     Norddeutsche Affinerie AG     969,493    
    15,432     Q-Cells AG*      1,544,950    
    12,083     RWE AG     1,301,308    
    38,020     Salzgitter AG     5,822,001    
    79,357     SAP AG     4,445,757    
    31,322     SGL Carbon AG*      1,874,734    
    37,961     Suedzucker AG     643,445    
    55,678     ThyssenKrupp AG     2,772,138    
    22,528     Volkswagen AG     6,717,045    
    Total Germany     58,245,924    
        Greece — 0.2%  
    42,664     OPAP SA     1,494,104    
        Hong Kong — 1.7%  
    682,000     BOC Hong Kong Holdings Ltd     1,516,608    
    843,900     CLP Holdings Ltd     6,846,104    
    53,800     Esprit Holdings Ltd     444,134    
    44,300     Hang Seng Bank Ltd     873,741    
    622,000     Hong Kong Electric Holdings Ltd     3,949,229    
    63,000     Sun Hung Kai Properties Ltd     859,034    
    Total Hong Kong     14,488,850    
        India — 0.0%  
    2,400     Bajaj Auto Ltd*      32,131    
    2,400     Bajaj Financial Service Ltd     29,351    
    Total India     61,482    
        Ireland — 0.3%  
    59,854     Bank of Ireland     479,796    
    100,699     CRH Plc     2,626,825    
    Total Ireland     3,106,621    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Italy — 3.0%  
    737,811     ENI SPA     23,932,638    
    108,006     Mediaset SPA     784,154    
    938,760     Telecom Italia SPA-Di RISP     1,189,908    
    Total Italy     25,906,700    
        Japan — 22.5%  
    17,500     Aisin Seiki Co Ltd     460,708    
    84,500     Asahi Breweries     1,565,176    
    71,500     Astellas Pharma Inc     3,220,489    
    97,500     Canon Inc     4,372,266    
    341,000     Cosmo Oil Co Ltd     995,967    
    876     CyberAgent Inc     837,020    
    152,100     Daiei Inc*      1,202,370    
    149,041     Daiichi Sankyo Co Ltd     4,483,890    
    44,100     Daikin Industries Ltd     1,486,542    
    101     DeNa Co Ltd     492,767    
    84,300     Eisai Co Ltd     3,352,518    
    27,600     Fanuc Ltd     2,053,396    
    40,300     Fast Retailing Co Ltd     4,067,724    
    373,000     Fuji Heavy Industries Ltd     2,132,295    
    101,000     GS Yuasa Corp     516,461    
    288,000     Hitachi Ltd     2,121,104    
    437,800     Honda Motor Co Ltd     14,218,722    
    68,100     Hosiden Corp     1,133,055    
    70,000     Hoya Corp     1,426,959    
    296     INPEX Holdings Inc     3,223,197    
    391,000     Itochu Corp     3,145,505    
    46,100     JFE Holdings Inc     1,948,186    
    149,000     Kamigumi Co Ltd     1,150,017    
    185,000     Kao Corp     5,237,906    
    265,000     Kawasaki Kisen Kaisha Ltd     1,878,781    
    564     Kenedix Inc     321,243    
    10,900     Keyence Corp     2,204,861    
    93,000     Kirin Holdings Co Ltd     1,391,453    
    36,000     Kyudenko Corp     233,690    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    62,900     Kyushu Electric Power Co Inc     1,385,038    
    570,000     Marubeni Corp     3,526,804    
    255,000     Matsushita Electric Industrial Co Ltd     5,241,231    
    505,000     Mazda Motor Corp     2,688,029    
    265,200     Mitsubishi Corp     7,284,799    
    147,000     Mitsui & Co     2,506,254    
    366,000     Mitsui Mining & Smelting Co Ltd     975,202    
    226,000     Mitsui OSK Lines Ltd     2,678,569    
    46,100     Murata Manufacturing Co Ltd     2,025,719    
    47,000     Nagase & Co     445,081    
    44,000     Nikon Corp     1,428,072    
    19,000     Nintendo Co Ltd     8,919,738    
    26,000     Nippon Corp     137,991    
    133,000     Nippon Denko Co Ltd     1,144,598    
    404,000     Nippon Mining Holdings Inc     2,244,055    
    412,000     Nippon Oil Corp     2,569,606    
    1,191     Nippon Telegraph & Telephone Corp     5,855,123    
    158,000     Nippon Yakin Koguo Co Ltd     777,915    
    411,000     Nippon Yusen KK     3,279,886    
    763,400     Nissan Motor Co     5,798,856    
    96,000     Nisshinbo Industries Inc     1,056,975    
    3,437     NTT Docomo Inc     5,416,774    
    35,100     Ono Pharmaceutical Co Ltd     1,837,941    
    7,220     ORIX Corp     879,556    
    635,000     Osaka Gas Co Ltd     2,310,345    
    57,000     Pacific Metals Co Ltd     364,775    
    1,331     Resona Holdings Inc     1,549,169    
    117,400     Ricoh Company Ltd     1,937,878    
    24,200     Ryohin Keikaku Co Ltd     1,298,538    
    7,600     Ryosan Co     163,283    
    39,200     Sankyo Co Ltd Gunma     1,856,063    
    26,700     Secom Co     1,229,965    
    182,800     Sega Sammy Holdings Inc     1,733,846    
    293,700     Seven & I Holdings Co Ltd     8,554,764    
    91,300     Shin-Etsu Chemical Co Ltd     5,079,036    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    41,000     Shiseido Co Ltd     959,964    
    583,800     Sojitz Corp     1,665,736    
    79,800     SUMCO Corp     1,580,886    
    600,000     Sumitomo Metal Industries Ltd     2,650,533    
    74,000     Taisho Pharmaceutical Co Ltd     1,569,649    
    196,500     Takeda Pharmaceutical Co Ltd     10,265,217    
    49,200     Terumo Corp     2,737,111    
    88,900     Tokyo Steel Manufacturing Co     938,630    
    108,000     TonenGeneral Sekiyu KK     868,982    
    43,100     Toyota Motor Corp     1,923,053    
    40,000     Trend Micro Inc     1,353,736    
    137,000     UNY Co Ltd     1,510,286    
    5,148     Yahoo Japan Corp     1,972,975    
    Total Japan     197,052,500    
        Netherlands — 3.3%  
    385,945     Aegon NV     4,546,421    
    16,246     Boskalis Westminster     959,580    
    2,671     Gamma Holdings NV     95,371    
    103,955     Heineken NV     4,873,718    
    447,606     ING Groep NV     13,944,840    
    45,860     Koninklijke DSM     2,639,460    
    125,180     Reed Elsevier NV     2,093,024    
    Total Netherlands     29,152,414    
        New Zealand — 0.1%  
    212,335     Telecom Corp of New Zealand     486,000    
        Norway — 0.9%  
    21,304     Frontline Ltd     1,274,515    
    4,260     Independent Tankers Corp Ltd*      6,285    
    62,351     Norsk Hydro ASA     664,449    
    122,924     StatoilHydro ASA     3,770,747    
    36,610     Yara International ASA     2,266,797    
    Total Norway     7,982,793    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Philippines — 0.0%  
    4     Philippine Long Distance Telephone Co     235    
        Singapore — 2.0%  
    48,000     DBS Group Holdings Ltd     606,936    
    135,500     Fraser & Neave Ltd     415,522    
    389,000     Oversea-Chinese Banking Corp     2,204,375    
    693,000     SembCorp Marine Ltd     1,836,752    
    292,000     Singapore Exchange Ltd     1,289,412    
    2,871,670     Singapore Telecommunications     7,087,526    
    243,000     United Overseas Bank Ltd     3,234,392    
    318,000     Wilmar International Ltd*      842,188    
    Total Singapore     17,517,103    
        Spain — 1.3%  
    28,659     Inditex SA     1,332,839    
    139,275     Repsol YPF SA     4,307,852    
    216,970     Telefonica SA     5,361,002    
    Total Spain     11,001,693    
        Sweden — 1.1%  
    64,400     Hennes & Mauritz AB Class B     3,191,387    
    149,158     Investor AB Class B     3,140,494    
    70,400     SKF AB Class B     1,066,154    
    58,100     Svenska Handelsbanken AB Class A     1,397,979    
    66,500     Swedbank AB     1,168,594    
    Total Sweden     9,964,608    
        Switzerland — 6.7%  
    156,342     ABB Ltd*      3,834,713    
    6,497     Bobst Group AG (Registered)     457,589    
    27,385     Ciba Holding AG     674,517    
    41,645     CIE Financiere Richemont SA Class A     2,423,110    
    237,976     Nestle SA (Registered)     10,485,121    
    455,839     Novartis AG (Registered)     25,394,142    
    29,035     Roche Holding AG (Non Voting)     4,885,964    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued  
    6,641     Swatch Group AG     1,560,837    
    15,043     Syngenta AG (Registered)     4,036,181    
    16,078     Synthes Inc     2,224,860    
    133,366     UBS AG (Registered)*      2,898,856    
    Total Switzerland     58,875,890    
        Taiwan — 0.0%  
    3,999     AU Optronics Corp     4,748    
    4,167     High Tech Computer Corp     77,210    
    272     MediaTek Inc     3,123    
    403     Taiwan Semiconductor Manufacturing Co Ltd     742    
    Total Taiwan     85,823    
        United Kingdom — 20.9%  
    176,467     3i Group Plc     2,948,743    
    341,848     AstraZeneca Plc     16,665,754    
    378,922     Barclays Plc     2,424,696    
    737,772     BG Group Plc     16,364,779    
    61,887     BHP Billiton Plc     1,927,529    
    105,025     British American Tobacco Plc     3,548,181    
    122,177     British Energy Group Plc     1,631,576    
    153,914     Cadbury Plc     1,766,335    
    244,662     Compass Group Plc     1,628,192    
    183,121     Diageo Plc     3,382,050    
    1,983,041     DSG International Plc     1,781,728    
    1,751,875     GlaxoSmithKline Plc     41,223,031    
    860,674     HBOS Plc     4,926,439    
    423,942     Home Retail Group     1,951,817    
    89,625     Imperial Tobacco Group Plc     2,955,008    
    98,381     Man Group Plc     1,013,774    
    71,343     Next Plc     1,376,580    
    51,139     Reckitt Benckiser Group Plc     2,585,300    
    102,828     Reed Elsevier Plc     1,175,230    
    163,084     Rio Tinto Plc     15,481,359    

 

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, 2008 (Unaudited)

Shares /
Par Value($)
  Description   Value ($)  
        United Kingdom — continued  
      3,522,903     Royal Bank of Scotland Group     14,983,166    
    212,792     Royal Dutch Shell Group Class A (Amsterdam)     7,405,420    
    112,648     Royal Dutch Shell Plc A Shares (London)     3,936,745    
    53,143     Royal Dutch Shell Plc B Shares (London)     1,827,398    
    91,642     Scottish & Southern Energy Plc     2,413,783    
    1,366,806     Signet Group Plc     1,560,415    
    157,015     Smith & Nephew Plc     1,884,238    
    241,841     Tesco Plc     1,676,294    
    63,859     Travis Perkins Plc     777,681    
    83,119     Tullow Oil Plc     1,245,850    
    6,243,122     Vodafone Group Inc     15,954,007    
    128,560     William Hill Plc     661,347    
    27,642     Xstrata Plc     1,541,128    
    Total United Kingdom     182,625,573    
    TOTAL COMMON STOCKS (COST $756,800,175)     840,577,984    
        PREFERRED STOCKS — 0.6%  
        Germany — 0.6%  
    33,840     Volkswagen AG 1.73%     5,216,301    
    TOTAL PREFERRED STOCKS (COST $1,039,473)     5,216,301    
        SHORT-TERM INVESTMENTS — 1.9%  
    16,500,000     Royal Bank of Canada Time Deposit, 2.04%, due 09/02/08     16,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $16,500,000)     16,500,000    
            TOTAL INVESTMENTS — 98.6%
(Cost $774,339,648)
    862,294,285    
            Other Assets and Liabilities (net) — 1.4%     12,197,698    
    TOTAL NET ASSETS — 100.0%   $ 874,491,983    

 

See accompanying notes to the financial statements.


12



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:  

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  100     E-Mini MSCI EAFE   September 2008   $ 9,025,000     $ (567,700 )  

 

As of August 31, 2008, 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.

As of August 31, 2008, 93.03% 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.


13




GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $774,339,648) (Note 2)   $ 862,294,285    
Cash     39,387    
Foreign currency, at value (cost $8,893,207) (Note 2)     8,752,273    
Receivable for investments sold     194,327    
Receivable for Fund shares sold     130,943    
Dividends and interest receivable     2,032,228    
Foreign taxes receivable     443,831    
Receivable for collateral on open futures contracts (Note 2)     1,259,000    
Receivable for variation margin on open futures contracts (Note 2)     66,521    
Receivable for expenses reimbursed by Manager (Note 3)     78,678    
Total assets     875,291,473    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     373,938    
Shareholder service fee     112,182    
Trustees and Chief Compliance Officer of GMO Trust fees     2,268    
Accrued expenses     311,102    
Total liabilities     799,490    
Net assets   $ 874,491,983    
Net assets consist of:  
Paid-in capital   $ 739,843,242    
Accumulated undistributed net investment income     17,544,736    
Accumulated net realized gain     29,952,183    
Net unrealized appreciation     87,151,822    
    $ 874,491,983    
Net assets attributable to:  
Class III shares   $ 874,491,983    
Shares outstanding:  
Class III     51,352,734    
Net asset value per share:  
Class III   $ 17.03    

 

See accompanying notes to the financial statements.


14



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $2,273,120)   $ 21,040,706    
Interest     366,969    
Total investment income     21,407,675    
Expenses:  
Management fee (Note 3)     2,648,938    
Shareholder service fee – Class III (Note 3)     753,125    
Custodian and fund accounting agent fees     438,564    
Transfer agent fees     16,192    
Audit and tax fees     39,008    
Legal fees     12,144    
Trustees fees and related expenses (Note 3)     5,733    
Registration fees     1,288    
Miscellaneous     8,739    
Total expenses     3,923,731    
Fees and expenses reimbursed by Manager (Note 3)     (511,796 )  
Expense reductions (Note 2)     (5,435 )  
Net expenses     3,406,500    
Net investment income (loss)     18,001,175    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     31,632,198    
Closed futures contracts     (1,993,280 )  
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $150) (Note 2)
    547,491    
Net realized gain (loss)     30,186,409    
Change in net unrealized appreciation (depreciation) on:  
Investments     (108,217,369 )  
Open futures contracts     (567,700 )  
Foreign currency, forward contracts and foreign currency related transactions     (750,643 )  
Net unrealized gain (loss)     (109,535,712 )  
Net realized and unrealized gain (loss)     (79,349,303 )  
Net increase (decrease) in net assets resulting from operations   $ (61,348,128 )  

 

See accompanying notes to the financial statements.


15



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 18,001,175     $ 28,116,487    
Net realized gain (loss)     30,186,409       111,012,148    
Change in net unrealized appreciation (depreciation)     (109,535,712 )     (112,516,265 )  
Net increase (decrease) in net assets from operations     (61,348,128 )     26,612,370    
Distributions to shareholders from:  
Net investment income  
Class III     (3,272,864 )     (31,165,537 )  
Net realized gains  
Class III     (19,943,856 )     (118,448,701 )  
      (23,216,720 )     (149,614,238 )  
Net share transactions (Note 7):  
Class III     (133,289,100 )     110,083,703    
Total increase (decrease) in net assets     (217,853,948 )     (12,918,165 )  
Net assets:  
Beginning of period     1,092,345,931       1,105,264,096    
End of period (including accumulated undistributed net investment
income of $17,544,736 and $2,816,425, respectively)
  $ 874,491,983     $ 1,092,345,931    

 

See accompanying notes to the financial statements.


16




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,
2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning of
period
  $ 18.73     $ 20.76     $ 18.31     $ 15.78     $ 13.19     $ 8.73    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.34       0.51       0.36       0.35       0.26       0.21    
Net realized and unrealized
gain (loss)
    (1.57 )     0.20 (a)      3.28       2.77       2.61       4.55    
Total from investment
operations
    (1.23 )     0.71       3.64       3.12       2.87       4.76    
Less distributions to shareholders:  
From net investment income     (0.07 )     (0.57 )     (0.40 )     (0.31 )     (0.28 )     (0.30 )  
From net realized gains     (0.40 )     (2.17 )     (0.79 )     (0.28 )              
Total distributions     (0.47 )     (2.74 )     (1.19 )     (0.59 )     (0.28 )     (0.30 )  
Net asset value, end of period   $ 17.03     $ 18.73     $ 20.76     $ 18.31     $ 15.78     $ 13.19    
Total Return(b)      (6.71 )%**      2.28 %     20.33 %     20.04 %     21.94 %     54.99 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 874,492     $ 1,092,346     $ 1,105,264     $ 829,583     $ 559,912     $ 291,360    
Net expenses to average daily
net assets
    0.68 %(c)*      0.69 %(c)      0.69 %     0.69 %     0.69 %     0.69 %  
Net investment income to average
daily net assets
    1.81 %(d)**      2.33 %     1.83 %     2.10 %     1.91 %     1.87 %  
Portfolio turnover rate     37 %**      41 %     34 %     39 %     44 %     36 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.10 %*      0.09 %     0.08 %     0.10 %     0.16 %     0.26 %  

 

(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.

(c)  The net expense ratio does not include the effect of expense reductions.

(d)  The ratio for the six months ended August 31, 2008, 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.


17




GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange


18



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 48,657,173     $ 8,752,273    
Level 2 - Other Significant Observable Inputs     813,637,112          
Level 3 - Significant Unobservable Inputs              
Total   $ 862,294,285     $ 8,752,273    

 

*  Other financial instruments include foreign currency.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (567,700 )  
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $ (567,700 )  

 

**  Other financial instruments include futures contracts.


19



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $     $    
Accrued discounts/premiums              
Realized gain (loss)     119,424          
Change in unrealized appreciation/depreciation     (263,838 )        
Net purchases (sales)     (240,742 )        
Net transfers in and/or out of Level 3     385,156          
Balance as of August 31, 2008   $     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had no forward currency contracts outstanding at the end of the period.


20



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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


21



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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.


22



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 them 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 exposes the Fund, to varying degrees, to 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 the counterparties to the agreements may default on their obligations to perform or disagree as to the meaning of contractual terms i n the agreements, or that there may be unfavorable changes in interest rates or the price of the index or security underlying these transactions. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 of August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

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, 2008, the Fund incurred $150 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 774,680,894     $ 144,413,382     $ (56,799,991 )   $ 87,613,391    

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


24



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.


25



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

3.  Fees and other transactions with affiliates

Effective June 30, 2008, GMO receives a management fee for investment management services provided to the Fund that is paid monthly at the rate of 0.50% of average daily net assets. For the period from March 1, 2008 through June 29, 2008, the management fee rate was 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $5,181 and $2,944, 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, 2008 aggregated $358,513,548 and $501,492,752, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


26



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, the Fund had no shareholders individually holding more than 10% of the Fund's outstanding shares.

As of August 31, 2008, 1.16% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 0.14% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Class III:  
Shares sold     1,380,094     $ 25,350,124       4,630,804     $ 96,384,502    
Shares issued to shareholders
in reinvestment of distributions
    1,108,121       19,624,821       6,034,152       126,532,299    
Shares repurchased     (9,447,427 )     (178,264,045 )     (5,588,860 )     (112,833,098 )  
Net increase (decrease)     (6,959,212 )   $ (133,289,100 )     5,076,096     $ 110,083,703    

 


27




GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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, including the fact that the fees payable under the agreement were being reduced in connection with the renewal of the agreement. The Trustees considered information prepared by


28



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

third-party data services concerning fees paid to managers of funds deemed by those 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. 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 op portunity that record might create for the Manager to increase assets under management, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


29



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


30



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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 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     0.68 %   $ 1,000.00     $ 932.90     $ 3.31    
2) Hypothetical     0.68 %   $ 1,000.00     $ 1,021.78     $ 3.47    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


31




GMO Domestic Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Domestic Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     93.4 %  
Short-Term Investments     7.4    
Preferred Stocks     0.1    
Swaps     0.0    
Forward Currency Contracts     0.0    
Futures     (0.1 )  
Other     (0.8 )  
      100.0 %  

 

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


1




GMO Domestic Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value ($) /
Shares
  Description   Value ($)  
        DEBT OBLIGATIONS — 2.2%        
        Corporate Debt — 0.7%        
  11,347,000     Health Care Property Investors, Inc., Series G, MTN, 5.63%, due 02/28/13     10,506,643    
        U.S. Government — 0.1%        
  2,000,000     U.S. Treasury Note, 2.38%, due 08/31/10     2,000,625    
        U.S. Government Agency — 1.4%        
  9,250,000     Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 2.90%, due 02/01/27
    9,192,279    
  3,250,000     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. LIBOR + .30%, 3.43%, due 12/01/14
    3,258,158    
  3,458,770     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 2.72%, due 03/30/19
    3,473,953    
  2,780,000     Agency for International Development Floater (Support of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20%, 3.33%, due 06/15/12
    2,776,553    
  2,566,672     Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 1.89%, due 01/01/12
    2,539,403    
    Total U.S. Government Agency     21,240,346    
    TOTAL DEBT OBLIGATIONS (COST $34,676,292)     33,747,614    
        PREFERRED STOCKS — 0.1%        
        Banking — 0.1%        
  10,000     Home Ownership Funding 2 Preferred 144A, 1.00%     1,536,200    
    TOTAL PREFERRED STOCKS (COST $2,576,211)     1,536,200    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 96.2%        
        Affiliated Issuers — 96.2%        
  63,505,738     GMO Short-Duration Collateral Fund     1,493,654,953    
  1,483     GMO Special Purpose Holding Fund (a) (b)      1,082    
    TOTAL MUTUAL FUNDS (COST $1,541,220,725)     1,493,656,035    
        SHORT-TERM INVESTMENTS — 1.2%        
        Money Market Funds — 0.1%        
  949,505     State Street Institutional Liquid Reserves Fund-Institutional Class     949,505    
        Other Short-Term Investments — 1.1%        
  10,000,000     U.S. Treasury Bill, 1.54%, due 09/18/08 (c) (d)      9,992,435    
  7,000,000     U.S. Treasury Bill, 1.69%, due 09/25/08 (c) (d)      6,991,927    
    Total Other Short-Term Investments     16,984,362    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,933,867)     17,933,867    
    TOTAL INVESTMENTS — 99.7%
(Cost $1,596,407,095)
    1,546,873,716    
        Other Assets and Liabilities (net) — 0.3%     5,121,975    
    TOTAL NET ASSETS — 100.0%   $ 1,551,995,691    

 

See accompanying notes to the financial statements.


3



GMO Domestic Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  2,104     U.S. Long Bond (CBT)   December 2008   $ 246,825,500     $ (1,304,874 )  
  2,916     U.S. Treasury Note 10 Yr.   December 2008     336,798,000       (760,528 )  
  2,083     U.S. Treasury Note 2 Yr. (CBT)   December 2008     442,181,844       91,390    
  3,068     U.S. Treasury Note 5 Yr. (CBT)   December 2008     343,424,250       (26,791 )  
    $ 1,369,229,594     $ (2,000,803 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Annual
Premium
  Deliverable
On Default
  Market
Value
 
  75,000,000     USD   12/20/2012   JP Morgan           Reference security    
   
          Chase Bank   (Pay)     0.89 %   within CDX index   $ (43,433 )  
  200,000,000
  USD
  12/20/2012
  JP Morgan
Chase Bank
 
Receive
   
0.73%
    Reference security
within CDX index
   
2,368,747
   
  300,000,000
  USD
  12/20/2012
  JP Morgan
Chase Bank
 
Receive
   
0.47%
    Reference security
within CDX index
   
202,056
   
  11,500,000     USD   3/20/2013   Barclays Bank PLC   (Pay)     0.61 %   Health Care Properties     1,203,488    
  100,000,000     USD   9/20/2013   Citigroup   Receive     0.39 %   Fannie Mae (senior)     44,503    
  25,000,000     USD   9/20/2013   Deutsche Bank AG   Receive     0.42 %   Fannie Mae (senior)     79,122    
  100,000,000
  USD
  9/20/2013
  JP Morgan
Chase Bank
 
Receive
   
0.39%
   
Fannie Mae (senior)
   
(389)
   
  25,000,000     USD   9/20/2013   Citigroup   Receive     0.42 %   Freddie Mac (senior)     44,654    
    Premiums to (Pay) Receive   $     $ 3,898,748    

 

As of August 31, 2008, for the futures and/or swap 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.


4



GMO Domestic Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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.

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, 2008, which are subject to change based on the terms of the 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)  Underlying investment represents interests in defaulted securities.

(c)  Rate shown represents yield-to-maturity.

(d)  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:

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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $55,186,370) (Note 2)   $ 53,217,681    
Investments in affiliated issuers, at value (cost $1,541,220,725) (Notes 2 and 8)     1,493,656,035    
Receivable for investments sold     5,019,541    
Interest receivable     104,109    
Receivable for open swap contracts (Note 2)     3,942,570    
Receivable for expenses reimbursed by Manager (Note 3)     16,833    
Total assets     1,555,956,769    
Liabilities:  
Payable for investments purchased     1,999,325    
Payable to affiliate for (Note 3):  
Management fee     133,131    
Shareholder service fee     86,382    
Trustees and Chief Compliance Officer of GMO Trust fees     951    
Payable for open swap contracts (Note 2)     43,822    
Payable for variation margin on open futures contracts (Note 2)     1,629,599    
Accrued expenses     67,868    
Total liabilities     3,961,078    
Net assets   $ 1,551,995,691    
Net assets consist of:  
Paid-in capital   $ 1,592,657,936    
Accumulated undistributed net investment income     8,106,313    
Accumulated net realized loss     (1,133,124 )  
Net unrealized depreciation     (47,635,434 )  
    $ 1,551,995,691    
Net assets attributable to:  
Class III shares   $ 142,439,210    
Class VI shares   $ 1,409,556,481    
Shares outstanding:  
Class III     15,500,003    
Class VI     153,291,914    
Net asset value per share:  
Class III   $ 9.19    
Class VI   $ 9.20    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 10,630,102    
Interest     758,142    
Dividends     79,164    
Total investment income     11,467,408    
Expenses:  
Management fee (Note 3)     574,061    
Shareholder service fee – Class III (Note 3)     112,038    
Shareholder service fee – Class VI (Note 3)     274,653    
Custodian, fund accounting agent and transfer agent fees     49,036    
Audit and tax fees     31,372    
Legal fees     8,372    
Trustees fees and related expenses (Note 3)     3,982    
Registration fees     2,116    
Miscellaneous     4,416    
Total expenses     1,060,046    
Fees and expenses reimbursed by Manager (Note 3)     (92,828 )  
Expense reductions (Note 2)     (17 )  
Net expenses     967,201    
Net investment income (loss)     10,500,207    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (386 )  
Investments in affiliated issuers     (22,618,492 )  
Realized gains distributions from affiliated issuers (Note 8)     3,358    
Closed futures contracts     32,456,289    
Closed swap contracts     (4,335,369 )  
Net realized gain (loss)     5,505,400    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     24,441    
Investments in affiliated issuers     (9,141,561 )  
Open futures contracts     (6,373,275 )  
Open swap contracts     (127,590 )  
Net unrealized gain (loss)     (15,617,985 )  
Net realized and unrealized gain (loss)     (10,112,585 )  
Net increase (decrease) in net assets resulting from operations   $ 387,622    

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,500,207     $ 33,094,287    
Net realized gain (loss)     5,505,400       32,296,684    
Change in net unrealized appreciation (depreciation)     (15,617,985 )     (37,260,108 )  
Net increase (decrease) in net assets from operations     387,622       28,130,863    
Distributions to shareholders from:  
Net investment income  
Class III     (1,572,203 )     (11,697,331 )  
Class VI     (9,077,916 )     (41,858,762 )  
Total distributions from net investment income     (10,650,119 )     (53,556,093 )  
Net realized gains  
Class III     (313,474 )        
Class VI     (2,316,107 )        
Total distributions from net realized gains     (2,629,581 )        
      (13,279,700 )     (53,556,093 )  
Net share transactions (Note 7):  
Class III     1,001,191       55,468,188    
Class VI     838,074,801       273,813,697    
Increase (decrease) in net assets resulting from net share
transactions
    839,075,992       329,281,885    
Total increase (decrease) in net assets     826,183,914       303,856,655    
Net assets:  
Beginning of period     725,811,777       421,955,122    
End of period (including accumulated undistributed net investment
income of $8,106,313 and $8,256,225, respectively)
  $ 1,551,995,691     $ 725,811,777    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 9.47     $ 9.81     $ 9.81     $ 9.84     $ 10.07     $ 10.08    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.07       0.42       0.43       0.13       0.16       0.23    
Net realized and unrealized
gain (loss)
    (0.19 )     (0.01 )     0.06       0.16       0.04       0.24    
Total from investment operations     (0.12 )     0.41       0.49       0.29       0.20       0.47    
Less distributions to shareholders:  
From net investment income     (0.15 )     (0.75 )     (0.49 )     (0.16 )     (0.16 )     (0.20 )  
From net realized gains     (0.01 )                 (0.16 )     (0.27 )     (0.28 )  
Return of capital                             (0.00 )(b)         
Total distributions     (0.16 )     (0.75 )     (0.49 )     (0.32 )     (0.43 )     (0.48 )  
Net asset value, end of period   $ 9.19     $ 9.47     $ 9.81     $ 9.81     $ 9.84     $ 10.07    
Total Return(c)      (1.27 )%**      4.35 %     5.09 %     3.02 %     2.02 %     4.79 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 142,439     $ 144,286     $ 94,159     $ 125,188     $ 736,300     $ 373,277    
Net expenses to average daily
net assets(d) 
    0.25 %(e)*      0.25 %(e)      0.25 %     0.25 %     0.25 %     0.25 %  
Net investment income to average
daily net assets(a) 
    1.60 %*      4.28 %     4.42 %     1.30 %     1.57 %     2.30 %  
Portfolio turnover rate     25 %**      22 %     17 %     24 %     11 %     15 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.02 %*      0.03 %     0.03 %     0.02 %     0.03 %     0.06 %  

 

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

(b)  Return of capital is 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).

(e)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 9.48     $ 9.82     $ 9.82     $ 9.93    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.09       0.57       0.48       0.24    
Net realized and unrealized gain (loss)     (0.21 )     (0.15 )     0.02       (0.14 )(c)   
Total from investment operations     (0.12 )     0.42       0.50       0.10    
Less distributions to shareholders:  
From net investment income     (0.15 )     (0.76 )     (0.50 )     (0.21 )  
From net realized gains     (0.01 )                    
Total distributions     (0.16 )     (0.76 )     (0.50 )     (0.21 )  
Net asset value, end of period   $ 9.20     $ 9.48     $ 9.82     $ 9.82    
Total Return(d)      (1.22 )%**      4.42 %     5.19 %     0.97 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,409,556     $ 581,526     $ 327,796     $ 359,958    
Net expenses to average daily net assets(e)      0.16 %(f)*      0.16 %(f)      0.16 %     0.16 %*   
Net investment income to average daily net assets(b)      1.86 %*      5.87 %     4.85 %     2.38 %(g)   
Portfolio turnover rate     25 %**      22 %     17 %     24 %††   
Fees and expenses reimbursed by the Manager to average
daily net assets:
    0.02 %*      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 net expense ratio does not include the effect of expense reductions.

(g)  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.


10




GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 total assets in shares of GMO Short-Duration Collateral Fund; in U.S. investment-grade bonds, including asset-backed securities and U.S. government securities (including securities neither guaranteed nor insured by the U.S. government); 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, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a


11



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 35.59% of net assets.

The Fund indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $3,358 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


12



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 3,536,825     $ 91,390    
Level 2 - Other Significant Observable Inputs     1,543,335,809       3,942,570    
Level 3 - Significant Unobservable Inputs     1,082          
Total   $ 1,546,873,716     $ 4,033,960    

 

*  Other financial instruments include futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (2,092,193 )  
Level 2 - Other Significant Observable Inputs           (43,822 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (2,136,015 )  

 

**  Other financial instruments include futures contracts and swap agreements.


13



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 1,868     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     2,565          
Realized gain distributions paid     (3,358 )        
Change in unrealized appreciation/depreciation     7          
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 1,082     $    

 

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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


14



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 that expire are treated as realized gains. Premiums received from writing options that 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 substantial losses if the price of the underlying instrume nt increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.


15



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized


16



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

in the Statement of Assets and Liabilities. Such risks involve the possibility 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, the Fund did not participate in securities lending.


17



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 1,611,790,195     $ 16,894     $ (64,933,373 )   $ (64,916,479 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


18



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncements

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

In September 2008, the FASB issued Statement of Financial Accounting Standards No. 133-1 ("SFAS 133-1"), Accounting for Derivative Instruments and Hedging Activities, and Interpretation of Financial Accounting Standards No. 45-4, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an interpretation of FASB Statements No. 5, 57, and 107


19



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

and rescission of FASB Interpretation No. 34 ("IFAS 45-1"). SFAS 133-1 and IFAS 45-4 are effective for interim periods ending after November 15, 2008. SFAS 133-1 and IFAS 45-4 require enhanced disclosures surrounding the Fund's selling of credit derivatives . The Manager is currently evaluating the impact the adoption of SFAS 133-1 and IFAS 45-4 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.10% of the Fund's average daily net assets. Excluded Expenses include 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).

The Fund incurs fees and expenses indirectly as a shareholder of the underlying funds. For the period ended August 31, 2008, 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 %  

 

        


20



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $3,522 and $1,840, 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, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 6,031,875     $ 4,026,875    
Investments (non-U.S. Government securities)     1,146,030,102       300,671,383    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 82.99% of the shares outstanding of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 98.55% of the Fund's shares were held by accounts for which the Manager has investment discretion.


21



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     11,083,656     $ 101,171,675       30,453,972     $ 298,824,097    
Shares issued to shareholders
in reinvestment of distributions
    204,585       1,883,202       765,476       7,192,263    
Shares repurchased     (11,028,825 )     (102,053,686 )     (25,576,899 )     (250,548,172 )  
Net increase (decrease)     259,416     $ 1,001,191       5,642,549     $ 55,468,188    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     105,598,330     $ 963,317,354       26,087,987     $ 256,617,471    
Shares issued to shareholders
in reinvestment of distributions
    1,236,591       11,394,023       4,455,602       41,858,762    
Shares repurchased     (14,888,810 )     (136,636,576 )     (2,571,173 )     (24,662,536 )  
Net increase (decrease)     91,946,111     $ 838,074,801       27,972,416     $ 273,813,697    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 678,684,117     $ 1,146,030,102     $ 299,300,000     $ 10,630,102     $     $ 1,493,654,953    
GMO Special Purpose
Holding Fund
    1,868                         3,358       1,082    
Totals   $ 678,685,985     $ 1,146,030,102     $ 299,300,000     $ 10,630,102     $ 3,358     $ 1,493,656,035    

 


22



GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

9.  Subsequent events

On September 7, 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. Treasury, representing an event of default under credit default swaps through which the Fund sold credit protection. On October 8, 2008, the Fund realized losses aggregating $18,148,250 upon the resulting termination of the Fannie Mae (senior) and Freddie Mac (senior) credit default swaps shown on page 4 of the Schedule of Investments in this report.

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.96% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


23




GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In


24



GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 Truste es 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


25



GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


26



GMO Domestic Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 987.30     $ 1.25    
2) Hypothetical     0.25 %   $ 1,000.00     $ 1,023.95     $ 1.28    
Class VI      
1) Actual     0.16 %   $ 1,000.00     $ 987.80     $ 0.80    
2) Hypothetical     0.16 %   $ 1,000.00     $ 1,024.40     $ 0.82    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


27




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     92.5 %  
Short-Term Investments     5.9    
Options Purchased     3.9    
Swaps     1.4    
Forward Currency Contracts     0.0    
Futures     0.0    
Written Options     (2.1 )  
Other     (1.6 )  
      100.0 %  

 


1




GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 92.5%  
        Asset-Backed Securities — 91.9%  
        Auto Financing — 10.3%  
    10,000,000     BMW Vehicle Lease Trust, Series 07-1, Class A3B,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 08/15/13
    9,748,700    
    7,000,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
Variable Rate, 1 mo. LIBOR + .40%, 2.87%, due 02/18/14
    6,753,600    
    11,000,000     Carmax Auto Owner Trust, Series 08-2, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.65%, 4.12%, due 08/15/13
    10,622,578    
    5,585,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     5,446,492    
    7,000,000     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 11/15/11
    6,764,030    
    7,500,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 02/15/12
    7,234,425    
    2,000,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B,
Variable Rate, 1 mo. LIBOR + .38%, 2.85%, due 07/15/12
    1,835,190    
    12,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-3, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 06/15/11
    11,645,932    
    2,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 06/15/13
    1,735,932    
    5,000,000     Merrill Auto Trust Securitization, Series 07-1, Class A4,
Variable Rate, 1 mo. LIBOR + 0.06%, 2.53%, due 12/15/13
    4,708,008    
    10,000,000     Merrill Auto Trust Securitization, Series 08-1, Class A4B,
Variable Rate, 1 mo. LIBOR + 2.20%, 4.67%, due 04/15/15
    9,744,141    
    14,000,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 2.47%, due 06/17/13
    13,538,980    
    15,000,000     Sovereign Dealer Floor Plan Master Trust, Series 06-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 2.54%, due 08/15/11
    14,379,450    
    10,000,000     Superior Wholesale Inventory Financing Trust, Series 04-A10, Class A,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 09/15/11
    9,509,100    
    3,000,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 06/15/12
    2,681,536    
    8,000,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 12/15/16
    7,559,440    
    14,000,000     World Omni Auto Receivables Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 2.47%, due 11/15/12
    13,522,740    
    Total Auto Financing     137,430,274    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Bank Loan Collateralized Debt Obligations — 1.1%  
    7,541,155     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
Variable Rate, 3 mo. LIBOR + .17%, 2.97%, due 06/20/25
    7,390,332    
    7,200,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 3.04%, due 07/05/11
    6,812,352    
    Total Bank Loan Collateralized Debt Obligations     14,202,684    
        Business Loans — 3.7%  
    1,958,697     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .37%, 2.84%, due 01/25/35
    1,811,795    
    4,053,158     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .39%, 2.86%, due 01/25/36
    3,555,025    
    10,000,000     Bayview Commercial Asset Trust, Series 07-6A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + 1.30%, 3.77%, due 12/25/37
    9,257,000    
    1,695,058     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 08/22/16
    1,654,377    
    2,314,622     GE Business Loan Trust, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 11/15/33
    1,909,188    
    211,126     GE Commercial Loan Trust, Series 06-2, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 2.85%, due 04/19/15
    208,571    
    13,000,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 07/20/12
    12,355,195    
    2,611,981     Lehman Brothers Small Balance Commercial, Series 05-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 02/25/30
    2,225,616    
    1,893,204     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 09/25/30
    1,576,239    
    6,439,008     Lehman Brothers Small Balance Commercial, Series 07-2A, Class 1A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 06/25/37
    6,202,462    
    1,341,842     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A1, 144A,
Variable Rate, 1 mo. LIBOR + .65%, 3.12%, due 10/25/37
    1,291,098    
    3,000,000     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A2, 144A,
Variable Rate, 1 mo. LIBOR + .85%, 3.32%, due 10/25/37
    2,579,292    
    5,000,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 02/25/13
    4,771,000    
    Total Business Loans     49,396,858    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — 4.4%  
    3,426,664     Bear Stearns Commercial Mortgage Securities, Inc., Series 05-PW10,
Class A1, 5.09%, due 12/11/40
    3,423,923    
    7,000,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 07/15/44
    6,706,000    
    13,000,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ,
144A, Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 12/15/20
    11,817,000    
    7,000,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2,
5.30%, due 11/10/45
    6,948,594    
    4,000,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2,
Variable Rate, 5.52%, due 03/10/44
    3,970,000    
    1,700,246     Greenwich Capital Commercial Funding Corp., Series 06-FL4A, Class A1,
144A, Variable Rate, 1 mo. LIBOR + .09%, 2.55%, due 11/05/21
    1,598,231    
    7,000,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, 5.51%, due 04/10/38     6,903,750    
    1,097,961     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1,
144A, Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 09/15/21
    1,021,103    
    6,000,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2,
Variable Rate, 5.80%, due 05/12/39
    5,982,656    
    3,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, 5.91%, due 10/15/42     2,828,310    
    7,890,862     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 09/15/21
    7,220,139    
    Total CMBS     58,419,706    
        CMBS Collateralized Debt Obligations — 1.0%  
    7,480,000     American Capital Strategies Ltd Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, Variable Rate, 3 mo. LIBOR + .80%,
3.61%, due 11/23/52
    1,271,600    
    7,000,000     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .32%, 2.79%, due 08/26/30
    6,230,000    
    7,400,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 2.80%, due 05/25/46
    6,243,750    
    Total CMBS Collateralized Debt Obligations     13,745,350    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — 20.9%  
    2,000,000     Advanta Business Card Master Trust, Series 05-A5, Class A5,
Variable Rate, 1 mo. LIBOR + .06%, 2.53%, due 04/20/12
    1,864,360    
    6,000,000     American Express Credit Account Master Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 09/15/11
    5,981,640    
    5,000,000     American Express Credit Account Master Trust, Series 04-4, Class A,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 03/15/12
    4,966,355    
    10,000,000     American Express Credit Account Master Trust, Series 05-5, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 02/15/13
    9,825,000    
    4,500,000     American Express Credit Account Master Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 12/15/13
    4,351,815    
    5,000,000     American Express Issuance Trust, Series 07-1, Class A, Variable Rate,
1 mo. LIBOR + .20%, 2.67%, due 09/15/11
    4,897,200    
    6,000,000     Arran, Series 05-A, Class A, Variable Rate, 1 mo. LIBOR + .02%,
2.49%, due 12/15/10
    5,940,000    
    1,000,000     Bank One Issuance Trust, Series 03-A10, Class A10, Variable Rate,
1 mo. LIBOR + .11%, 2.58%, due 06/15/11
    997,900    
    5,000,000     Capital One Master Trust, Series 02-1A, Class A, Variable Rate,
1 mo. LIBOR + .20%, 2.67%, due 11/15/11
    4,953,125    
    9,000,000     Capital One Multi-Asset Execution Trust, Series 08-A6, Class A6,
Variable Rate, 1 mo. LIBOR + 1.10%, 3.57%, due 03/17/14
    8,826,300    
    5,000,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .15%, 2.95%, due 06/16/14
    4,763,844    
    11,000,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 08/15/13
    10,693,100    
    9,000,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + 1.25%, 3.72%, due 09/15/17
    8,394,210    
    3,000,000     Chase Credit Card Master Trust, Series 03-5, Class A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 01/17/11
    2,999,460    
    2,000,000     Chase Issuance Trust, Series 05-A3, Class A, Variable Rate,
1 mo. LIBOR + .02%, 2.49%, due 10/17/11
    1,992,860    
    11,000,000     Chase Issuance Trust, Series 05-A6, Class A6, Variable Rate,
1 mo. LIBOR + 0.07%, 2.54%, due 07/15/14
    10,560,000    
    4,500,000     Chase Issuance Trust, Series 07-A1, Class A1, Variable Rate,
1 mo. LIBOR + .02%, 2.49%, due 03/15/13
    4,377,938    
    11,000,000     Chase Issuance Trust, Series 07-A11, Class A11, Variable Rate,
1 mo. LIBOR, 2.47%, due 07/16/12
    10,759,829    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — Continued  
    9,000,000     Citibank Credit Card Issuance Trust, Series 01-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 08/15/13
    8,761,500    
    2,000,000     Citibank Credit Card Issuance Trust, Series 06-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 05/24/12
    1,968,000    
    10,700,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
Variable Rate, 1 mo. LIBOR + 1.10%, 3.57%, due 12/23/13
    10,619,750    
    10,000,000     Discover Card Master Trust I, Series 04-2, Class A2, Variable Rate,
1 mo. LIBOR + .07%, 2.54%, due 05/15/12
    9,859,800    
    5,000,000     Discover Card Master Trust I, Series 05-3, Class A, Variable Rate,
1 mo. LIBOR + .02%, 2.51%, due 05/15/11
    4,979,750    
    5,000,000     Discover Card Master Trust I, Series 05-4, Class A1, Variable Rate,
1 mo. LIBOR + .06%, 2.55%, due 06/18/13
    4,790,600    
    6,150,000     Discover Card Master Trust I, Series 06-2, Class A1, Variable Rate,
1 mo. LIBOR, 2.47%, due 01/17/12
    6,069,312    
    3,000,000     Discover Card Master Trust I, Series 06-2, Class A2, Variable Rate,
1 mo. LIBOR + .03%, 2.52%, due 01/16/14
    2,847,480    
    5,000,000     Discover Card Master Trust I, Series 96-4, Class A, Variable Rate,
1 mo. LIBOR + 0.38%, 2.86%, due 10/16/13
    4,797,266    
    12,000,000     First National Master Note Trust, Series 07-2, Class A, Variable Rate,
1 mo. LIBOR + .75%, 3.22%, due 11/15/12
    11,685,000    
    7,000,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 03/15/13
    6,642,923    
    5,000,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 06/15/13
    4,836,719    
    12,000,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 04/15/13
    11,625,000    
    6,000,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .55%, 3.02%, due 07/15/13
    5,842,500    
    17,000,000     HSBC Private Label Credit Card Master Note, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 2.51%, due 12/16/13
    16,532,500    
    7,500,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 01/15/14
    7,256,850    
    9,150,000     MBNA Master Credit Card Trust, Series 01-B, Class A,
Variable Rate, 1 mo. LIBOR + 0.26%, 2.73%, due 08/15/13
    8,894,443    
    5,000,000     National City Credit Card Master Trust, Series 08-3, Class A,
Variable Rate, 1 mo. LIBOR + 1.80%, 4.27%, due 05/15/13
    4,887,500    

 

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, 2008 (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%, 2.92%, due 09/15/11
    6,729,590    
    16,500,000     Turquoise Card Backed Securities Plc, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 05/16/11
    16,211,250    
    15,400,000     World Financial Network Credit Card Master Trust, Series 04-A, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 03/15/13
    14,996,828    
    2,000,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 02/15/17
    1,725,600    
    Total Credit Cards     279,705,097    
        Equipment Leases — 1.3%  
    3,965,620     CNH Equipment Trust, Series 05-A, Class A4A, Variable Rate,
1 mo. LIBOR + .04%, 2.51%, due 06/15/12
    3,928,145    
    4,500,000     CNH Equipment Trust, Series 07-B, Class A3B, Variable Rate,
1 mo. LIBOR + .60%, 3.07%, due 10/17/11
    4,409,865    
    9,000,000     GE Equipment Midticket LLC, Series 07-1, Class A3B, Variable Rate,
1 mo. LIBOR + .25%, 2.71%, due 06/14/11
    8,842,500    
    Total Equipment Leases     17,180,510    
        Insurance Premiums — 0.9%  
    3,000,000     AICCO Premium Finance Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 04/15/10
    2,973,300    
    10,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 12/15/11
    9,240,625    
    Total Insurance Premiums     12,213,925    
        Insured Auto Financing — 6.9%  
    5,000,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 04/20/11
    4,684,400    
    7,000,000     Aesop Funding II LLC, Series 06-1, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 03/20/12
    6,275,640    
    5,282,825     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .08%, 2.54%, due 05/06/12
    4,924,133    
    4,000,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
Variable Rate, 1 mo. LIBOR + .04%, 2.50%, due 10/06/13
    3,525,000    

 

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, 2008 (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%, 2.49%, due 05/07/12
    7,550,424    
    3,000,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
Variable Rate, 1 mo. LIBOR + .80%, 3.26%, due 06/06/14
    2,433,858    
    7,000,000     AmeriCredit Prime Automobile Receivables Trust, Series 07-2M, Class A4B,
MBIA, Variable Rate, 1 mo. LIBOR + .50%, 2.96%, due 03/08/16
    5,820,920    
    7,000,000     ARG Funding Corp., Series 05-2A, Class A3, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .14%, 2.62%, due 05/20/10
    6,762,755    
    6,000,000     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .02%, 2.48%, due 07/15/13
    5,598,780    
    12,000,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 11/15/13
    10,584,240    
    2,000,000     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
Variable Rate, 1 mo. LIBOR + .51%, 2.98%, due 04/16/12
    1,853,840    
    3,000,000     Hertz Vehicle Financing LLC, Series 05-1A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 02/25/10
    2,949,119    
    2,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 11/25/11
    1,750,115    
    13,000,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
Variable Rate, 1 mo. LIBOR + .65%, 3.12%, due 10/15/14
    10,995,400    
    13,000,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
Variable Rate, 1 mo. LIBOR + 1.20%, 3.66%, due 07/14/14
    12,350,000    
    4,572,524     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC,
5.01%, due 08/15/12
    4,446,963    
    Total Insured Auto Financing     92,505,587    
        Insured Credit Cards — 0.5%  
    7,000,000     Cabela's Master Credit Card Trust, Series 04-2A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 03/15/11
    6,896,320    
        Insured Other — 1.3%  
    5,500,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC,
5.78%, due 06/20/31
    4,548,716    
    4,023,251     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 2.69%, due 09/15/41
    3,420,890    
    4,050,282     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 2.69%, due 12/15/41
    3,493,692    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Other — Continued  
    5,724,795     TIB Card Receivables Fund, 144A, FGIC, Variable Rate,
3 mo. LIBOR + .25%, 3.04%, due 01/05/14
    4,855,199    
    10,200,000     Toll Road Investment Part II, Series C, 144A, MBIA,
Zero Coupon, due 02/15/37
    1,315,800    
    Total Insured Other     17,634,297    
        Insured Residential Asset-Backed Securities (United States) — 0.8%  
    13,105,096     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1, XL,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 07/25/34
    10,157,760    
        Insured Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,564,787     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 11/25/35
    1,307,849    
        Insured Time Share — 0.6%  
    1,563,394     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2,
144A, FGIC, Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 05/20/17
    1,344,275    
    1,446,536     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 05/20/18
    1,223,275    
    6,734,205     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + 1.00%, 3.47%, due 09/20/19
    5,734,802    
    Total Insured Time Share     8,302,352    
        Insured Transportation — 0.5%  
    8,000,000     CLI Funding LLC, Series 06-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .18%, 2.64%, due 08/18/21
    6,480,000    
        Investment Grade Corporate Collateralized Debt Obligations — 4.0%  
    2,000,000     Morgan Stanley ACES SPC, Series 04-12, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .60%, 3.39%, due 08/05/09
    1,900,000    
    5,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 3.45%, due 12/20/09
    4,652,500    
    3,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
Variable Rate, 3 mo. LIBOR + .75%, 3.55%, due 12/20/09
    2,715,000    
    6,000,000     Morgan Stanley ACES SPC, Series 04-16, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 3.19%, due 08/05/09
    5,814,000    
    3,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .52%, 3.32%, due 03/20/10
    2,718,000    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Investment Grade Corporate Collateralized Debt Obligations — Continued  
    6,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 3.20%, due 12/20/10
    5,496,000    
    3,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 3.25%, due 03/20/10
    2,766,000    
    9,000,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .29%, 3.09%, due 06/20/13
    6,097,500    
    10,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
Variable Rate, 3 mo. LIBOR + .70%, 3.50%, due 08/01/11
    9,283,000    
    9,000,000     Reve SPC, 144A, Variable Rate, 3 mo. LIBOR + .22%, 3.02%, due 03/20/14     6,896,250    
    7,000,000     Salisbury International Investments Ltd., Variable Rate,
3 mo. LIBOR + .42%, 3.22%, due 06/22/10
    5,785,500    
    Total Investment Grade Corporate Collateralized Debt Obligations     54,123,750    
        Residential Asset-Backed Securities (United States) — 16.9%  
    4,478,419     Accredited Mortgage Loan Trust, Series 07-1, Class A1,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 02/25/37
    4,321,016    
    101,802     ACE Securities Corp., Series 05-AG1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 08/25/35
    99,257    
    1,534,000     ACE Securities Corp., Series 05-ASP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 09/25/35
    1,227,200    
    504,440     ACE Securities Corp., Series 05-SDI, Class A1,
Variable Rate, 1 mo. LIBOR + .40%, 2.87%, due 11/25/50
    343,019    
    10,000,000     ACE Securities Corp., Series 06-ASP5, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 10/25/36
    5,795,700    
    844,592     ACE Securities Corp., Series 06-CW1, Class A2A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 07/25/36
    812,405    
    5,000,000     ACE Securities Corp., Series 06-CW1, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 07/25/36
    4,575,000    
    13,000,000     ACE Securities Corp., Series 06-HE2, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 05/25/36
    9,860,110    
    3,500,000     ACE Securities Corp., Series 06-HE3, Class A2B,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 06/25/36
    3,268,125    
    1,270,253     ACE Securities Corp., Series 06-SL1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 09/25/35
    317,563    
    2,578,842     ACE Securities Corp., Series 06-SL3, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 06/25/36
    577,661    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — Continued  
    3,000,000     ACE Securities Corp., Series 06-SL3, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 06/25/36
    435,000    
    1,801,218     ACE Securities Corp., Series 06-SL4, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 09/25/36
    414,280    
    5,512,178     ACE Securities Corp., Series 07-ASL1, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 12/25/36
    992,192    
    4,112,622     ACE Securities Corp., Series 07-WM1, Class A2A,
Variable Rate, 1 mo. LIBOR + .07%, 2.54%, due 11/25/36
    3,266,245    
    14,000,000     Argent Securities, Inc., Series 06-M1, Class AC2,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 07/25/36
    8,973,125    
    12,000,000     Argent Securities, Inc., Series 06-M2, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 09/25/36
    10,742,880    
    7,000,000     Argent Securities, Inc., Series 06-M2, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 09/25/36
    3,500,000    
    5,006,432     Argent Securities, Inc., Series 06-W2, Class A2B,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 03/25/36
    4,460,981    
    8,131,920     Argent Securities, Inc., Series 06-W4, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 05/25/36
    7,921,954    
    2,500,000     Argent Securities, Inc., Series 06-W5, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/36
    1,789,453    
    4,500,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 10/25/36
    4,054,219    
    3,000,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 10/25/36
    1,992,656    
    775,834     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
Variable Rate, 1 mo. LIBOR + .06%, 2.53%, due 11/25/36
    737,043    
    10,856,422     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 05/25/37
    9,679,178    
    6,500,000     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 2.97%, due 02/28/40
    5,558,262    
    4,806,462     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 11/25/36
    4,308,512    
    6,000,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 11/25/36
    3,886,200    
    3,884,551     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 02/25/37
    878,297    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — Continued  
    3,000,000     Centex Home Equity, Series 06-A, Class AV3, Variable Rate,
1 mo. LIBOR + .16%, 2.63%, due 06/25/36
    2,532,600    
    3,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 12/25/36
    1,855,350    
    8,000,000     Citigroup Mortgage Loan Trust, Inc., Series 06-WFH4, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 11/25/36
    6,059,200    
    9,712,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 02/25/37
    7,763,530    
    3,958,906     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 03/25/37
    3,714,567    
    1,815,967     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 04/25/36
    1,766,596    
    5,000,000     Fremont Home Loan Trust, Series 06-B, Class 2A3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 08/25/36
    2,887,500    
    3,003,278     GE-WMC Mortgage Securities, Series 05-2, Class A2B,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 12/25/35
    2,898,163    
    10,000,000     GE-WMC Mortgage Securities, Series 06-1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 08/25/36
    6,935,000    
    1,550,955     Household Home Equity Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .31%, 2.78%, due 01/20/35
    1,257,243    
    1,141,036     Household Home Equity Loan Trust, Series 05-3, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 01/20/35
    932,084    
    7,450,195     Household Home Equity Loan Trust, Series 06-2, Class A1,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 03/20/36
    6,740,117    
    9,000,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 12/25/36
    4,050,000    
    1,994,876     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 10/25/35
    1,796,785    
    5,000,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 03/25/36
    3,148,500    
    3,000,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/36
    1,620,000    
    6,760,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 08/25/36
    3,282,656    
    4,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 10/25/36
    2,280,800    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — Continued  
    2,237,628     Master Second Lien Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 03/25/36
    501,005    
    4,300,163     Merrill Lynch Mortgage Trust, Series 06-SD1, Class A,
Variable Rate, 1 mo. LIBOR + .28%, 2.75%, due 01/25/47
    3,748,532    
    3,000,000     Morgan Stanley Home Equity Loans, Series 06-3, Class A3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 04/25/36
    1,800,000    
    2,500,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 11/25/36
    1,500,000    
    10,000,000     Nationstar Home Equity Loan Trust, Series 06-B, Class AV3,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 09/25/36
    8,323,437    
    10,000,000     Nomura Home Equity Loan, Inc., Series 06-HE3, Class 2A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 07/25/36
    6,400,000    
    326,103     Option One Mortgage Loan Trust, Series 05-3, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 08/25/35
    285,850    
    357,775     People's Choice Home Loan Securities Trust, Series 05-3, Class 1A2,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 08/25/35
    314,265    
    3,687,571     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
Variable Rate, 1 mo. LIBOR + .26%, 2.73%, due 12/25/35
    3,189,011    
    1,132,587     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 04/25/35
    1,073,834    
    8,000,000     Saxon Asset Securities Trust, Series 06-3, Class A2,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 11/25/36
    6,684,665    
    10,000,000     Securitized Asset-Backed Receivables LLC Trust, Series 06-HE1, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 07/25/36
    7,007,700    
    4,025,591     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 10/25/36
    3,784,056    
    995,083     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
Variable Rate, 1 mo. LIBOR + .26%, 2.73%, due 10/25/35
    718,052    
    8,085,783     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 01/25/37
    7,670,124    
    4,000,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/37
    3,248,594    
    3,000,000     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 01/25/36
    2,541,609    
    2,120,041     Structured Asset Securities Corp., Series 05-S6, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 11/25/35
    1,060,020    
    Total Residential Asset-Backed Securities (United States)     226,158,978    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (Australian) — 3.4%  
    1,927,153     Australian Mortgage Securities II, Series G3, Class A1A,
Variable Rate, 3 mo. LIBOR + .21%, 3.00%, due 01/10/35
    1,843,187    
    2,524,834     Crusade Global Trust, Series 04-2, Class A1,
Variable Rate, 3 mo. LIBOR + .13%, 2.94%, due 11/19/37
    2,364,770    
      3,891,369     Crusade Global Trust, Series 06-1, Class A1, 144A, Variable Rate,
3 mo. LIBOR + .06%, 2.85%, due 07/20/38
    3,583,087    
    2,561,418     Crusade Global Trust, Series 06-2, Class A1, Variable Rate,
3 mo. LIBOR + 0.06%, 2.86%, due 11/15/37
    2,390,187    
    11,162,149     Interstar Millennium Trust, Series 04-2G, Class A,
Variable Rate, 3 mo. LIBOR + .20%, 2.98%, due 03/14/36
    10,428,349    
    5,472,110     Interstar Millennium Trust, Series 05-1G, Class A,
Variable Rate, 3 mo. LIBOR + .12%, 2.82%, due 12/08/36
    5,178,258    
    2,382,492     Medallion Trust, Series 05-1G, Class A1, Variable Rate,
3 mo. LIBOR + .08%, 2.88%, due 05/10/36
    2,253,311    
    3,654,439     Medallion Trust, Series 07-1G, Class A1, Variable Rate,
3 mo. LIBOR + .04%, 2.85%, due 02/27/39
    3,511,477    
    1,785,558     National RMBS Trust, Series 04-1, Class A1, Variable Rate,
3 mo. LIBOR + .11%, 2.91%, due 03/20/34
    1,685,388    
    5,502,448     National RMBS Trust, Series 06-3, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 10/20/37
    5,182,095    
    6,312,500     Puma Finance Ltd., Series G5, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.88%, due 02/21/38
    5,830,856    
    1,504,266     Westpac Securitization Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 2.87%, due 03/23/36
    1,413,017    
    Total Residential Mortgage-Backed Securities (Australian)     45,663,982    
        Residential Mortgage-Backed Securities (European) — 6.9%  
    11,000,000     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 2.91%, due 09/20/66
    10,642,500    
    4,000,000     Arkle Master Issuer Plc, Series 06-1A, Class 3A, 144A,
Variable Rate, 3 mo. LIBOR + .05%, 2.86%, due 08/17/11
    3,908,400    
    3,500,000     Arkle Master Issuer Plc, Series 06-1A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 2.90%, due 02/17/52
    3,255,000    
    10,000,000     Arran Residential Mortgages Funding Plc, Series 06-2A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .05%, 2.85%, due 09/20/56
    9,800,000    
    7,000,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 2.89%, due 01/13/39
    6,454,000    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — Continued  
    1,385,678     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 10/11/41
    1,341,918    
    7,101,792     Granite Master Issuer Plc, Series 06-3, Class A3,
Variable Rate, 3 mo. LIBOR + .04%, 2.83%, due 12/20/54
    6,953,364    
    10,000,000     Holmes Financing Plc, Series 10A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 2.87%, due 07/15/40
    9,591,200    
    13,290,697     Kildare Securities Ltd., Series 07-1A, Class A2, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 2.76%, due 12/10/43
    12,924,272    
    1,359,400     Leek Finance Plc, Series 15A, Class AB, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 03/21/37
    1,298,227    
    4,826,100     Leek Finance Plc, Series 16A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .16%, 2.96%, due 09/21/37
    4,416,364    
    3,000,000     Mound Financing Plc, Series 5A, Class 2A, 144A,
Variable Rate, 3 mo. LIBOR + .04%, 2.84%, due 05/08/16
    2,919,360    
    3,617,256     Paragon Mortgages Plc, Series 12A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 2.91%, due 11/15/38
    3,159,456    
    3,523,061     Paragon Mortgages Plc, Series 14A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR +0.1%, 2.88%, due 09/15/39
    3,275,143    
    3,000,000     Permanent Master Issuer Plc, Series 06-1, Class 5A,
Variable Rate, 3 mo. LIBOR + 0.11%, 2.90%, due 07/15/33
    2,836,500    
    5,000,000     Permanent Master Issuer Plc, Series 07-1, Class 4A,
Variable Rate, 3 mo. LIBOR + .08%, 2.87%, due 10/15/33
    4,694,800    
    5,147,273     RMAC Securities Plc, Series 06-NS4A, Class A1B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 06/12/25
    5,084,476    
    Total Residential Mortgage-Backed Securities (European)     92,554,980    
        Residential Mortgage-Backed Securities (United States) — 0.0%  
    568,502     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 07/25/30
    562,017    
        Student Loans — 5.4%  
    5,000,000     College Loan Corp. Trust, Series 04-1, Class A2, Variable Rate,
3 mo. LIBOR + .11%, 2.91%, due 04/25/16
    4,944,765    
    7,160,000     College Loan Corp. Trust, Series 07-1, Class A1, Variable Rate,
3 mo. LIBOR + .01%, 2.81%, due 01/25/23
    7,041,860    
    4,000,000     College Loan Corp. Trust, Series 07-2, Class A1, Variable Rate,
3 mo. LIBOR + .25%, 3.05%, due 01/25/24
    3,957,356    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Student Loans — Continued  
    1,701,428     Goal Capital Funding Trust, Series 06-1, Class A1, Variable Rate,
3 mo. LIBOR, 2.81%, due 08/25/20
    1,691,712    
    1,294,307     Keycorp Student Loan Trust, Series 05-A, Class 2A1,
Variable Rate, 3 mo. LIBOR + .05%, 2.86%, due 09/27/21
    1,267,528    
    2,061,000     Montana Higher Education Student Assistance Corp., Series 05-1,
Class A, Variable Rate, 3 mo. LIBOR + .04%, 2.84%, due 06/20/15
    2,027,406    
    8,000,000     National Collegiate Student Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 02/25/26
    7,434,640    
    1,652,236     National Collegiate Student Loan Trust, Series 06-1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 08/25/23
    1,575,981    
    3,533,141     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 08/26/19
    3,215,158    
    8,000,000     SLM Student Loan Trust, Series 05-3, Class A4, Variable Rate,
3 mo. LIBOR + .07%, 2.87%, due 04/27/20
    7,640,000    
    1,030,673     SLM Student Loan Trust, Series 05-4, Class A1, Variable Rate,
3 mo. LIBOR + .01%, 2.81%, due 10/26/15
    1,022,118    
    5,223,417     SLM Student Loan Trust, Series 06-A, Class A2, Variable Rate,
3 mo. LIBOR + .03%, 3.09%, due 10/15/15
    5,146,698    
    14,000,000     SLM Student Loan Trust, Series 07-2, Class A2, Variable Rate,
3 mo. LIBOR, 2.80%, due 07/25/17
    13,483,680    
    4,241,334     SLM Student Loan Trust, Series 07-5, Class A1, Variable Rate,
3 mo. LIBOR - .01%, 2.79%, due 07/25/13
    4,222,778    
    7,500,000     SLM Student Loan Trust, Series 07-6, Class A2, Variable Rate,
3 mo. LIBOR + .25%, 3.05%, due 01/25/19
    7,211,250    
    Total Student Loans     71,882,930    
        Trade Receivables — 1.0%  
    14,000,000     ABS Global Finance Plc, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 12/17/10
    13,783,000    
    Total Asset-Backed Securities     1,230,308,206    
        Corporate Debt — 0.4%  
    5,000,000     TIAA Global Markets, 144A, Variable Rate, 3 mo. LIBOR + .10%,
2.89%, due 01/12/11
    4,926,951    

 

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, 2008 (Unaudited)

Par Value ($) /
Principal Amount
  Description   Value ($)  
        U.S. Government Agency — 0.2%  
    2,032,554     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 4 mo. LIBOR + .30%, 2.95%, due 10/01/18
    2,032,554    
    1,000,000     U.S. Department of Transportation, 144A, 6.00%, due 12/07/21     1,056,950    
    Total U.S. Government Agency     3,089,504    
    TOTAL DEBT OBLIGATIONS (COST $1,389,567,977)     1,238,324,661    
        OPTIONS PURCHASED — 3.9%  
        Options on Interest Rates — 1.6%  
AUD     400,000,000     Floor on 3 Month AUD BBSW LIBOR Call, Expires 06/10/09, Strike 8.15%     2,898,616    
GBP     150,000,000     Floor on 3 Month GBP LIBOR Call, Expires 09/13/09, Strike 5.40%     254,514    
GBP     150,000,000     Floor on 3 Month GBP LIBOR Call, Expires 09/13/09, Strike 6.40%     1,639,140    
USD     1,400,000,000     USD 3 Month LIBOR Cap Call, Expires 03/17/10, Strike 2.59%     11,221,210    
USD     300,000,000     USD 3 Month LIBOR Cap Call, Expires 04/15/10, Strike 2.64%     2,382,390    
USD     1,400,000,000     USD 3 Month LIBOR Floor Call, Expires 03/17/10, Strike 2.59%     2,181,942    
USD     300,000,000     USD 3 Month LIBOR Floor Call, Expires 04/15/10, Strike 2.64%     547,065    
      21,124,877    
        Options on Interest Rate Swaps — 2.3%  
EUR     225,000,000     EUR Swaption Call, Expires 01/07/09, Strike 4.10%     37,966    
EUR     225,000,000     EUR Swaption Call, Expires 01/14/09, Strike 3.91%     18,050    
EUR     150,000,000     EUR Swaption Call, Expires 02/12/10, Strike 3.85%     375,249    
EUR     150,000,000     EUR Swaption Call, Expires 02/22/10, Strike 3.95%     447,452    
EUR     225,000,000     EUR Swaption Put, Expires 01/07/09, Strike 4.10%     2,756,828    
EUR     225,000,000     EUR Swaption Put, Expires 01/14/09, Strike 3.91%     3,243,569    
GBP     14,000,000     GBP Swaption Call, Expires 02/28/11, Strike 5.17%     1,054,264    
GBP     14,000,000     GBP Swaption Call, Expires 03/03/11, Strike 5.03%     897,828    
GBP     28,000,000     GBP Swaption Call, Expires 03/14/11, Strike 4.96%     1,654,688    
GBP     35,000,000     GBP Swaption Call, Expires 03/21/11, Strike 4.92%     1,959,865    
GBP     14,000,000     GBP Swaption Put, Expires 02/28/11, Strike 5.17%     470,183    
GBP     14,000,000     GBP Swaption Put, Expires 03/03/11, Strike 5.03%     558,886    
GBP     28,000,000     GBP Swaption Put, Expires 03/14/11, Strike 4.96%     1,216,163    
GBP     35,000,000     GBP Swaption Put, Expires 03/21/11, Strike 4.92%     1,603,141    
USD     300,000,000     USD Swaption Call, Expires 02/09/09, Strike 2.25%     36,963    

 

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, 2008 (Unaudited)

Principal Amount /
Shares /
Par Value ($)
  Description   Value ($)  
        Options on Interest Rate Swaps — Continued  
USD     300,000,000     USD Swaption Call, Expires 02/09/09, Strike 3.75%     2,572,275    
USD     64,000,000     USD Swaption Call, Expires 04/10/18, Strike TBD     3,326,660    
USD     64,000,000     USD Swaption Call, Expires 04/23/18, Strike TBD     3,317,320    
USD     64,000,000     USD Swaption Call, Expires 05/01/18, Strike TBD     3,308,022    
USD     600,000,000     USD Swaption Call, Expires 09/26/08, Strike 3.39%     1,018,806    
USD     300,000,000     USD Swaption Put, Expires 01/28/09, Strike 5.35%     1,449,414    
      31,323,592    
    TOTAL OPTIONS PURCHASED (COST $55,862,089)     52,448,469    
        SHORT-TERM INVESTMENTS — 5.9%  
        Money Market Funds — 4.3%  
    56,864,402     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     56,864,402    
        Other Short-Term Investments — 1.6%  
    12,500,000     Barton Capital Corp. Commercial Paper, 2.38%, due 09/03/08     12,498,347    
    6,000,000     U.S. Treasury Bill, 1.57%, due 09/25/08 (a) (b)      5,993,560    
    3,000,000     U.S. Treasury Bill, 1.76%, due 12/26/08 (a) (b)      2,983,181    
    Total Other Short-Term Investments     21,475,088    
    TOTAL SHORT-TERM INVESTMENTS (COST $78,339,101)     78,339,490    
            TOTAL INVESTMENTS — 102.3%
(Cost $1,523,769,167)
    1,369,112,620    
            Other Assets and Liabilities (net) — (2.3%)     (30,893,518 )  
    TOTAL NET ASSETS — 100.0%   $ 1,338,219,102    

 

See accompanying notes to the financial statements.


18



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
9/02/08   AUD     139,900     $ 120,132     $ (378 )  
Sales  
9/02/08   AUD     139,900     $ 120,132     $ 378    

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  2,300     3 Mo. Euro Euribor Interest Rate   December 2008   $ 1,897,996     $ (168,710 )  
Sales      
  2,300     3 Mo. Euro Euribor Interest Rate   December 2008   $ 253,066     $ 210,888    
  78     U.S Treasury Note 10 Yr.   December 2008     9,009,000       20,109    
  44     U.S Treasury Note 5 Yr. (CBT)   December 2008     4,925,250          
                $ 14,187,316     $ 230,997    

 

Written Options

    Notional
Amount
  Expiration
Date
    Description   Premiums   Market
Value
 
Put   $ 400,000,000     06/10/2009   AUD   Floor on 3 Month AUD BBSW,      
 
                Strike 7.85%   $ (399,546 )   $ (2,179,348 )  
Put     400,000,000     06/10/2009   AUD   Floor on 3 Month AUD BBSW,
Strike 7.55%
    (190,260 )     (1,494,640 )  

 

See accompanying notes to the financial statements.


19



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options — Continued

    Notional
Amount
  Expiration
Date
    Description   Premiums   Market
Value
 
Call   $ 120,000,000     10/24/2008   EUR   Interest Rate Swaption,
Strike 5.14%
  $ (896,000 )   $ (1,278,239 )  
Put     120,000,000     10/24/2008   EUR   Interest Rate Swaption,
Strike 5.14%
    (896,000 )     (261,379 )  
Put     225,000,000     01/07/2009   EUR   Interest Rate Swaption,
Strike 4.98%
    (851,130 )     (733,653 )  
Put     225,000,000     01/14/2009   EUR   Interest Rate Swaption,
Strike 5.00%
    (784,890 )     (692,543 )  
Call     150,000,000     02/12/2009   EUR   Interest Rate Swaption,
Strike 3.50%
    (667,310 )     (4,421 )  
Call     150,000,000     02/20/2009   EUR   Interest Rate Swaption,
Strike 3.62%
    (639,820 )     (11,987 )  
Call     45,000,000     10/17/2008   GBP   Interest Rate Swaption,
Strike 5.04%
    (387,484 )     (843,720 )  
Put     45,000,000     10/17/2008   GBP   Interest Rate Swaption,
Strike 5.74%
    (387,483 )     (19,950 )  
Call     300,000,000     09/13/2009   GBP   Floor on 3 Month GBP LIBOR,
Strike 5.90%
    (1,167,900 )     (1,385,178 )  
Call     600,000,000     09/26/2008   USD   Interest Rate Swaption,
Strike 3.09%
    (930,000 )     (215,862 )  
Call     600,000,000     09/26/2008   USD   Interest Rate Swaption,
Strike 2.79%
    (450,000 )     (14,724 )  
Put     600,000,000     01/28/2009   USD   Interest Rate Swaption,
Strike 5.69%
    (3,210,000 )     (1,313,814 )  
Call     600,000,000     02/09/2009   USD   Interest Rate Swaption,
Strike 3.00%
    (2,850,000 )     (1,209,270 )  
Put     1,400,000,000     03/13/2009   USD   Interest Rate Swaption,
Strike 2.63%
    (7,420,000 )     (10,528,448 )  
Call     1,400,000,000     03/13/2009   USD   Interest Rate Swaption,
Strike 2.63%
    (7,420,000 )     (1,462,482 )  
Call     300,000,000     04/14/2009   USD   Interest Rate Swaption,
Strike 2.69%
    (1,395,000 )     (323,748 )  
Put     300,000,000     04/14/2009   USD   Interest Rate Swaption,
Strike 2.69%
    (1,395,000 )     (2,154,249 )  

 

See accompanying notes to the financial statements.


20



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options — Continued

    Notional
Amount
  Expiration
Date
    Description   Premiums   Market
Value
 
Put   $ 30,000,000     06/24/2009   USD   Interest Rate Swaption,
Strike 5.06%
  $ (1,047,000 )   $ (567,899 )  
Put     30,000,000     06/24/2009   USD   Interest Rate Swaption,
Strike 5.06%
    (1,047,000 )     (1,458,590 )  
    $ (34,431,823 )   $ (28,154,144 )  

 

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   Receive     0.40 %   Eagle Creek CDO   $ (761,021 )  
  300,000,000     USD   12/20/2012   JP Morgan
Chase Bank
  Receive     0.73 %   Reference security
within CDX index
    3,553,120    
  50,000,000     USD   12/20/2012   Morgan Stanley   (Pay)     1.93 %   Reference security
within CDX index
    (463,748 )  
  100,000,000     USD   12/20/2012   Morgan Stanley   (Pay)     1.20 %   Reference security
within CDX Index
    (1,404,298 )  
  500,000,000     USD   12/20/2012   Morgan Stanley   Receive     0.70 %   Reference security
within CDX Index
    5,297,877    
  500,000,000     USD   12/20/2012   Morgan Stanley   Receive     0.71 %   Reference security
within CDX Index
    5,505,874    
  400,000,000     USD   12/20/2012   Morgan Stanley   Receive     0.71 %   Reference security
within CDX index
    4,404,699    
  300,000,000     USD   12/20/2012   Morgan Stanley   Receive     0.72 %   Reference security
within CDX index
    3,365,923    
  200,000,000     USD   12/20/2012   Morgan Stanley   Receive     0.75 %   Reference security
within CDX index
    2,535,144    
  7,000,000     USD   3/20/2013   Morgan Stanley   Receive     0.25 %   MS Synthetic 2006-1     (957,864 )  
  5,000,000     USD   3/20/2015   Lehman Brothers   Receive     0.88 %   AAA CDO     (1,429,444 )  
  Premiums to (Pay) Receive   $     $ 19,646,262    

 

See accompanying notes to the financial statements.


21



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  316,000,000     AUD   12/17/2010   Deutsche Bank AG   Receive     8.00 %   3 month AUD BBSW   $ 6,619,691    
  893,000,000     SEK   12/17/2010   Morgan Stanley   (Pay)     5.55 %   3 month SEK STIBOR     (1,378,055 )  
  62,800,000,000     JPY   12/17/2010   Merrill Lynch   (Pay)     1.60 %   6 month JPY LIBOR     (6,154,309 )  
  67,800,000,000     JPY   6/1/2011   Morgan Stanley   Receive     1.61 %   6 month JPY LIBOR     2,722,922    
  100,000,000     USD   6/11/2011   Citigroup   (Pay)     3.97 %   3 month LIBOR     (1,058,320 )  
  5,000,000     USD   2/7/2012   Deutsche Bank AG   (Pay)     4.33 %   3 month LIBOR     (90,229 )  
  34,840,000,000     JPY   5/31/2013   Morgan Stanley   (Pay)     1.91 %   6 month JPY LIBOR     (2,552,106 )  
  445,000,000     USD   6/11/2013   Merrill Lynch   Receive     4.31 %   3 month LIBOR     6,183,205    
  15,000,000     USD   2/8/2015   JP Morgan
Chase Bank
  (Pay)     4.47 %   3 month LIBOR     (62,589 )  
  298,000,000     USD   6/11/2016   Merrill Lynch   (Pay)     4.60 %   3 month LIBOR     (5,352,675 )  
  216,000,000     SEK   12/17/2018   Morgan Stanley   Receive     5.15 %   3 month SEK STIBOR     618,504    
  84,000,000     AUD   12/17/2018   Deutsche Bank AG   (Pay)     7.60 %   6 month AUD BBSW     (5,172,026 )  
  13,300,000,000     JPY   12/17/2018   Merrill Lynch   Receive     2.20 %   6 month JPY LIBOR     5,440,812    
  17,800,000     CAD   12/18/2018   Deutsche Bank AG   Receive     4.50 %   3 month CDOR     (131,199 )  
  30,000,000     CAD   12/18/2018   JP Morgan
Chase Bank
  Receive     4.50 %   3 month CDOR     (221,121 )  
  38,200,000     USD   12/18/2018   JP Morgan
Chase Bank
  Receive     5.20 %   3 month LIBOR     151,012    
  143,400,000     SEK   12/18/2018   Barclays Bank PLC   (Pay)     4.80 %   3 month SEK STIBOR     13,644    
  21,100,000     AUD   12/18/2018   Deutsche Bank AG   (Pay)     7.00 %   6 month AUD BBSW     (298,903 )  
  25,400,000     CHF   12/18/2018   Deutsche Bank AG   Receive     3.80 %   6 month CHF LIBOR     63,896    
  10,300,000     EUR   12/18/2018   Morgan Stanley   (Pay)     4.90 %   6 month EUR LIBOR     (127,566 )  
  6,200,000     GBP   12/18/2018   Deutsche Bank AG   (Pay)     5.10 %   6 month GBP LIBOR     (132,345 )  
  24,700,000     GBP   12/18/2018   JP Morgan
Chase Bank
  (Pay)     5.10 %   6 month GBP LIBOR     (527,245 )  
  750,000,000     JPY   12/18/2018   Citigroup   Receive     2.25 %   6 month JPY LIBOR     28,846    
  35,000,000     USD   5/15/2021   Barclays Bank PLC   (Pay)     0.00 %   3 month LIBOR     (417,646 )  
  280,000,000     USD   11/15/2021   JP Morgan
Chase bank
  (Pay)     0.00 %   3 month LIBOR     (4,147,176 )  
  210,000,000     USD   11/15/2021   JP Morgan
Chase Bank
  (Pay)     0.00 %   3 month LIBOR     (3,432,682 )  
  100,000,000     USD   11/15/2022   JP Morgan
Chase Bank
  (Pay)     0.00 %   3 month LIBOR     (1,297,054 )  

 

See accompanying notes to the financial statements.


22



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Interest Rate Swaps — Continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  70,000,000     USD   11/15/2022   JP Morgan
Chase Bank
  (Pay)     0.00 %   3 month LIBOR   $ (1,968,403 )  
  140,000,000     USD   2/15/2023   Barclays Bank PLC   (Pay)     4.59 %   3 month LIBOR     467,218    
  350,000,000     USD   2/15/2023   JP Morgan
Chase Bank
  (Pay)     0.00 %   3 month LIBOR     454,698    
  153,000,000     AUD   4/16/2023   Deutsche Bank AG   Receive     6.36 %   6 month AUD BBSW     14,211    
  255,400,000     USD   6/26/2028   Deutsche Bank AG   (Pay)     5.51 %   3 month LIBOR     (3,238,275 )  
  82,200,000     AUD   4/17/2038   Deutsche Bank AG   (Pay)     4.34 %   6 month AUD BBSW     1,245,224    
  438,400,000     USD   6/26/2038   Deutsche Bank AG   Receive     5.37 %   3 month LIBOR     3,939,712    
  45,000,000     GBP   12/7/2046   Merrill Lynch   (Pay)     4.36 %   6 month GBP LIBOR     (1,541,784 )  
  Premiums to (Pay) Receive   $ 11,421,002     $ (11,338,113 )  

 

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  140,000,000     USD   9/12/2008   Barclays
Bank PLC
    2.35 %   Return on Treasury
Principal STRIP
  $ 835,058    
  350,000,000     USD   10/7/2008   JP Morgan
Chase Bank
    2.26 %   Return on Treasury
Principal STRIP
    (427,868 )  
  280,000,000     USD   10/21/2008   JP Morgan
Chase Bank
    2.47 %   Return on Treasury
Principal STRIP
    3,443,608    
  210,000,000     USD   10/29/2008   JP Morgan
Chase Bank
    2.40 %   Return on Treasury
Coupon STRIP
    3,122,646    
  100,000,000     USD   11/3/2008   JP Morgan
Chase Bank
    2.50 %   Return on Treasury
Coupon STRIP
    1,185,553    
  35,000,000     USD   11/14/2008   Barclays
Bank PLC
    2.35 %   Return on Treasury
Coupon STRIP
    252,273    
  70,000,000     USD   12/22/2008   JP Morgan
Chase Bank
    2.80 %   Return on Treasury
Coupon STRIP
    1,979,601    
  45,000,000     GBP   2/9/2009   Merrill Lynch     5.50 %   Return on United
Kindom Treasury
2046 Bonds
    67,081    
    Premiums to (Pay) Receive   $     $ 10,457,952    

 

See accompanying notes to the financial statements.


23



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, for the futures and/or swap 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:

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

CDOR - Canadian Dollar Offering Rate

CMBS - Collateralized Mortgage Backed Security

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.

RMBS - Residential Mortgage Backed Security

STIBOR - Stockholm Interbank Offered Rate

TBD - To Be Determined

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2008, 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)  Rate shown represents yield-to-maturity.

(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

CAD - Canadian Dollar

CHF - Swiss Franc

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

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, 2008 (Unaudited)

Assets:  
Investments, at value (cost $1,523,769,167) (Note 2)   $ 1,369,112,620    
Foreign currency, at value (cost $1,109,682) (Note 2)     1,028,569    
Interest receivable     2,814,506    
Unrealized appreciation on open forward currency contracts (Note 2)     378    
Interest receivable for open swap contracts     6,260,354    
Receivable for open swap contracts (Note 2)     63,512,052    
Receivable for expenses reimbursed by Manager (Note 3)     29,047    
Total assets     1,442,757,526    
Liabilities:  
Payable for investments purchased     28,342,386    
Written options outstanding, at value (premiums $34,431,823) (Note 2)     28,154,144    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     2,909    
Unrealized depreciation on open forward currency contracts (Note 2)     378    
Payable for open swap contracts (Note 2)     44,745,951    
Payable for variation margin on open futures contracts (Note 2)     3,163,658    
Accrued expenses     128,998    
Total liabilities     104,538,424    
Net assets   $ 1,338,219,102    
Shares outstanding:     50,609,985    
Net asset value per share:   $ 26.44    

 

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, 2008 (Unaudited)

Investment Income:  
Interest   $ 22,164,044    
Dividends     511,873    
Total investment income     22,675,917    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     101,568    
Audit and tax fees     49,496    
Legal fees     20,608    
Trustees fees and related expenses (Note 3)     7,551    
Miscellaneous     8,648    
Total expenses     187,871    
Fees and expenses reimbursed by Manager (Note 3)     (172,040 )  
Net expenses     15,831    
Net investment income (loss)     22,660,086    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     8,969,576    
Closed futures contracts     8,916,145    
Closed swap contracts     13,573,808    
Written options     (1,587,781 )  
Foreign currency, forward contracts and foreign currency related transactions     (10,833 )  
Net realized gain (loss)     29,860,915    
Change in net unrealized appreciation (depreciation) on:  
Investments     (51,650,194 )  
Open futures contracts     498,423    
Open swap contracts     34,656,056    
Written options     6,670,758    
Foreign currency, forward contracts and foreign currency related transactions     97,324    
Net unrealized gain (loss)     (9,727,633 )  
Net realized and unrealized gain (loss)     20,133,282    
Net increase (decrease) in net assets resulting from operations   $ 42,793,368    

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 22,660,086     $ 84,404,733    
Net realized gain (loss)     29,860,915       398,466    
Change in net unrealized appreciation (depreciation)     (9,727,633 )     (110,689,866 )  
Net increase (decrease) in net assets from operations     42,793,368       (25,886,667 )  
Net share transactions (Note 7):     (182,750,000 )     (246,005,000 )  
Total increase (decrease) in net assets     (139,956,632 )     (271,891,667 )  
Net assets:  
Beginning of period     1,478,175,734       1,750,067,401    
End of period   $ 1,338,219,102     $ 1,478,175,734    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005(a)   
Net asset value, beginning of period   $ 25.68     $ 25.99     $ 25.23     $ 25.17     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)      0.43       1.41       1.36       0.96       0.15    
Net realized and unrealized gain (loss)     0.33       (1.72 )     (0.60 )     (0.90 )     0.02    
Total from investment operations     0.76       (0.31 )     0.76       0.06       0.17    
Net asset value, end of period   $ 26.44     $ 25.68     $ 25.99     $ 25.23     $ 25.17    
Total Return(b)      2.96 %**      (1.19 )%     3.01 %     0.24 %     0.68 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,338,219     $ 1,478,176     $ 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)      0.00 %(c)      0.01 %*   
Interest expense to average daily
net assets
          0.07 %     0.00 %(c)               
Total net expenses to average
daily net assets
    0.00 %(c)*      0.07 %     0.00 %(c)      0.00 %(c)      0.01 %*   
Net investment income to average
daily net assets
    3.20 %*      5.38 %     5.36 %     3.84 %     2.21 %*   
Portfolio turnover rate     13 %**      41 %     93 %     31 %     8 %**   
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.02 %*      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.

(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, 2008 (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 adjustable rate fixed income securities with low volatility (although market changes may indirectly result in volatility). The Fund may also, from time to time, make tactical allocations to seek to add value to the Fund.

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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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


29



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund values debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 38.57% of net assets.

The Fund directly invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.


30



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 2,983,181     $ 1,259,566    
Level 2 - Other Significant Observable Inputs     1,129,812,701       63,512,430    
Level 3 - Significant Unobservable Inputs     236,316,738          
Total   $ 1,369,112,620     $ 64,771,996    

 

*  Other financial instruments include foreign currency, forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (168,710 )  
Level 2 - Other Significant Observable Inputs           (72,900,473 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (73,069,183 )  

 

**  Other financial instruments include forward currency contracts, futures contracts, swap agreements and written options.

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 299,356,447     $    
Accrued discounts/premiums     (23 )        
Realized gain (loss)     3,681          
Change in unrealized appreciation/depreciation     (29,969,296 )        
Net purchases (sales)     (33,074,071 )        
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 236,316,738     $    

 


31



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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


32



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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, 2008, 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   $ (120,000,000 )   $ (525,305 )   $ (540,000,000 )   $ (2,385,597 )  
Options written     (18,538,000,000 )     (25,614,245 )     (4,168,000,000 )     (17,573,784 )  
Options exercised     13,690,000,000       2,743,753       223,000,000       2,158,336    
Options expired     323,000,000       2,602,705       220,000,000       997,532    
Options sold     870,000,000       3,164,782                
Outstanding, end of period   $ (3,775,000,000 )   $ (17,628,310 )   $ (4,265,000,000 )   $ (16,803,513 )  

 


33



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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.,


34



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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 brokers 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


35



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no repurchase agreements outstanding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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.


36



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 1,523,769,167     $ 11,632,660     $ (166,289,207 )   $ (154,656,547 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

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 the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.


37



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncements

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

In September 2008, the FASB issued Statement of Financial Accounting Standards No. 133-1("SFAS 133-1"), Accounting for Derivative Instruments and Hedging Activities, and Interpretation of Financial Accounting Standards No. 45-4, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 rescission of FASB Interpretation No. 34 ("IFAS 45-1"). SFAS 133-1 and IFAS 45-4 are effective for interim periods ending after November 15, 2008. SFAS 133-1 and IFAS 45-4 require enhanced disclosures surrounding the Fund's selling of credit derivatives. The Manager is currently evaluating the impact the adoption of SFAS 133-1 and IFAS 45-4 will have on the Fund's financial statemen t 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $6,907 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, excluding short-term securities, for the period ended August 31, 2008 aggregated $181,089,184 and $234,956,809, respectively.


38



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 70.60% of the outstanding shares of the Fund were held by two shareholders, each holding more 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Each of the shareholders are other funds of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Shares sold     1,203,935     $ 31,400,000       53,723,671     $ 1,403,880,000    
Shares repurchased     (8,151,103 )     (214,150,000 )     (63,507,548 )     (1,649,885,000 )  
Net increase (decrease)     (6,947,168 )   $ (182,750,000 )     (9,783,877 )   $ (246,005,000 )  

 

8.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 1.00% of the amount redeemed. Effective October 20, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the private placement memorandum, which can be obtained by calling 1-617-346-7646 (collect).


39




GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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


40



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


41



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.00 %**    $ 1,000.00     $ 1,029.60     $ 0.01    
2) Hypothetical     0.00 %**    $ 1,000.00     $ 1,025.20     $ 0.01    

 

*  Expenses are calculated using the annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.

**  Annualized net expense ratios are less than 0.01%.


42




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.8 %  
Short-Term Investments     2.0    
Other     0.2    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     24.8 %  
Energy     19.7    
Consumer Staples     18.3    
Information Technology     14.8    
Financials     6.8    
Consumer Discretionary     6.2    
Industrials     5.9    
Materials     2.4    
Telecommunication Services     1.0    
Utilities     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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.8%  
        Consumer Discretionary — 6.1%  
    1,600     Abercrombie & Fitch Co.-Class A     83,920    
    2,000     Amazon.com, Inc. *      161,620    
    1,950     American Eagle Outfitters, Inc.     29,347    
    2,200     Apollo Group, Inc.-Class A *      140,096    
    2,800     AutoNation, Inc. *      31,780    
    800     AutoZone, Inc. *      109,784    
    4,300     Bed Bath & Beyond, Inc. *      131,838    
    2,200     Best Buy Co., Inc.     98,494    
    600     BorgWarner, Inc.     24,810    
    3,800     Coach, Inc. *      110,162    
    600     DirecTV Group (The), Inc. *      16,926    
    900     Discovery Holding Co.-Class A *      18,207    
    1,100     Family Dollar Stores, Inc.     27,412    
    1,500     GameStop Corp.-Class A *      65,805    
    5,200     Gannett Co., Inc.     92,508    
    3,800     Gap (The), Inc.     73,910    
    3,000     General Motors Corp.     30,000    
    5,700     Harley-Davidson, Inc.     226,746    
    58,500     Home Depot, Inc.     1,586,520    
    600     ITT Educational Services, Inc. *      53,346    
    1,200     Johnson Controls, Inc.     37,104    
    3,600     Kohl's Corp. *      177,012    
    1,400     Liz Claiborne, Inc.     22,694    
    26,900     Lowe's Cos., Inc.     662,816    
    2,800     McDonald's Corp.     173,740    
    300     Mohawk Industries, Inc. *      20,715    
    800     Nike, Inc.-Class B     48,488    
    18,000     Office Depot, Inc. *      126,720    
    9,200     Staples, Inc.     222,640    
    6,800     Target Corp.     360,536    
    2,900     TJX Cos. (The), Inc.     105,096    
    600     Urban Outfitters, Inc. *      21,372    
    Total Consumer Discretionary     5,092,164    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — 17.9%  
    33,100     Altria Group, Inc.     696,093    
    4,900     Archer-Daniels-Midland Co.     124,754    
    2,500     Avon Products, Inc.     107,075    
    50,800     Coca-Cola Co. (The)     2,645,156    
    1,700     Coca-Cola Enterprises, Inc.     29,019    
    8,600     Colgate-Palmolive Co.     653,858    
    3,400     Costco Wholesale Corp.     228,004    
    1,400     CVS Caremark Corp.     51,240    
    1,000     Energizer Holdings, Inc. *      84,940    
    1,700     Estee Lauder Cos. (The), Inc.-Class A     84,609    
    1,100     General Mills, Inc.     72,798    
    500     HJ Heinz Co.     25,160    
    900     Kellogg Co.     48,996    
    5,100     Kimberly-Clark Corp.     314,568    
    3,437     Kraft Foods, Inc.     108,300    
    37,200     PepsiCo, Inc.     2,547,456    
    14,200     Philip Morris International, Inc.     762,540    
    31,000     Procter & Gamble Co. (The)     2,162,870    
    1,257     Supervalu, Inc.     29,150    
    1,900     UST, Inc.     101,821    
    20,900     Walgreen Co.     761,387    
    55,600     Wal-Mart Stores, Inc.     3,284,292    
    1,300     WM Wrigley Jr. Co.     103,324    
    Total Consumer Staples     15,027,410    
        Energy — 19.3%  
    5,300     Anadarko Petroleum Corp.     327,169    
    6,000     Apache Corp.     686,280    
    300     Arch Coal, Inc.     16,272    
    800     Baker Hughes, Inc.     64,008    
    1,800     BJ Services Co.     48,330    
    1,300     Cameron International Corp. *      60,567    
    4,800     Chesapeake Energy Corp.     232,320    
    39,500     Chevron Corp.     3,409,640    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    300     Cimarex Energy Co.     16,662    
    19,474     ConocoPhillips     1,606,800    
    2,300     Denbury Resources, Inc. *      57,247    
    6,600     Devon Energy Corp.     673,530    
    800     Diamond Offshore Drilling, Inc.     87,928    
    2,400     EOG Resources, Inc.     250,608    
    58,600     Exxon Mobil Corp.     4,688,586    
    1,500     FMC Technologies, Inc. *      80,340    
    2,900     Halliburton Co.     127,426    
    3,300     Hess Corp.     345,543    
    2,300     Murphy Oil Corp.     180,619    
    2,000     Nabors Industries Ltd. *      71,260    
    400     Newfield Exploration Co. *      18,088    
    1,200     Noble Corp.     60,348    
    900     Noble Energy, Inc.     64,557    
    18,800     Occidental Petroleum Corp.     1,491,968    
    700     Patterson-UTI Energy, Inc.     19,894    
    400     Peabody Energy Corp.     25,180    
    300     Plains Exploration & Production Co. *      16,170    
    1,200     Quicksilver Resources, Inc. *      29,028    
    600     Range Resources Corp.     27,852    
    3,400     Schlumberger Ltd.     320,348    
    1,000     Smith International, Inc.     69,700    
    3,000     Southwestern Energy Co. *      115,110    
    800     Sunoco, Inc.     35,504    
    2,589     Transocean, Inc. *      329,321    
    7,000     Valero Energy Corp.     243,320    
    4,600     Weatherford International Ltd. *      177,468    
    200     Whiting Petroleum Corp. *      19,248    
    2,000     XTO Energy, Inc.     100,820    
    Total Energy     16,195,059    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — 6.7%  
    3,400     ACE Ltd.     178,874    
    5,900     Aflac, Inc.     334,530    
    13,500     Allstate Corp. (The)     609,255    
    20,000     American International Group, Inc.     429,800    
    1,000     AON Corp.     47,490    
    900     Assurant, Inc.     52,587    
    21,408     Bank of America Corp.     666,645    
    4,900     BB&T Corp.     147,000    
    800     BlackRock, Inc.     173,800    
    1,900     Charles Schwab Corp. (The)     45,581    
    10,100     Chubb Corp.     484,901    
    45,500     Citigroup, Inc.     864,045    
    1,100     Comerica, Inc.     30,899    
    14,700     Freddie Mac     66,297    
    100     Goldman Sachs Group, Inc.     16,397    
    2,200     Hartford Financial Services Group (The), Inc.     138,776    
    6,200     Hudson City Bancorp, Inc.     114,328    
    2,200     Leucadia National Corp.     101,838    
    400     Morgan Stanley     16,332    
    6,400     Progressive Corp. (The)     118,208    
    400     Safeco Corp.     27,040    
    1,200     SEI Investment Co.     28,344    
    1,100     State Street Corp.     74,437    
    300     T. Rowe Price Group, Inc.     17,808    
    900     Torchmark Corp.     53,766    
    10,900     Travelers Cos. (The), Inc.     481,344    
    400     UnionBanCal Corp.     29,472    
    900     Unum Group     22,869    
    6,400     US Bancorp     203,904    
    1,850     W.R. Berkley Corp.     43,586    
    800     Wachovia Corp.     12,712    
    Total Financials     5,632,865    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — 24.2%  
    9,600     Abbott Laboratories     551,328    
    700     Aetna, Inc.     30,198    
    3,800     AmerisourceBergen Corp.     155,838    
    7,200     Amgen, Inc. *      452,520    
    400     Bard (C.R.), Inc.     37,380    
    600     Becton, Dickinson & Co.     52,428    
    4,300     Biogen Idec, Inc. *      218,999    
    5,000     Cardinal Health, Inc.     274,900    
    600     Covance, Inc. *      56,604    
    7,200     Coventry Health Care, Inc. *      252,144    
    700     DENTSPLY International, Inc.     27,433    
    16,300     Eli Lilly & Co.     760,395    
    9,000     Express Scripts, Inc. *      660,690    
    9,200     Forest Laboratories, Inc. *      328,348    
    1,200     Genentech, Inc. *      118,500    
    700     Genzyme Corp. *      54,810    
    12,400     Gilead Sciences, Inc. *      653,232    
    200     Illumina, Inc. *      17,226    
    400     Intuitive Surgical, Inc. *      118,108    
    1,000     Invitrogen Corp. *      42,460    
    56,700     Johnson & Johnson     3,993,381    
    1,500     King Pharmaceuticals, Inc. *      17,160    
    10,400     McKesson Corp.     600,912    
    3,726     Medco Health Solutions, Inc. *      174,563    
    9,400     Medtronic, Inc.     513,240    
    31,900     Merck & Co., Inc.     1,137,873    
    1,000     Patterson Cos., Inc. *      32,540    
    11,000     PDL BioPharma, Inc.     132,770    
    173,630     Pfizer, Inc.     3,318,069    
    700     Quest Diagnostics, Inc.     37,835    
    5,600     Stryker Corp.     376,264    
    87,621     UnitedHealth Group, Inc.     2,668,059    
    900     Varian Medical Systems, Inc. *      56,844    
    400     Waters Corp. *      27,300    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    15,500     WellPoint, Inc. *      818,245    
    11,300     Wyeth     489,064    
    14,500     Zimmer Holdings, Inc. *      1,049,655    
    Total Health Care     20,307,315    
        Industrials — 5.8%  
    7,100     3M Co.     508,360    
    1,200     Burlington Northern Santa Fe Corp.     128,880    
    400     Caterpillar, Inc.     28,292    
    3,300     CH Robinson Worldwide, Inc.     171,963    
    800     Copart, Inc. *      35,208    
    2,500     CSX Corp.     161,700    
    4,900     Danaher Corp.     399,693    
    5,700     Deere & Co.     402,249    
    2,400     Emerson Electric Co.     112,320    
    600     Flowserve Corp.     79,272    
    2,000     Fluor Corp.     160,260    
    7,900     General Dynamics Corp.     729,170    
    600     Goodrich Corp.     30,750    
    500     Honeywell International, Inc.     25,085    
    1,300     Jacobs Engineering Group, Inc. *      95,966    
    324     John Bean Technologies Corp. *      4,212    
    300     Joy Global, Inc.     21,312    
    2,700     L-3 Communications Holdings, Inc.     280,638    
    200     Lockheed Martin Corp.     23,288    
    400     Manpower, Inc.     19,224    
    1,300     Masco Corp.     24,778    
    600     Norfolk Southern Corp.     44,118    
    200     Northrop Grumman Corp.     13,770    
    2,025     Paccar, Inc.     87,197    
    1,900     Parker-Hannifin Corp.     121,733    
    1,100     Raytheon Co.     65,989    
    600     Rockwell Collins, Inc.     31,554    
    300     Ryder Systems, Inc.     19,356    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    300     SPX Corp.     35,775    
    200     Stericycle, Inc. *      11,860    
    2,000     Textron, Inc.     82,200    
    3,300     Tyco International Ltd.     141,504    
    600     Union Pacific Corp.     50,340    
    3,300     United Parcel Service, Inc.-Class B     211,596    
    7,800     United Technologies Corp.     511,602    
    Total Industrials     4,871,214    
        Information Technology — 14.5%  
    5,900     Apple, Inc. *      1,000,227    
    500     BMC Software, Inc. *      16,280    
    55,400     Cisco Systems, Inc. *      1,332,370    
    2,300     Citrix Systems, Inc. *      69,621    
    13,100     Dell, Inc. *      284,663    
    25,061     eBay, Inc. *      624,771    
    4,400     EMC Corp. *      67,232    
    4,100     Fiserv, Inc. *      212,626    
    900     FLIR Systems, Inc. *      32,130    
    2,110     Google, Inc.-Class A *      977,542    
    2,900     Hewlett-Packard Co.     136,068    
    13,900     Intel Corp.     317,893    
    4,600     International Business Machines Corp.     559,958    
    2,800     Juniper Networks, Inc. *      71,960    
    500     Lexmark International, Inc. *      17,985    
    800     MasterCard, Inc.-Class A     194,040    
    105,700     Microsoft Corp.     2,884,553    
    65,800     Oracle Corp. *      1,442,994    
    31,600     Qualcomm, Inc.     1,663,740    
    200     Salesforce.com, Inc. *      11,204    
    400     Texas Instruments, Inc.     9,804    
    1,600     Total System Services, Inc.     31,872    
    700     VeriSign, Inc. *      22,379    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    3,700     Western Digital Corp. *      100,862    
    3,500     Western Union Co. (The)     96,670    
    Total Information Technology     12,179,444    
        Materials — 2.3%  
    700     Air Products & Chemicals, Inc.     64,295    
    8,900     Barrick Gold Corp.     309,097    
    500     Dow Chemical Co. (The)     17,065    
    300     FMC Corp.     22,062    
    8,200     Monsanto Co.     936,850    
    800     Mosaic Co. (The)     85,392    
    3,900     Nucor Corp.     204,750    
    1,400     Owens-IIlinois, Inc. *      62,440    
    2,200     Praxair, Inc.     197,648    
    1,200     Sigma-Aldrich Corp.     68,112    
    Total Materials     1,967,711    
        Telecommunication Services — 0.9%  
    10,563     AT&T, Inc.     337,910    
    12,942     Verizon Communications, Inc.     454,523    
    Total Telecommunication Services     792,433    
        Utilities — 0.1%  
    400     Exelon Corp.     30,384    
    700     FirstEnergy Corp.     50,848    
    Total Utilities     81,232    
    TOTAL COMMON STOCKS (COST $82,728,705)     82,146,847    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.0%  
        Money Market Funds — 2.0%  
    1,708,116     State Street Institutional Treasury Money Market Fund-Institutional Class     1,708,116    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,708,116)     1,708,116    
        TOTAL INVESTMENTS — 99.8%
(Cost $84,436,821)
    83,854,963    
        Other Assets and Liabilities (net) — 0.2%     159,204    
    TOTAL NET ASSETS — 100.0%   $ 84,014,167    

 

Notes to Schedule of Investments:

*  Non-income producing security.

See accompanying notes to the financial statements.


10




GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $84,436,821) (Note 2)   $ 83,854,963    
Dividends and interest receivable     224,917    
Receivable for expenses reimbursed by Manager (Note 3)     8,587    
Total assets     84,088,467    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     23,680    
Shareholder service fee     10,763    
Trustees and Chief Compliance Officer of GMO Trust fees     209    
Accrued expenses     39,648    
Total liabilities     74,300    
Net assets   $ 84,014,167    
Net assets consist of:  
Paid-in capital   $ 86,058,735    
Accumulated undistributed net investment income     222,179    
Accumulated net realized loss     (1,684,889 )  
Net unrealized depreciation     (581,858 )  
    $ 84,014,167    
Net assets attributable to:  
Class III shares   $ 84,014,167    
Shares outstanding:  
Class III     7,032,907    
Net asset value per share:  
Class III   $ 11.95    

 

See accompanying notes to the financial statements.


11



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 873,520    
Interest     1,202    
Total investment income     874,722    
Expenses:  
Management fee (Note 3)     144,357    
Shareholder service fee – Class III (Note 3)     65,617    
Custodian, fund accounting agent and transfer agent fees     17,940    
Audit and tax fees     27,508    
Legal fees     1,012    
Trustees fees and related expenses (Note 3)     471    
Registration fees     644    
Miscellaneous     644    
Total expenses     258,193    
Fees and expenses reimbursed by Manager (Note 3)     (47,564 )  
Expense reductions (Note 2)     (30 )  
Net expenses     210,599    
Net investment income (loss)     664,123    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (1,475,934 )  
Net realized gain (loss)     (1,475,934 )  
Change in net unrealized appreciation (depreciation) on investments     (334,628 )  
Net realized and unrealized gain (loss)     (1,810,562 )  
Net increase (decrease) in net assets resulting from operations   $ (1,146,439 )  

 

See accompanying notes to the financial statements.


12



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 664,123     $ 1,718,647    
Net realized gain (loss)     (1,475,934 )     6,085,509    
Change in net unrealized appreciation (depreciation)     (334,628 )     (13,115,568 )  
Net increase (decrease) in net assets from operations     (1,146,439 )     (5,311,412 )  
Distributions to shareholders from:  
Net investment income  
Class III     (655,234 )     (1,800,557 )  
Net realized gains  
Class III           (1,256,863 )  
      (655,234 )     (3,057,420 )  
Net share transactions (Note 7):  
Class III     (2,869,758 )     (19,670,155 )  
Total increase (decrease) in net assets     (4,671,431 )     (28,038,987 )  
Net assets:  
Beginning of period     88,685,598       116,724,585    
End of period (including accumulated undistributed net investment
income of $222,179 and $213,290, respectively)
  $ 84,014,167     $ 88,685,598    

 

See accompanying notes to the financial statements.


13




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 12.21     $ 13.48     $ 12.83     $ 12.14     $ 11.58     $ 8.62    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.09       0.21       0.19       0.20       0.16       0.14    
Net realized and unrealized
gain (loss)
    (0.26 )     (1.08 )     0.64       0.69       0.54       2.96    
Total from investment
operations
    (0.17 )     (0.87 )     0.83       0.89       0.70       3.10    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.22 )     (0.18 )     (0.20 )     (0.14 )     (0.14 )  
From net realized gains           (0.18 )                          
Total distributions     (0.09 )     (0.40 )     (0.18 )     (0.20 )     (0.14 )     (0.14 )  
Net asset value, end of period   $ 11.95     $ 12.21     $ 13.48     $ 12.83     $ 12.14     $ 11.58    
Total Return(a)      (1.38 )%**      (6.78 )%     6.53 %     7.46 %     6.12 %(b)      36.21 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 84,014     $ 88,686     $ 116,725     $ 121,339     $ 81,374     $ 62,027    
Net expenses to average daily
net assets
    0.48 %(c)*      0.48 %(c)      0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    1.52 %*      1.55 %     1.46 %     1.65 %     1.39 %     1.34 %  
Portfolio turnover rate     33 %**      62 %     67 %     62 %     87 %     70 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.11 %*      0.12 %     0.11 %     0.08 %     0.08 %     0.13 %  

 

(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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14




GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 Russell 3000 Index. The Fund typically makes equity investments in companies that issue stocks included in the Russell 3000 Index, and in 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.


15



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 82,146,847     $    
Level 2 - Other Significant Observable Inputs     1,708,116          
Level 3 - Significant Unobservable Inputs              
Total   $ 83,854,963     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures


16



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

clearing broker 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. The Fund had 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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


17



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

differences could be material. Entering into these agreements exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, if any, at least annually. All distributions are paid


18



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $206,290.

As of August 31, 2008, 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)
 
$ 84,513,287     $ 6,557,344     $ (7,215,668 )   $ (658,324 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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


19



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

and accretion of discounts. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Expenses include 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


20



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $471 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, 2008 aggregated $27,838,037 and $30,595,310, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 80.28% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.05% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 1.92% of the Fund's shares were held by accounts for which the Manager has investment discretion.


21



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Shares sold     3,670     $ 45,258       76,039     $ 1,022,306    
Shares issued to shareholders
in reinvestment of distributions
    48,406       578,601       196,167       2,702,024    
Shares repurchased     (285,336 )     (3,493,617 )     (1,667,621 )     (23,394,485 )  
Net increase (decrease)     (233,260 )   $ (2,869,758 )     (1,395,415 )   $ (19,670,155 )  

 


22




GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those 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. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided


23



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 th e 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


24



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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 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     $ 986.20     $ 2.40    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


25




GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.1 %  
Short-Term Investments     3.8    
Futures     0.0    
Other     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     24.6 %  
Energy     20.0    
Consumer Staples     16.7    
Information Technology     16.3    
Financials     7.0    
Consumer Discretionary     6.1    
Industrials     6.0    
Materials     2.2    
Telecommunication Services     1.0    
Utilities     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, 2008 (Unaudited)

Shares   Description   Value ($)  
      COMMON STOCKS — 96.1%  
        Consumer Discretionary — 5.9%  
    600     Abercrombie & Fitch Co.-Class A     31,470    
    600     Amazon.com, Inc. *      48,486    
    350     American Eagle Outfitters, Inc.     5,267    
    700     Apollo Group, Inc.-Class A *      44,576    
    600     AutoNation, Inc. *      6,810    
    290     AutoZone, Inc. *      39,797    
    1,000     Bed Bath & Beyond, Inc. *      30,660    
    700     Best Buy Co., Inc.     31,339    
    300     BorgWarner, Inc.     12,405    
    1,200     Coach, Inc. *      34,788    
    600     Discovery Holding Co.-Class A *      12,138    
    300     Family Dollar Stores, Inc.     7,476    
    500     GameStop Corp.-Class A *      21,935    
    1,400     Gannett Co., Inc.     24,906    
    1,200     Gap (The), Inc.     23,340    
    900     General Motors Corp.     9,000    
    1,300     Harley-Davidson, Inc.     51,714    
    18,700     Home Depot, Inc.     507,144    
    200     ITT Educational Services, Inc. *      17,782    
    400     Johnson Controls, Inc.     12,368    
    1,100     Kohl's Corp. *      54,087    
    500     Liz Claiborne, Inc.     8,105    
    8,400     Lowe's Cos., Inc.     206,976    
    1,200     McDonald's Corp.     74,460    
    100     Mohawk Industries, Inc. *      6,905    
    200     Nike, Inc.-Class B     12,122    
    2,900     Office Depot, Inc. *      20,416    
    2,700     Staples, Inc.     65,340    
    2,000     Target Corp.     106,040    
    900     TJX Cos. (The), Inc.     32,616    
    400     Urban Outfitters, Inc. *      14,248    
    Total Consumer Discretionary     1,574,716    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — 16.0%  
    1,500     Archer-Daniels-Midland Co.     38,190    
    700     Avon Products, Inc.     29,981    
    16,200     Coca-Cola Co. (The)     843,534    
    600     Coca-Cola Enterprises, Inc.     10,242    
    2,800     Colgate-Palmolive Co.     212,884    
    1,013     Costco Wholesale Corp.     67,932    
    500     CVS Caremark Corp.     18,300    
    300     Energizer Holdings, Inc. *      25,482    
    400     Estee Lauder Cos. (The), Inc.-Class A     19,908    
    600     General Mills, Inc.     39,708    
    200     HJ Heinz Co.     10,064    
    300     Kellogg Co.     16,332    
    1,600     Kimberly-Clark Corp.     98,688    
    1,300     Kraft Foods, Inc.     40,963    
    11,700     PepsiCo, Inc.     801,216    
    9,948     Procter & Gamble Co. (The)     694,072    
    365     Supervalu, Inc.     8,464    
    100     Tyson Foods, Inc.-Class A     1,452    
    6,300     Walgreen Co.     229,509    
    17,200     Wal-Mart Stores, Inc.     1,016,004    
      500     WM Wrigley Jr. Co.     39,740    
    Total Consumer Staples     4,262,665    
        Energy — 19.2%  
    1,700     Anadarko Petroleum Corp.     104,941    
    1,840     Apache Corp.     210,459    
    200     Baker Hughes, Inc.     16,002    
    600     BJ Services Co.     16,110    
    500     Cameron International Corp. *      23,295    
    1,500     Chesapeake Energy Corp.     72,600    
    12,600     Chevron Corp.     1,087,632    
    200     Cimarex Energy Co.     11,108    
    6,151     ConocoPhillips     507,519    
    500     Denbury Resources, Inc. *      12,445    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    1,900     Devon Energy Corp.     193,895    
    200     Diamond Offshore Drilling, Inc.     21,982    
    730     EOG Resources, Inc.     76,227    
    19,300     Exxon Mobil Corp.     1,544,193    
    400     FMC Technologies, Inc. *      21,424    
    700     Halliburton Co.     30,758    
    1,030     Hess Corp.     107,851    
    698     Murphy Oil Corp.     54,814    
    700     Nabors Industries Ltd. *      24,941    
    300     Noble Corp.     15,087    
    400     Noble Energy, Inc.     28,692    
    5,800     Occidental Petroleum Corp.     460,288    
    400     Patterson-UTI Energy, Inc.     11,368    
    300     Quicksilver Resources, Inc. *      7,257    
    200     Range Resources Corp.     9,284    
    1,020     Schlumberger Ltd.     96,104    
    300     Smith International, Inc.     20,910    
    900     Southwestern Energy Co. *      34,533    
    400     Sunoco, Inc.     17,752    
    829     Transocean, Inc. *      105,449    
    2,100     Valero Energy Corp.     72,996    
    1,300     Weatherford International Ltd. *      50,154    
    700     XTO Energy, Inc.     35,287    
    Total Energy     5,103,357    
        Financials — 6.8%  
    100     ACE, Ltd.     5,261    
    1,900     Aflac, Inc.     107,730    
    4,000     Allstate Corp. (The)     180,520    
    6,200     American International Group, Inc.     133,238    
    400     AON Corp.     18,996    
    200     Assurant, Inc.     11,686    
    8,588     Bank of America Corp.     267,430    
    1,400     BB&T Corp.     42,000    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    260     BlackRock, Inc.     56,485    
    600     Charles Schwab Corp. (The)     14,394    
    3,200     Chubb Corp.     153,632    
    13,900     Citigroup, Inc.     263,961    
    700     Comerica, Inc.     19,663    
    100     First American Corp.     2,527    
    1,100     Freddie Mac     4,961    
    700     Hartford Financial Services Group (The), Inc.     44,156    
    2,200     Hudson City Bancorp, Inc.     40,568    
    600     Leucadia National Corp.     27,774    
    100     Markel Corp. *      37,000    
    2,200     Progressive Corp. (The)     40,634    
    200     Safeco Corp.     13,520    
    400     SEI Investment Co.     9,448    
    400     State Street Corp.     27,068    
    300     Torchmark Corp.     17,922    
    3,500     Travelers Cos. (The), Inc.     154,560    
    200     UnionBanCal Corp.     14,736    
    435     Unum Group     11,053    
    2,000     US Bancorp     63,720    
    400     W.R. Berkley Corp.     9,424    
    500     Wachovia Corp.     7,945    
    Total Financials     1,802,012    
        Health Care — 23.6%  
    3,100     Abbott Laboratories     178,033    
    200     Aetna, Inc.     8,628    
    1,100     AmerisourceBergen Corp.     45,111    
    2,300     Amgen, Inc. *      144,555    
    100     Bard (C.R.), Inc.     9,345    
    200     Becton, Dickinson & Co.     17,476    
    1,300     Biogen Idec, Inc. *      66,209    
    1,400     Cardinal Health, Inc.     76,972    
    200     Covance, Inc. *      18,868    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    2,300     Coventry Health Care, Inc. *      80,546    
    300     DENTSPLY International, Inc.     11,757    
    5,100     Eli Lilly & Co.     237,915    
    2,800     Express Scripts, Inc. *      205,548    
    2,800     Forest Laboratories, Inc. *      99,932    
    400     Genentech, Inc. *      39,500    
    200     Genzyme Corp. *      15,660    
    3,800     Gilead Sciences, Inc. *      200,184    
    100     Illumina, Inc. *      8,613    
    130     Intuitive Surgical, Inc. *      38,385    
    400     Invitrogen Corp. *      16,984    
    17,220     Johnson & Johnson     1,212,805    
    1,000     King Pharmaceuticals, Inc. *      11,440    
    3,100     McKesson Corp.     179,118    
    1,100     Medco Health Solutions, Inc. *      51,535    
    2,900     Medtronic, Inc.     158,340    
    10,300     Merck & Co., Inc.     367,401    
    200     Patterson Cos., Inc. *      6,508    
    3,400     PDL BioPharma, Inc.     41,038    
    54,090     Pfizer, Inc.     1,033,660    
    200     Quest Diagnostics, Inc.     10,810    
    1,700     Stryker Corp.     114,223    
    27,267     UnitedHealth Group, Inc.     830,280    
    200     Varian Medical Systems, Inc. *      12,632    
    100     Waters Corp. *      6,825    
    4,500     WellPoint, Inc. *      237,555    
    3,600     Wyeth     155,808    
    4,600     Zimmer Holdings, Inc. *      332,994    
    Total Health Care     6,283,193    
        Industrials — 5.7%  
    2,300     3M Co.     164,680    
    360     Burlington Northern Santa Fe Corp.     38,664    
    100     Caterpillar, Inc.     7,073    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    1,000     CH Robinson Worldwide, Inc.     52,110    
    300     Copart, Inc. *      13,203    
    800     CSX Corp.     51,744    
    1,400     Danaher Corp.     114,198    
    1,800     Deere & Co.     127,026    
    700     Emerson Electric Co.     32,760    
    200     Flowserve Corp.     26,424    
    600     Fluor Corp.     48,078    
    2,400     General Dynamics Corp.     221,520    
    200     Goodrich Corp.     10,250    
    200     Honeywell International, Inc.     10,034    
    400     Jacobs Engineering Group, Inc. *      29,528    
    200     Joy Global, Inc.     14,208    
    800     L-3 Communications Holdings, Inc.     83,152    
    120     Lockheed Martin Corp.     13,973    
    200     Manpower, Inc.     9,612    
    100     Masco Corp.     1,906    
    200     Norfolk Southern Corp.     14,706    
    550     Paccar, Inc.     23,683    
    600     Parker-Hannifin Corp.     38,442    
    400     Raytheon Co.     23,996    
    300     Rockwell Collins, Inc.     15,777    
    200     Ryder Systems, Inc.     12,904    
    100     SPX Corp.     11,925    
    100     Stericycle, Inc. *      5,930    
    700     Textron, Inc.     28,770    
    1,000     Tyco International Ltd.     42,880    
    200     Union Pacific Corp.     16,780    
    1,000     United Parcel Service, Inc.-Class B     64,120    
    2,300     United Technologies Corp.     150,857    
    100     W.W. Grainger, Inc.     9,003    
    Total Industrials     1,529,916    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — 15.7%  
    100     Activision Blizzard, Inc. *      3,282    
    700     Affiliated Computer Services, Inc.-Class A *      37,268    
    1,900     Apple, Inc. *      322,107    
    17,800     Cisco Systems, Inc. *      428,090    
    900     Citrix Systems, Inc. *      27,243    
    100     Cypress Semiconductor Corp. *      3,242    
    4,200     Dell, Inc. *      91,266    
    7,600     eBay, Inc. *      189,468    
    1,400     EMC Corp. *      21,392    
    1,207     Fiserv, Inc. *      62,595    
    400     FLIR Systems, Inc. *      14,280    
    630     Google, Inc.-Class A *      291,873    
    800     Hewlett-Packard Co.     37,536    
    4,200     Intel Corp.     96,054    
    1,500     International Business Machines Corp.     182,595    
    600     Juniper Networks, Inc. *      15,420    
    260     MasterCard, Inc.-Class A     63,063    
    44,300     Microsoft Corp.     1,208,947    
    21,200     Oracle Corp. *      464,916    
    9,832     Qualcomm, Inc.     517,655    
    300     Texas Instruments, Inc.     7,353    
    700     Total System Services, Inc.     13,944    
    400     VeriSign, Inc. *      12,788    
    1,000     Western Digital Corp. *      27,260    
    1,100     Western Union Co. (The)     30,382    
    Total Information Technology     4,170,019    
        Materials — 2.1%  
    200     Air Products & Chemicals, Inc.     18,370    
    2,200     Barrick Gold Corp.     76,406    
    200     FMC Corp.     14,708    
    2,500     Monsanto Co.     285,625    
    1,100     Nucor Corp.     57,750    
    400     Owens-IIlinois, Inc. *      17,840    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Materials — continued  
    701     Praxair, Inc.     62,978    
    400     Sigma-Aldrich Corp.     22,704    
    Total Materials     556,381    
        Telecommunication Services — 1.0%  
    3,539     AT&T, Inc.     113,213    
    4,284     Verizon Communications, Inc.     150,454    
    Total Telecommunication Services     263,667    
        Utilities — 0.1%  
    200     Exelon Corp.     15,192    
    200     FirstEnergy Corp.     14,528    
    Total Utilities     29,720    
    TOTAL COMMON STOCKS (COST $27,082,971)     25,575,646    
        SHORT-TERM INVESTMENTS — 3.8%  
        Money Market Funds — 3.8%  
    1,008,878     State Street Institutional Treasury Money Market Fund-Institutional Class     1,008,878    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,008,878)     1,008,878    
          TOTAL INVESTMENTS — 99.9%
(Cost $28,091,849)
    26,584,524    
          Other Assets and Liabilities (net) — 0.1%     36,518    
    TOTAL NET ASSETS — 100.0%   $ 26,621,042    

 

See accompanying notes to the financial statements.


9



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  7     S&P 500 E-Mini   September 2008   $ 448,910     $ 2,033    

 

As of August 31, 2008, 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.


10




GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $28,091,849) (Note 2)   $ 26,584,524    
Dividends and interest receivable     70,793    
Receivable for collateral on open futures contracts (Note 2)     25,200    
Receivable for expenses reimbursed by Manager (Note 3)     8,339    
Total assets     26,688,856    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     7,441    
Shareholder service fee     3,381    
Trustees and Chief Compliance Officer of GMO Trust fees     38    
Payable for variation margin on open futures contracts (Note 2)     5,425    
Accrued expenses     51,529    
Total liabilities     67,814    
Net assets   $ 26,621,042    
Net assets consist of:  
Paid-in capital   $ 34,564,575    
Accumulated undistributed net investment income     69,614    
Accumulated net realized loss     (6,507,855 )  
Net unrealized depreciation     (1,505,292 )  
    $ 26,621,042    
Net assets attributable to:  
Class III shares   $ 26,621,042    
Shares outstanding:  
Class III     2,677,650    
Net asset value per share:  
Class III   $ 9.94    

 

See accompanying notes to the financial statements.


11



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $42)   $ 279,817    
Interest     993    
Total investment income     280,810    
Expenses:  
Management fee (Note 3)     47,540    
Shareholder service fee – Class III (Note 3)     21,609    
Custodian, fund accounting agent and transfer agent fees     26,496    
Audit and tax fees     27,508    
Legal fees     368    
Trustees fees and related expenses (Note 3)     128    
Registration fees     828    
Miscellaneous     369    
Total expenses     124,846    
Fees and expenses reimbursed by Manager (Note 3)     (55,476 )  
Expense reductions (Note 2)     (733 )  
Net expenses     68,637    
Net investment income (loss)     212,173    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (2,570,928 )  
Closed futures contracts     (159,809 )  
Net realized gain (loss)     (2,730,737 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,068,427    
Open futures contracts     79,199    
Net unrealized gain (loss)     2,147,626    
Net realized and unrealized gain (loss)     (583,111 )  
Net increase (decrease) in net assets resulting from operations   $ (370,938 )  

 

See accompanying notes to the financial statements.


12



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 212,173     $ 2,667,719    
Net realized gain (loss)     (2,730,737 )     26,668,967    
Change in net unrealized appreciation (depreciation)     2,147,626       (21,962,862 )  
Net increase (decrease) in net assets from operations     (370,938 )     7,373,824    
Distributions to shareholders from:  
Net investment income  
Class III     (208,968 )     (2,382,432 )  
Class IV           (1,169,636 )  
Total distributions from net investment income     (208,968 )     (3,552,068 )  
Net realized gains  
Class III           (15,985,212 )  
Class IV           (5,014,664 )  
Total distributions from net realized gains           (20,999,876 )  
      (208,968 )     (24,551,944 )  
Net share transactions (Note 7):  
Class III     (17,995,885 )     (122,744,412 )  
Class IV           (141,183,947 )  
Increase (decrease) in net assets resulting from net share
transactions
    (17,995,885 )     (263,928,359 )  
Total increase (decrease) in net assets     (18,575,791 )     (281,106,479 )  
Net assets:  
Beginning of period     45,196,833       326,303,312    
End of period (including accumulated undistributed net investment
income of $69,614 and $66,409, respectively)
  $ 26,621,042     $ 45,196,833    

 

See accompanying notes to the financial statements.


13




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 10.03     $ 12.88     $ 12.45     $ 12.24     $ 11.76     $ 8.69    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.07       0.19       0.18       0.20       0.17       0.13    
Net realized and unrealized
gain (loss)
    (0.10 )     (0.96 )(a)      0.54       0.44       0.54       3.07    
Total from investment
operations
    (0.03 )     (0.77 )     0.72       0.64       0.71       3.20    
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.22 )     (0.23 )     (0.15 )     (0.18 )     (0.13 )  
From net realized gains           (1.86 )     (0.06 )     (0.28 )     (0.05 )        
Total distributions     (0.06 )     (2.08 )     (0.29 )     (0.43 )     (0.23 )     (0.13 )  
Net asset value, end of period   $ 9.94     $ 10.03     $ 12.88     $ 12.45     $ 12.24     $ 11.76    
Total Return(b)      (0.24 )%**      (7.30 )%     5.87 %     5.40 %     6.16 %     37.06 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 26,621     $ 45,197     $ 188,133     $ 224,097     $ 221,661     $ 188,370    
Net expenses to average daily
net assets
    0.48 %*(c)      0.48 %(c)      0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    1.47 %*      1.52 %     1.46 %     1.68 %     1.43 %     1.26 %  
Portfolio turnover rate     30 %**      74 %     73 %     63 %     68 %     63 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.39 %*      0.08 %     0.06 %     0.04 %     0.04 %     0.04 %  

 

(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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not Annualized.

See accompanying notes to the financial statements.


14




GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 in companies with similar market capitalizations, other than tobacco-producing companies.

As of August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.


15



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 25,575,646     $ 2,033    
Level 2 - Other Significant Observable Inputs     1,008,878          
Level 3 - Significant Unobservable Inputs              
Total   $ 26,584,524     $ 2,033    

 

*  Other financial instruments include futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.


16



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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


17



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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.


18



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $1,736,434.

As of August 31, 2008, 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)
 
$ 29,097,570     $ 951,594     $ (3,464,640 )   $ (2,513,046 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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


19



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

of premiums and accretion of discounts. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Expenses include 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


20



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $128 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, 2008 aggregated $8,757,041 and $25,956,850, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 72.53% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and 9.97% of the Fund's shares were held by accounts for which the Manager has investment discretion.


21



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     49     $ 500       443,012     $ 4,612,176    
Shares issued to shareholders
in reinvestment of distributions
    18,976       184,028       1,466,326       17,114,056    
Shares repurchased     (1,846,837 )     (18,180,413 )     (12,009,243 )     (144,470,644 )  
Net increase (decrease)     (1,827,812 )   $ (17,995,885 )     (10,099,905 )   $ (122,744,412 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Period Ended
June 21, 2007*
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $           $    
Shares issued to shareholders
in reinvestment of distributions
                469,828       6,184,300    
Shares repurchased                 (11,190,045 )     (147,368,247 )  
Net increase (decrease)         $       (10,720,217 )   $ (141,183,947 )  

 

*  Effective June 21, 2007, all shareholders redeemed or exchanged out of Class IV.


22




GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those 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. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided


23



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 th e 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


24



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 997.60     $ 2.42    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


25




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     81.7 %  
Preferred Stocks     11.7    
Rights and Warrants     0.1    
Other     6.5    
      100.0 %  
Country Summary   % of Equity Investments  
Brazil     19.4 %  
South Korea     18.5    
Taiwan     11.9    
Russia     10.6    
Turkey     7.3    
China     5.8    
Thailand     5.5    
South Africa     5.1    
Hungary     3.2    
Malaysia     2.5    
Mexico     2.1    
Philippines     1.7    
Israel     1.6    
Poland     1.6    
India     1.4    
Czech Republic     0.6    
Egypt     0.4    
Indonesia     0.3    
Morocco     0.3    
Argentina     0.2    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financials     21.8 %  
Information Technology     15.3    
Energy     14.5    
Telecommunication Services     12.0    
Materials     10.2    
Consumer Staples     8.5    
Industrials     8.0    
Consumer Discretionary     4.9    
Utilities     2.4    
Health Care     2.4    
      100.0 %  

 


1




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 81.7%        
        Argentina — 0.2%        
  2,430     Tenaris SA ADR     132,897    
        Brazil — 6.8%        
  14,200     Anhanguera Educacional Participacoes SA     243,926    
  16,800     Companhia de Concessoes Rodoviarias     307,347    
  18,400     Companhia Vale do Rio Doce     490,704    
  14,200     Localiza Rent A Car     142,871    
  23,500     Natura Cosmeticos SA     273,638    
  61,200     Petroleo Brasileiro SA (Petrobras)     1,601,713    
  35,400     Redecard SA     630,468    
  12,900     Souza Cruz SA     337,379    
  13,400     Tractebel Energia SA     165,650    
  6,500     Usinas Siderurgicas de Minas Gerais SA     223,712    
  44,500     Weg SA     488,681    
    Total Brazil     4,906,089    
        China — 5.5%        
  632,000     China Construction Bank Class H     512,226    
  76,000     China Mengniu Dairy Co Ltd     229,380    
  101,200     China Mobile Ltd     1,148,822    
  24,000     China Overseas Land & Investment Ltd     39,864    
  114,000     China Railway Construction Corp Class H *      156,550    
  138,000     China Railway Group Ltd Class H *      105,890    
  22,000     China Shenhua Energy Co Ltd Class H     75,125    
  16,000     China Shipping Development Co Ltd Class H     37,805    
  72,000     Cosco Pacific Ltd     109,519    
  458,592     Denway Motors Ltd     163,386    
  214,900     Dongfeng Motor Group Co Ltd     90,742    
  354,000     Industrial and Commercial Bank of China Ltd Class H     242,388    
  2,840     Netease.Com Inc ADR *      74,152    
  54,000     Parkson Retail Group Ltd     77,457    
  242,842     PetroChina Co Ltd Class H     311,327    

 

See accompanying notes to the financial statements.


2



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        China — continued        
  4,510     Sina.com *      192,306    
  7,100     Suntech Power Holdings Co Ltd ADR *      339,451    
    Total China     3,906,390    
        Czech Republic — 0.6%        
  3,900     CEZ AS     293,338    
  600     Komercni Banka AS     132,103    
    Total Czech Republic     425,441    
        Egypt — 0.4%        
  16,900     Egyptian Financial Group-Hermes Holding     148,176    
  1,900     Orascom Construction Industries     120,080    
    Total Egypt     268,256    
        Hungary — 3.0%        
  37,370     OTP Bank Nyrt *      1,675,981    
  2,460     Richter Gedeon Nyrt     487,504    
    Total Hungary     2,163,485    
        India — 1.3%        
  12,250     Hero Honda Motors Ltd     229,735    
  90,970     Hindustan Lever     505,768    
  9,980     Tata Consultancy Services Ltd     183,229    
    Total India     918,732    
        Indonesia — 0.3%        
  206,700     Bank Rakyat Indonesia     130,787    
  120,000     Unilever Indonesia Tbk PT     94,542    
    Total Indonesia     225,329    
        Israel — 1.5%        
  7,030     Check Point Software Technologies Ltd *      172,165    
  19,410     Teva Pharmaceutical Industries Ltd Sponsored ADR     918,869    
    Total Israel     1,091,034    

 

See accompanying notes to the financial statements.


3



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        Malaysia — 2.2%        
  98,800     Berjaya Sports Toto Berhad     132,433    
  29,700     British American Tobacco Berhad     344,866    
  30,500     Digi.com Berhad     206,419    
  226,800     MISC Berhad (Foreign Registered)     573,733    
  22,700     Public Bank Berhad     68,038    
  56,800     Resorts World Berhad     45,119    
  56,700     Tanjong Plc     219,908    
    Total Malaysia     1,590,516    
        Mexico — 1.9%        
  98,460     Telmex Internacional SAB de CV ADR     1,389,271    
        Morocco — 0.3%        
  10,090     Maroc Telecom     238,504    
        Philippines — 1.6%        
  19,140     Philippine Long Distance Telephone Co     1,124,887    
        Poland — 1.5%        
  5,891     Asseco Poland SA     160,268    
  28,630     Powszechna Kasa Oszczednosci Bank Polski SA     615,444    
  29,250     Telekomunikacja Polska SA     293,470    
    Total Poland     1,069,182    
        Russia — 9.9%        
  2,500     Cherepovets MK Severstal GDR (Registered Shares)     42,250    
  9,300     Evraz Group SA GDR     702,150    
  19,903     Lukoil Sponsored ADR     1,478,793    
  9,680     Mobile Telesystems Sponsored ADR     658,240    
  800     NovaTek OAO Sponsored GDR     57,600    
  57,750     OAO Gazprom Sponsored GDR     2,252,250    
  33,600     OAO Rosneft Oil Co GDR     286,608    
  446,730     OGK-3     33,330    
  430,300     Sberbank RF     1,008,925    
  11,880     Vimpel-Communications Sponsored ADR     285,476    
  10,500     X5 Retail Group NV GDR (Registered Shares) *      286,125    
    Total Russia     7,091,747    

 

See accompanying notes to the financial statements.


4



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Africa — 4.7%        
  13,200     Absa Group Ltd     186,354    
  21,576     Adcock Ingram Holdings Ltd *      105,112    
  31,000     African Bank Investments Ltd     111,512    
  36,904     Bidvest Group Ltd     545,214    
  252,004     FirstRand Ltd     536,642    
  20,500     Naspers Ltd Class N     514,830    
  29,879     Pretoria Portland Cement Co Ltd     131,724    
  30,400     Spar Group Ltd (The)     213,206    
  54,168     Standard Bank Group Ltd     631,970    
  28,815     Steinhoff International Holdings Ltd     68,900    
  20,076     Tiger Brands Ltd     353,108    
    Total South Africa     3,398,572    
        South Korea — 16.9%        
  10,400     Daegu Bank     115,295    
  1,110     Daelim Industrial Co Ltd     68,415    
  350     E1 Corp     30,531    
  520     GLOVIS Co Ltd     32,143    
  3,070     GS Engineering & Construction Corp     235,735    
  520     Hanmi Pharm Co Ltd     56,650    
  3,940     Hyundai Engineering & Construction     201,927    
  1,370     Hyundai Heavy Industries     297,757    
  7,920     Hyundai Mobis     657,655    
  1,710     Hyundai Steel Co     79,142    
  25,780     Kangwon Land Inc     452,561    
  3,220     Kolon Engineering & Construction Co Ltd     25,917    
  550     Komipharm International Co Ltd *      27,609    
  25,410     Kookmin Bank     1,390,136    
  19,380     Korea Exchange Bank     242,714    
  23,080     KT&G Corp     1,939,883    
  6,790     Lotte Midopa Co Ltd *      52,571    
  1,080     LS Industrial Systems Co Ltd     46,027    
  320     MegaStudy Co Ltd     66,987    
  4,320     NHN Corp *      588,066    
  3,000     POSCO     1,290,413    

 

See accompanying notes to the financial statements.


5



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued        
  3,900     Pusan Bank     43,372    
  700     Pyeong San Co Ltd     26,457    
  3,890     S1 Corp     213,661    
  3,663     Samsung Electronics Co Ltd     1,718,210    
  3,800     Samsung Engineering Co Ltd     241,526    
  5,410     Samsung Techwin Co Ltd     154,345    
  12,950     Shinhan Financial Group Co Ltd     587,537    
  530     Shinsegae Co Ltd     263,176    
  6,440     SK Networks Co Ltd *      98,587    
  16,610     SK Telecom Co Ltd ADR     338,844    
  118,650     STX Pan Ocean Co Ltd     201,449    
  1,700     Sung Kwang Bend Co Ltd     28,975    
  520     Taewoong Co Ltd     45,063    
  4,460     Woongjin Coway Co Ltd     135,758    
  10,020     Woori Finance Holdings Co Ltd     131,895    
    Total South Korea     12,126,989    
        Taiwan — 11.2%        
  27,440     Avermedia Technologies Inc     36,566    
  60,990     Chicony Electronics Co Ltd     109,507    
  816,984     China Steel Corp     999,975    
  119,400     Chunghwa Telecom Co Ltd     295,998    
  14,128     Delta Electronics Inc     37,841    
  136,500     Far Eastone Telecommunications Co Ltd     198,504    
  73,260     High Tech Computer Corp     1,357,423    
  458,285     Hon Hai Precision Industry Co Ltd     2,299,003    
  5,304     Largan Precision Co Ltd     71,583    
  9,215     MediaTek Inc     105,812    
  28,600     Powertech Technology Inc     88,667    
  12,188     Silitech Technology Corp     35,226    
  45,250     Taiwan Mobile Co Ltd     80,900    
  1,183,064     Taiwan Semiconductor Manufacturing Co Ltd     2,179,005    
  41,000     Tung Ho Steel Enterprise Corp     53,986    
  24,000     U-Ming Marine Transport Corp     63,263    
    Total Taiwan     8,013,259    

 

See accompanying notes to the financial statements.


6



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        Thailand — 5.1%        
  235,000     Advanced Info Service Pcl (Foreign Registered)     606,701    
  29,000     Bangkok Bank Pcl NVDR     98,356    
  299,000     BEC World Pcl (Foreign Registered)     194,718    
  1,160,000     G Steel Pcl (Foreign Reigstered)     43,703    
  140,390     Kasikornbank Pcl NVDR     292,803    
  317,000     Land & Houses Pcl NVDR     60,979    
  144,000     Minor International Pcl     53,832    
  85,000     Precious Shipping Pcl (Foreign Reigstered)     48,905    
  40,000     PTT Chemical Pcl (Foreign Registered)     88,201    
  159,500     PTT Exploration & Production Pcl (Foreign Registered)     690,467    
  131,611     PTT Pcl (Foreign Registered)     1,015,978    
  36,000     Ratchaburi Electricity Generating Holding Pcl (Foreign Registered)     40,216    
  51,670     Siam Cement Pcl NVDR     247,954    
  64,000     Siam Commercial Bank Pcl (Foreign Registered)     145,567    
  375,000     Thai Beverage Pcl     59,278    
    Total Thailand     3,687,658    
        Turkey — 6.8%        
  119,520     Akbank TAS     613,249    
  29,400     Anadolu Efes Biracillik ve Malt Sanayii AS     315,319    
  58,500     Asya Katilim Bankasi AS *      127,005    
  12,700     BIM Birlesik Magazalar AS     490,560    
  35,244     Enka Insaat ve Sanayi AS     312,424    
  5,300     Ford Otomotiv Sanayi AS     40,856    
  15,470     Tupras-Turkiye Petrol Rafineriler AS     362,357    
  53,200     Turk Telekomunikasyon AS *      190,417    
  132,240     Turkcell Iletisim Hizmet AS     874,831    
  327,398     Turkiye Garanti Bankasi *      969,259    
  60,100     Turkiye Halk Bankasi AS     331,088    
  78,300     Turkiye Vakiflar Bankasi TAO Class D     147,994    
  47,300     Yapi ve Kredi Bankasi AS *      105,137    
    Total Turkey     4,880,496    
    TOTAL COMMON STOCKS (COST $62,112,188)     58,648,734    

 

See accompanying notes to the financial statements.


7



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        PREFERRED STOCKS — 11.7%        
        Brazil — 11.3%        
  20,600     AES Tiete SA 9.35%     192,983    
  80,264     Banco Bradesco SA 0.52%     1,474,789    
  90,275     Banco Itau Holding Financeira SA 0.46%     1,703,041    
  1,700     Companhia de Gas de Sao Paulo Class A 3.22%     44,461    
  23,800     Companhia Energetica de Minas Gerais 2.51%     513,817    
  35,348     Companhia Vale do Rio Doce Class A 0.54%     824,064    
  14,000     Confab Industrial SA 1.93%     54,540    
  3,400     Fertilizantes Fosfatados SA 1.99%     196,074    
  44,500     Gerdau SA 4.82%     838,129    
  69,400     Petroleo Brasileiro SA (Petrobras) 0.08%     1,485,926    
  11,900     Randon Participacoes SA 0.64%     97,098    
  5,600     Telecomunicacoes de Sao Paulo SA 4.31%     159,754    
  14,800     Usinas Siderrurgicas de Minas Gerais SA Class A 0.55%     519,362    
    Total Brazil     8,104,038    
        South Korea — 0.4%        
  950     Samsung Electronics Co Ltd (Non Voting) 2.21%     315,548    
    TOTAL PREFERRED STOCKS (COST $7,973,719)     8,419,586    
        RIGHTS AND WARRANTS — 0.1%        
        Malaysia — 0.1%        
  422,641     YTL Power International Berhad Warrants, Expires 06/11/18 *      66,631    
    TOTAL RIGHTS AND WARRANTS (COST $69,233)     66,631    
        TOTAL INVESTMENTS — 93.5%
(Cost $70,155,140)
    67,134,951    
        Other Assets and Liabilities (net) — 6.5%     4,670,839    
    TOTAL NET ASSETS — 100.0%   $ 71,805,790    

 

See accompanying notes to the financial statements.


8



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

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

NVDR - Non-Voting Depository Receipt

*  Non income-producing security.

As of August 31, 2008, 58.22% 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.


9




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $70,155,140) (Note 2)   $ 67,134,951    
Foreign currency, at value (cost $932,364) (Note 2)     930,898    
Receivable for investments sold     6,395,083    
Dividends receivable     1,622,524    
Receivable for expenses reimbursed by Manager (Note 3)     13,175    
Total assets     76,096,631    
Liabilities:  
Due to custodian     50,086    
Payable for investments purchased     3,706,670    
Payable to affiliate for (Note 3):  
Management fee     33,155    
Shareholder service fee     11,876    
Trustees and Chief Compliance Officer of GMO Trust fees     2,161    
Accrued expenses     486,893    
Total liabilities     4,290,841    
Net assets   $ 71,805,790    
Net assets consist of:  
Paid-in capital   $ 67,665,100    
Distributions in excess of net investment income     (1,024,368 )  
Accumulated net realized gain     8,190,030    
Net unrealized depreciation     (3,024,972 )  
    $ 71,805,790    
Net assets attributable to:  
Class III shares   $ 71,805,790    
Shares outstanding:  
Class III     9,149,126    
Net asset value per share:  
Class III   $ 7.85    

 

See accompanying notes to the financial statements.


10



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,898,295)   $ 12,635,442    
Interest     365,196    
Securities lending income     25,857    
Total investment income     13,026,495    
Expenses:  
Management fee (Note 3)     1,634,759    
Shareholder service fee – Class III (Note 3)     197,055    
Shareholder service fee – Class VI (Note 3)     152,526    
Custodian and fund accounting agent fees     799,112    
Transfer agent fees     21,160    
Audit and tax fees     38,729    
Legal fees     13,984    
Trustees fees and related expenses (Note 3)     5,478    
Registration fees     736    
Miscellaneous     8,556    
Total expenses     2,872,095    
Fees and expenses reimbursed by Manager (Note 3)     (77,096 )  
Expense reductions (Note 2)     (4,806 )  
Net expenses     2,790,193    
Net investment income (loss)     10,236,302    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $24,679) (Note 2)     278,542,566    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $1,815) (Note 2)
    (1,688,793 )  
Net realized gain (loss)     276,853,773    
Change in net unrealized appreciation (depreciation) on:  
Investments     (349,526,961 )  
Foreign currency, forward contracts and foreign currency related transactions     (57,864 )  
Net unrealized gain (loss)     (349,584,825 )  
Net realized and unrealized gain (loss)     (72,731,052 )  
Net increase (decrease) in net assets resulting from operations   $ (62,494,750 )  

 

See accompanying notes to the financial statements.


11



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,236,302     $ 15,296,524    
Net realized gain (loss)     276,853,773       70,968,379    
Change in net unrealized appreciation (depreciation)     (349,584,825 )     138,141,381    
Net increase (decrease) in net assets from operations     (62,494,750 )     224,406,284    
Distributions to shareholders from:  
Net investment income  
Class III     (1,724,371 )     (6,966,010 )  
Class VI     (4,323,186 )     (14,556,021 )  
Total distributions from net investment income     (6,047,557 )     (21,522,031 )  
Net realized gains  
Class III     (89,648,230 )     (23,553,007 )  
Class VI     (204,439,434 )     (44,940,537 )  
Total distributions from net realized gains     (294,087,664 )     (68,493,544 )  
      (300,135,221 )     (90,015,575 )  
Net share transactions (Note 7):  
Class III     (169,679,345 )     11,905,376    
Class VI     (490,956,756 )     111,032,810    
Increase (decrease) in net assets resulting from net share
transactions
    (660,636,101 )     122,938,186    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     1,301,435       758,901    
Class VI     3,498,597       416,207    
Increase in net assets resulting from purchase premiums
and redemption fees
    4,800,032       1,175,108    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (655,836,069 )     124,113,294    
Total increase (decrease) in net assets     (1,018,466,040 )     258,504,003    
Net assets:  
Beginning of period     1,090,271,830       831,767,827    
End of period (including distributions in excess of net investment
income of $1,024,368 and $5,213,113, respectively)
  $ 71,805,790     $ 1,090,271,830    

 

See accompanying notes to the financial statements.


12




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning of
period
  $ 13.28     $ 11.36     $ 10.38     $ 7.71     $ 13.77     $ 7.25    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.15       0.20       0.18       0.15       0.17       0.23    
Net realized and unrealized gain (loss)     (1.26 )     2.89       1.57       2.67       0.19       6.35    
Total from investment operations     (1.11 )     3.09       1.75       2.82       0.36       6.58    
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.27 )     (0.18 )     (0.11 )     (0.52 )     (0.06 )  
From net realized gains     (4.24 )     (0.90 )     (0.59 )     (0.04 )     (5.90 )        
Total distributions     (4.32 )     (1.17 )     (0.77 )     (0.15 )     (6.42 )     (0.06 )  
Net asset value, end of period   $ 7.85     $ 13.28     $ 11.36     $ 10.38     $ 7.71     $ 13.77    
Total Return(a)      (9.87 )%**      26.68 %     17.27 %     36.86 %     16.19 %     91.04 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 71,806     $ 353,478     $ 292,123     $ 197,026     $ 82,153     $ 141,614    
Net expenses to average daily
net assets
    0.81 %(b)*      0.71 %     0.70 %     0.73 %     1.22 %     1.25 %  
Net investment income to average
daily net assets
    1.22 %(c)**      1.46 %     1.70 %     1.71 %     1.84 %     1.76 %  
Portfolio turnover rate     27 %**      17 %     17 %     18 %     141 %     39 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:
    0.03 %*      0.01 %     0.02 %     0.04 %     0.11 %     0.07 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts: 
  $ 0.06     $ 0.03     $ 0.02     $ 0.04     $ 0.06     $ 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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


13



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

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

    Period from
March 1, 2008
through
August 1, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005(a)   
Net asset value, beginning of period   $ 13.31     $ 11.38     $ 10.39     $ 7.72     $ 6.52    
Income (loss) from investment operations:  
Net investment income (loss)      0.14       0.20       0.20       0.15       0.03    
Net realized and unrealized gain (loss)     (0.78 )     2.91       1.57       2.67       1.44    
Total from investment operations     (0.64 )     3.11       1.77       2.82       1.47    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.28 )     (0.19 )     (0.11 )     (0.01 )  
From net realized gains     (4.24 )     (0.90 )     (0.59 )     (0.04 )     (0.26 )  
Total distributions     (4.33 )     (1.18 )     (0.78 )     (0.15 )     (0.27 )  
Net asset value, end of period   $ 8.34 (b)    $ 13.31     $ 11.38     $ 10.39     $ 7.72    
Total Return(c)      (4.58 )%**      26.83 %     17.45 %     36.92 %     23.05 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 214,428 (b)    $ 736,794     $ 539,645     $ 392,370     $ 103,152    
Net expenses to average daily net assets     0.62 %(d)*      0.61 %     0.61 %     0.64 %     0.71 %*   
Net investment income to average daily
net assets
    1.07 %(e)**      1.50 %     1.82 %     1.66 %     0.99 %*   
Portfolio turnover rate     27 %†††**      17 %     17 %     18 %     141 %††   
Fees and expenses reimbursed by the
Manager to average daily net assets:
    0.02 %*      0.01 %     0.02 %     0.04 %     0.16 %*   
Purchase premiums and redemption fees
consisted of the following per share
amounts: 
  $ 0.07     $ 0.01     $ 0.01     $ 0.03     $ 0.04    

 

(a)  Period from September 23, 2004 (commencement of operations) through February 28, 2005.

(b)  Represents the ending net asset value per share and net assets upon the liquidation of the class.

(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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(d)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(e)  The ratio for the six months ended August 31, 2008, 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.

††  Calculation represents portfolio turnover of the Fund for the year ended February 28, 2005.

†††  Calculation represents portfolio turnover of the Fund for the period from March 1, 2008 through August 31, 2008.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (Unaudited)

1.  Organization

GMO Emerging Markets Opportunities 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 ("emerging markets"), which excludes countries that are included in the MSCI EAFE Index.

As of August 31, 2008, the Fund had one class of shares outstanding: Class III. Class VI shares were liquidated on August 1, 2008.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. Because many


15



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 23,013,065     $ 930,898    
Level 2 - Other Significant Observable Inputs     44,121,886          
Level 3 - Significant Unobservable Inputs              
Total   $ 67,134,951     $ 930,898    

 

*  Other financial instruments include foreign currency.


16



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 326,229     $    
Realized gain (loss)     (111,606 )        
Change in unrealized appreciation/depreciation     127,883          
Net purchases (sales)     (464,157 )        
Net transfers in and/or out of Level 3     121,651          
Balance as of August 31, 2008   $     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


17



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had no open written option contracts during the period.


18



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.


19



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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. The Fund had no securities on loan at Aug ust 31, 2008.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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.


20



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests. The Fund did not have a deferred tax liability in respect of unrealized appreciation on foreign securities for potential capital gains and repatriation taxes as of August 31, 2008. 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, 2008, the Fund incurred $24,679 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, 2008, the Fund incurred $1,815 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.

The Fund is currently subject to a Taiwanese security transaction tax of 0.30% of the transaction amount on equities and 0.10% of the transaction amount on mutual fund shares, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to that tax.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 77,353,698     $ 5,335,086     $ (15,553,833 )   $ (10,218,747 )  

 

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


21



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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


22



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Investment risks

Investments in securities of issuers in emerging countries present risks that are not inherent in many other investments. Many emerging countries are subject to 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 that impede the Fund's ability to repatriate amounts it receives. The Fund may acquire interests in securities in some countries based on the Manager's expectations that conditions in those countries will improve. These factors may result in significant volatility in the values of the Fund's 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 the values i t has placed on its holdings.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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.


23



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.40% of the Fund's average daily net assets. Excluded Expenses include 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 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 Secti on 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $4,834 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, for the period ended August 31, 2008 aggregated $197,901,437 and $1,126,270,757, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 63.49% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.


24



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 0.73% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 83.19% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     26,819     $ 343,945       5,544,644     $ 72,929,163    
Shares issued to shareholders
in reinvestment of distributions
    11,000,542       90,534,462       2,089,807       29,583,608    
Shares repurchased     (28,495,603 )     (260,557,752 )     (6,737,464 )     (90,607,395 )  
Purchase premiums           171             355,991    
Redemption fees           1,301,264             402,910    
Net increase (decrease)     (17,468,242 )   $ (168,377,910 )     896,987     $ 12,664,277    
    Period Ended
August 31, 2008*
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold         $       5,543,984     $ 74,667,359    
Shares issued to shareholders
in reinvestment of distributions
    25,273,925       208,762,620       4,182,085       59,496,558    
Shares repurchased     (80,618,206 )     (699,719,376 )     (1,790,190 )     (23,131,107 )  
Purchase premiums                       317,281    
Redemption fees           3,498,597             98,926    
Net increase (decrease)     (55,344,281 )   $ (487,458,159 )     7,935,879     $ 111,449,017    

 

*  Effective August 1, 2008, all shareholders redeemed or exchanged out of Class VI.

8.  Subsequent event

Pursuant to a plan of liquidation adopted by the Board of Trustees of the Fund on September 4, 2008, the Fund was liquidated on September 30, 2008.


25




GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In evaluating the Fund's advisory


26



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

fee arrangement, the Trustees also took into account the sophistication of the investment techniques used to manage the Fund. 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


27



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


28



GMO Emerging Markets Opportunities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.81 %   $ 1,000.00     $ 901.30     $ 3.88 (a)  
  2 ) Hypothetical     0.81 %   $ 1,000.00     $ 1,021.12     $ 4.13 (a)  
Class VI      
  1 ) Actual     0.62 %   $ 1,000.00     $ 954.20     $ 2.56 (b)  
  2 ) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.08     $ 3.16 (a)  

 

(a) Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.

(b) For the period March 1, 2008 through August 1, 2008. Expenses are calculated using the Class's annualized net expense ratio for the period ended August 1, 2008, multiplied by the average account value over the period, multiplied by 154 days in the period, divided by 365 days in the year.


29




GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     93.3 %  
Short-Term Investments     4.8    
Preferred Stocks     0.2    
Forward Currency Contracts     0.2    
Rights and Warrants     0.0    
Futures     (0.3 )  
Other     1.8    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     25.2 %  
United Kingdom     22.0    
France     13.6    
Switzerland     5.6    
Germany     4.9    
Italy     4.6    
Canada     3.9    
Netherlands     3.7    
Australia     3.6    
Hong Kong     2.4    
Finland     2.2    
Singapore     2.1    
Spain     1.8    
Sweden     1.2    
Belgium     1.2    
Norway     0.8    
Ireland     0.4    
Denmark     0.3    
Austria     0.2    
Greece     0.2    
New Zealand     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financials     18.1 %  
Energy     16.2    
Health Care     14.0    
Consumer Discretionary     11.9    
Materials     9.2    
Industrials     6.5    
Consumer Staples     6.5    
Information Technology     6.2    
Telecommunication Services     6.1    
Utilities     5.3    
      100.0 %  

 


1




GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 93.3%  
        Australia — 3.3%  
    1,127,380     Australia and New Zealand Banking Group Ltd     15,875,370    
    595,739     BHP Billiton Ltd     20,923,411    
    1,690,912     BlueScope Steel Ltd     13,295,692    
    3,274,215     Macquarie Infrastructure Group     6,101,666    
    4,232,474     Mirvac Group Ltd     10,384,280    
    91,863     Rio Tinto Ltd     9,960,084    
    536,830     Santos Ltd     9,183,286    
    240,512     St George Bank     6,202,624    
    5,732,648     Stockland     25,655,244    
    1,873,751     Suncorp-Metway Ltd     18,192,206    
    1,105,753     TABCORP Holdings Ltd     8,077,578    
    5,863,566     Telstra Corp Ltd     21,765,992    
    364,685     Westpac Banking Corp     7,288,119    
    738,669     Woodside Petroleum Ltd     39,676,045    
    830,585     Woolworths Ltd     20,052,417    
    Total Australia     232,634,014    
        Austria — 0.2%  
    204,281     OMV AG     13,087,571    
        Belgium — 1.1%  
    111,087     Belgacom SA     4,423,386    
    33,967     Colruyt SA     9,260,771    
    1,709,510     Dexia     24,159,455    
    2,132,999     Fortis     29,534,168    
    56,178     Solvay SA     6,878,162    
    Total Belgium     74,255,942    
        Canada — 3.7%  
    152,900     Agrium Inc     12,932,708    
    779,700     Bank of Montreal     34,167,867    

 

See accompanying notes to the financial statements.


2



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued  
    230,600     Bank of Nova Scotia     10,652,599    
    163,111     BCE Inc     6,180,030    
    173,700     Canadian Imperial Bank of Commerce     10,497,579    
    154,600     Canadian National Railway Co     8,111,477    
    229,300     Canadian Natural Resources     19,574,074    
    210,400     Canadian Oil Sands Trust     10,197,009    
    258,300     Canadian Pacific Railway Ltd     15,758,781    
    181,800     EnCana Corp     13,664,963    
    103,000     Fording Canadian Coal Trust     9,162,130    
    122,500     IGM Financial Inc     5,121,280    
    121,800     Imperial Oil Ltd     6,264,361    
    210,200     Magna International Inc Class A     12,071,949    
    591,800     National Bank of Canada     27,878,919    
    303,400     Penn West Energy Trust     8,906,553    
    186,800     Petro-Canada     8,259,804    
    575,200     Sun Life Financial Inc     22,183,500    
    225,100     Suncor Energy Inc     12,889,508    
    Total Canada     254,475,091    
        Denmark — 0.3%  
    332,800     Danske Bank A/S     9,364,873    
    190,025     Novo-Nordisk A/S Class B     10,607,553    
    Total Denmark     19,972,426    
        Finland — 2.0%  
    186,641     Fortum Oyj     7,660,840    
    329,570     Neste Oil Oyj     7,858,545    
    2,872,474     Nokia Oyj     71,919,306    
    88,602     Nokian Renkaat Oyj     3,155,351    
    348,479     Outokumpu Oyj     8,344,600    
    253,511     Rautaruukki Oyj     8,598,822    
    1,110,219     Sampo Oyj Class A     27,930,238    
    38,955     Stockmann Oyj AB Class A     1,148,511    
    208,277     Tietoenator Oyj     4,089,335    
    Total Finland     140,705,548    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — 12.7%  
    90,782     Air Liquide SA     11,026,409    
    113,728     Alstom     11,552,742    
    677,633     Arcelor Mittal     53,161,641    
    883,968     BNP Paribas     79,296,455    
    15,189     Bongrain SA     1,223,906    
    78,353     Cap Gemini SA     4,625,992    
    118,326     Casino Guichard-Perrachon SA     11,595,215    
    124,241     Cie de Saint-Gobain     7,590,614    
    125,172     Dassault Systemes SA     7,565,079    
    165,104     Essilor International SA     8,783,157    
    1,251,461     France Telecom SA     36,899,224    
    3,655     Fromageries Bel     859,797    
    713,713     GDF Suez     41,086,556    
    118,539     Hermes International     16,834,158    
    82,853     L'Oreal SA     8,223,954    
    26,405     Lafarge SA     3,185,451    
    346,867     Peugeot SA     16,480,202    
    289,154     Renault SA     24,145,317    
    2,675,900     Sanofi-Aventis     189,843,093    
    487,516     Societe Generale     47,027,011    
    89,276     Suez Environnement SA *      2,564,439    
    4,039,807     Total SA     290,204,210    
    12,634     Union du Credit-Bail Immobilier     2,623,201    
    31,879     Vallourec SA     8,868,441    
    Total France     885,266,264    
        Germany — 4.4%  
    758     Aareal Bank AG     18,084    
    271,462     Adidas AG     15,856,337    
    229,436     Altana AG     3,656,724    
    375,511     BASF AG     21,670,274    
    633,945     Bayerische Motoren Werke AG     26,166,459    
    58,245     Beiersdorf AG (Bearer)     3,390,607    
    38,479     Bilfinger & Berger AG     2,700,716    
    96,103     Demag Cranes AG     5,210,786    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    831,900     E.ON AG     48,497,435    
    72,377     Epcos AG     1,867,293    
    207,595     Gildemeister AG     4,967,978    
    271,763     Hannover Rueckversicherungs AG (Registered)     11,527,840    
    469,415     Heidelberger Druckmaschinen     9,568,727    
    132,267     Kloeckner & Co AG     5,220,902    
    71,886     Linde AG     9,020,056    
    296,380     Norddeutsche Affinerie AG     13,657,420    
    19,427     Puma AG Rudolf Dassler Sport     6,110,336    
    83,779     RWE AG     9,022,786    
    171,703     Salzgitter AG     26,292,871    
    617,306     SAP AG     34,582,864    
    101,071     SGL Carbon AG *      6,049,462    
    271,047     ThyssenKrupp AG     13,495,089    
    69,808     Volkswagen AG     20,814,251    
    37,297     Vossloh AG     4,840,101    
    Total Germany     304,205,398    
        Greece — 0.2%  
    148,497     Alpha Bank A.E.     3,778,630    
    86,671     National Bank of Greece SA     3,820,535    
    185,049     OPAP SA     6,480,461    
    Total Greece     14,079,626    
        Hong Kong — 2.3%  
    3,030,500     BOC Hong Kong Holdings Ltd     6,739,121    
    6,449,098     CLP Holdings Ltd     52,318,045    
    694,400     Esprit Holdings Ltd     5,732,461    
    171,000     Guoco Group     1,792,566    
    542,700     Hang Seng Bank Ltd     10,703,823    
    513,000     Henderson Land Development Co Ltd     3,092,369    
    4,921,300     Hong Kong & China Gas     11,041,807    
    269,900     Hong Kong Aircraft Engineering Co Ltd     3,005,118    
    4,888,969     Hong Kong Electric Holdings Ltd     31,041,251    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Hong Kong — continued  
    564,700     Hong Kong Ferry Co Ltd     502,678    
    1,737,000     MTR Corp Ltd     5,592,247    
    3,973,200     Noble Group Ltd     5,368,538    
    947,000     Sun Hung Kai Properties Ltd     12,912,779    
    2,664,400     Yue Yuen Industrial Holdings     7,381,739    
    Total Hong Kong     157,224,542    
        Ireland — 0.4%  
    580,741     Bank of Ireland     4,655,282    
    906,394     CRH Plc     23,644,112    
    Total Ireland     28,299,394    
        Italy — 4.2%  
    1,152,750     A2A SPA     3,602,978    
    412,084     Banco Popolare Scarl     7,849,630    
    1,069,201     Enel SPA     9,817,217    
    6,921,635     ENI SPA     224,519,537    
    165,365     Fondiaria-Sai SPA-Di RISP     3,092,163    
    291,136     Italcementi SPA-Di RISP     3,335,951    
    197,819     Luxottica Group SPA     4,963,990    
    1,335,964     Mediaset SPA     9,699,478    
    97,300     Natuzzi SPA ADR *      306,495    
    108,456     Saipem     4,291,573    
    1,539,591     Snam Rete Gas SPA     9,617,813    
    6,904,947     Telecom Italia SPA-Di RISP     8,752,236    
    926,456     Terna SPA     3,722,460    
    953,402     Tiscali SPA *      2,122,370    
    Total Italy     295,693,891    
        Japan — 23.6%  
    437,470     Acom Co Ltd     12,184,410    
    310,800     Aiful Corp     2,511,982    
    156,900     Aisin Seiki Co Ltd     4,130,578    
    906,400     Alps Electric Co Ltd     8,192,054    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    877,800     Asahi Breweries     16,259,306    
    1,144,000     Asahi Kasei Corp     5,372,785    
    104,300     Benesse Corp     4,572,830    
    927,600     Canon Inc     41,597,068    
    161,400     Capcom     4,933,876    
    2,015,000     Cosmo Oil Co Ltd     5,885,257    
    475,000     Dai Nippon Printing Co Ltd     6,706,290    
    1,140,300     Daiei Inc *      9,014,219    
    352,000     Daihatsu Motor Co Ltd     4,333,097    
    285,680     Daiichi Sankyo Co Ltd     8,594,667    
    211,200     Daikin Industries Ltd     7,119,220    
    320,500     Denso Corp     8,308,481    
    200,700     FamilyMart Co Ltd     8,128,928    
    196,300     Fanuc Ltd     14,604,406    
    248,700     Fast Retailing Co Ltd     25,102,802    
    3,223,000     Fuji Heavy Industries Ltd     18,424,629    
    1,270,000     Fujikura Ltd     5,911,532    
    550,000     Fujitsu Ltd     3,801,523    
    1,451,000     GS Yuasa Corp     7,419,653    
    1,230,000     Hanwa Co Ltd     5,500,623    
    8,368,500     Haseko Corp     8,493,899    
    75,500     Hirose Electric Co Ltd     7,322,971    
    1,476,000     Hitachi Ltd     10,870,658    
    199,000     Hitachi Metals Ltd     2,954,877    
    453,000     Hokkaido Electric Power     10,122,441    
    3,924,800     Honda Motor Co Ltd     127,468,340    
    249,400     Hosiden Corp     4,149,543    
    580,600     Hoya Corp     11,835,606    
    1,214     INPEX Holdings Inc     13,219,464    
    2,428,000     Itochu Corp     19,532,702    
    532,600     JFE Holdings Inc     22,507,675    
    172,000     JGC Corp     3,293,681    
    1,610,000     Kao Corp     45,583,940    
    2,853,000     Kawasaki Kisen Kaisha Ltd     20,227,024    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    4,945     Kenedix Inc     2,816,570    
    80,200     Keyence Corp     16,222,921    
    568,000     Kirin Holdings Co Ltd     8,498,339    
    280,000     Konami Corp     8,550,354    
    401,000     Kurray Co Ltd     4,178,708    
    41,400     Kyocera Corp     3,469,743    
    620,200     Kyushu Electric Power Co Inc     13,656,609    
    61,600     Lawson Inc     2,823,391    
    1,149,000     Marubeni Corp     7,109,294    
    1,454,000     Matsushita Electric Industrial Co Ltd     29,885,295    
    3,309,000     Mazda Motor Corp     17,613,245    
    615,000     Minebea Co Ltd     2,696,856    
    965,500     Mitsubishi Chemical Holdings     5,462,284    
    1,259,000     Mitsubishi Corp     34,583,568    
    642,000     Mitsubishi Electric Corp     5,444,736    
    389,000     Mitsubishi Gas Chemical Co Inc     2,203,247    
    3,998,000     Mitsui Mining & Smelting Co Ltd     10,652,619    
    1,022,000     Mitsui OSK Lines Ltd     12,112,821    
    1,260     Mizuho Financial Group Inc     5,363,703    
    313,900     Murata Manufacturing Co Ltd     13,793,342    
    860,000     NEC Corp     3,963,264    
    65,600     Nidec Corp     4,409,487    
    198,000     Nikon Corp     6,426,323    
    104,200     Nintendo Co Ltd     48,917,720    
    659,000     Nippon Denko Co Ltd     5,671,354    
    229,000     Nippon Electric Glass Co Ltd     3,054,631    
    3,108,500     Nippon Mining Holdings Inc     17,266,447    
    5,246,000     Nippon Oil Corp     32,718,819    
    11,264     Nippon Telegraph & Telephone Corp     55,375,406    
    1,325,000     Nippon Yakin Koguo Co Ltd     6,523,653    
    3,433,000     Nippon Yusen KK     27,396,226    
    8,056,100     Nissan Motor Co     61,194,868    
    114,300     Nissha Printing Co Ltd     6,173,053    
    717,000     Nisshinbo Industries Inc     7,894,279    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    141,300     Nitto Denko Corp     4,241,457    
    243,300     Nomura Research Institute     5,520,858    
    34,830     NTT Docomo Inc     54,892,707    
    163,700     Ono Pharmaceutical Co Ltd     8,571,823    
    41,080     ORIX Corp     5,004,455    
    8,812,000     Osaka Gas Co Ltd     32,061,040    
    776,000     Pacific Metals Co Ltd     4,966,065    
    361,050     Promise Co Ltd     8,091,775    
    16,381     Resona Holdings Inc     19,066,073    
    901,000     Ricoh Company Ltd     14,872,468    
    165,900     Rohm Co Ltd     9,551,371    
    120,100     Ryohin Keikaku Co Ltd     6,444,398    
    323,700     Sankyo Co Ltd Gunma     15,326,726    
    2,099,000     Sanyo Electric Co Ltd *      4,185,282    
    41,048     SBI Holdings Inc     7,360,946    
    92,700     Secom Co     4,270,328    
    1,396,000     Sega Sammy Holdings Inc     13,240,966    
    123,800     Seiko Epson Corp     3,571,583    
    2,300,000     Seven & I Holdings Co Ltd     66,993,381    
    37,200     Shimamura Co     2,083,309    
    113,500     Shimano Inc     4,588,688    
    698,100     Shin-Etsu Chemical Co Ltd     38,835,432    
    1,419,000     Shinsei Bank Ltd     4,825,088    
    300,000     Shiseido Co Ltd     7,024,129    
    1,054,000     Showa Shell Sekiyu KK     11,915,563    
    5,790,200     Sojitz Corp     16,520,977    
    457,100     SUMCO Corp     9,055,428    
    920,000     Sumitomo Chemical Co Ltd     5,645,225    
    598,400     Sumitomo Electric Industries Ltd     6,866,977    
    3,308,000     Sumitomo Metal Industries Ltd     14,613,274    
    61,200     T&D Holdings Inc     3,211,237    
    232,000     Taisho Pharmaceutical Co Ltd     4,921,061    
    802,700     Takeda Pharmaceutical Co Ltd     41,933,279    
    913,510     Takefuji Corp     12,099,557    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    159,500     TDK Corp     9,239,759    
    251,100     Terumo Corp     13,969,282    
    2,833,000     Tokyo Gas Co Ltd     11,820,044    
    858,500     Tokyo Steel Manufacturing Co     9,064,275    
    896,000     TonenGeneral Sekiyu KK     7,209,335    
    638,000     Toppan Printing Co Ltd     5,750,386    
    1,479,000     Tosoh Corp     5,372,280    
    292,000     Toyo Engineering Corp     1,522,089    
    126,800     Toyoda Gosei Co Ltd     2,825,722    
    122,900     Toyota Boshoku Corp     1,986,813    
    200     Toyota Industries Corp     5,761    
    321,100     Toyota Motor Corp     14,326,965    
    274,900     Toyota Tsusho Kaisha     4,700,515    
    206,000     Trend Micro Inc     6,971,738    
    1,263,000     Ube Industries Ltd     4,515,175    
    1,141,000     UNY Co Ltd     12,578,371    
    37,506     Yahoo Japan Corp     14,374,204    
    89,000     Yamato Kogyo Co     3,243,618    
    Total Japan     1,642,165,470    
        Netherlands — 3.5%  
    4,238,988     Aegon NV     49,935,157    
    11,644     Gamma Holdings NV     415,763    
    442,871     Heineken NV     20,763,102    
    4,080,278     ING Groep NV     127,118,098    
    256,990     Koninklijke DSM     14,790,987    
    429,906     Reed Elsevier NV     7,188,078    
    132,565     Royal Dutch Shell Group Class A (Amsterdam)     4,613,423    
    354,226     Royal Dutch Shell Plc B Shares (London)     12,180,566    
    150,599     TNT NV     5,617,570    
    Total Netherlands     242,622,744    
        New Zealand — 0.1%  
    2,964,080     Telecom Corp of New Zealand     6,784,295    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Norway — 0.7%  
    938,100     DnB NOR ASA     10,875,922    
    998,300     StatoilHydro ASA     30,623,284    
    153,240     Yara International ASA     9,488,229    
    Total Norway     50,987,435    
        Singapore — 1.9%  
    241,000     DBS Group Holdings Ltd     3,047,326    
    445,000     Midas Holdings Ltd     163,580    
    2,384,000     Neptune Orient Lines Ltd     3,757,065    
    2,870,000     Oversea-Chinese Banking Corp     16,263,637    
    3,258,100     Sembcorp Industries Ltd     9,457,354    
    4,795,000     SembCorp Marine Ltd     12,708,840    
    1,251,000     Singapore Exchange Ltd     5,524,158    
    1,302,000     Singapore Petroleum Co     4,891,837    
    5,458,000     Singapore Press Holdings Ltd     15,787,969    
    2,399,000     Singapore Technologies Engineering Ltd     4,738,916    
    17,953,000     Singapore Telecommunications     44,309,532    
    1,133,000     United Overseas Bank Ltd     15,080,521    
    Total Singapore     135,730,735    
        Spain — 1.7%  
    118,893     Gas Natural SDG SA     5,508,089    
    1,039,192     Iberdrola SA     12,521,559    
    245,536     Inditex SA     11,419,095    
    1,669,334     Repsol YPF SA     51,633,416    
    1,435,552     Telefonica SA     35,470,331    
    Total Spain     116,552,490    
        Sweden — 1.2%  
    469,575     Hennes & Mauritz AB Class B     23,270,114    
    1,404,200     Investor AB Class B     29,565,172    
    572,600     SKF AB Class B     8,671,588    
    493,800     Svenska Handelsbanken AB Class A     11,881,621    
    393,500     Swedbank AB     6,914,911    
    Total Sweden     80,303,406    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Switzerland — 5.2%  
    300,727     ABB Ltd *      7,376,148    
    314,542     Ciba Holding AG     7,747,448    
    255,426     CIE Financiere Richemont SA Class A     14,861,936    
    2,110,825     Nestle SA (Registered)     93,002,050    
    2,940,847     Novartis AG (Registered)     163,830,403    
    98,319     Roche Holding AG (Non Voting)     16,544,968    
    38,127     Swatch Group AG     8,961,003    
    60,292     Syngenta AG (Registered)     16,176,921    
    94,885     Synthes Inc     13,130,106    
    1,026,910     UBS AG (Registered) *      22,321,012    
    Total Switzerland     363,951,995    
      United Kingdom — 20.6%  
    1,932,712     3i Group Plc     32,295,393    
    1,169,791     Alliance & Leicester Plc     6,937,186    
    147,855     Anglo American Plc     7,859,345    
    1,780,975     AstraZeneca Plc     86,825,988    
    392,870     BAE Systems Plc     3,428,821    
    7,495,715     Barclays Plc     47,964,575    
    1,095,110     Barratt Developments Plc     2,920,072    
    3,661,044     BG Group Plc     81,206,899    
    210,962     BHP Billiton Plc     6,570,611    
    709,956     British American Tobacco Plc     23,985,264    
    583,756     British Energy Group Plc     7,795,594    
    876,734     Cadbury Plc     10,061,502    
    682,752     Capita Group Plc     8,784,439    
    1,697,398     Cobham Plc     7,095,395    
    1,446,437     Compass Group Plc     9,625,837    
    1,318,395     Diageo Plc     24,349,350    
    381,524     Drax Group Plc     5,174,925    
    14,242,901     DSG International Plc     12,797,001    
    401,044     FirstGroup Plc     4,419,959    
    1,030,447     Game Group Plc     5,056,895    
    14,203,841     GlaxoSmithKline Plc     334,227,828    
    9,486,268     HBOS Plc     54,298,746    

 

See accompanying notes to the financial statements.


12



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    3,502,880     Home Retail Group     16,127,162    
    356,060     HSBC Holdings Plc     5,602,483    
    186,890     Imperial Tobacco Group Plc     6,161,913    
    4,451,832     Kingfisher Plc     10,753,216    
    1,250,069     Lloyds TSB Group Plc     6,898,957    
    321,740     London Stock Exchange     4,623,486    
    469,584     Man Group Plc     4,838,862    
    504,514     Next Plc     9,734,715    
    6,493,475     Old Mutual Plc     11,483,899    
    248,399     Reckitt Benckiser Group Plc     12,557,656    
    581,886     Reed Elsevier Plc     6,650,426    
    986,447     Rio Tinto Plc     93,642,172    
    32,588,869     Royal Bank of Scotland Group     138,602,859    
    3,296,194     Royal Dutch Shell Plc A Shares (London)     115,193,132    
    1,438,161     Sage Group Plc     5,483,500    
    343,931     Scottish & Southern Energy Plc     9,058,892    
    10,211,322     Signet Group Plc     11,657,765    
    932,781     Smith & Nephew Plc     11,193,716    
    2,881,273     Taylor Woodrow Plc     2,831,948    
    1,418,284     Tesco Plc     9,830,675    
    590,487     United Utilities Group Plc     7,683,123    
    47,957,526     Vodafone Group Inc     122,553,224    
    1,036,841     William Hill Plc     5,333,785    
    1,057,111     Wolseley Plc     8,529,473    
    232,828     Xstrata Plc     12,980,893    
    Total United Kingdom     1,433,689,557    
    TOTAL COMMON STOCKS (COST $6,986,446,024)     6,492,687,834    

 

See accompanying notes to the financial statements.


13



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        PREFERRED STOCKS — 0.2%  
        Germany — 0.2%  
    9,049     Villeroy & Boch AG (Non Voting) 5.38%     102,182    
    103,177     Volkswagen AG 1.73%     15,904,324    
    Total Germany     16,006,506    
    TOTAL PREFERRED STOCKS (COST $3,885,570)     16,006,506    
        RIGHTS AND WARRANTS — 0.0%  
        France — 0.0%  
    2     Suez Environnement SA Rights, Expires 08/28/09 *      15    
    TOTAL RIGHTS AND WARRANTS (COST $14)     15    
        SHORT-TERM INVESTMENTS — 4.8%  
    11,000,000     HBOS Treasury Services Time Deposit, 2.05%, due 09/02/08     11,000,000    
    321,800,000     ING Bank Time Deposit, 2.08%, due 09/02/08     321,800,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $332,800,000)     332,800,000    
          TOTAL INVESTMENTS — 98.3%
(Cost $7,323,131,608)
    6,841,494,355    
          Other Assets and Liabilities (net) — 1.7%     121,427,333    
    TOTAL NET ASSETS — 100.0%   $ 6,962,921,688    

 

See accompanying notes to the financial statements.


14



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   CAD     47,937,236     $ 45,108,270     $ (777,724 )  
11/21/08   CHF     74,963,201       68,131,022       (114,748 )  
11/21/08   CHF     74,963,201       68,131,022       (136,500 )  
11/21/08   CHF     74,963,201       68,131,022       (157,147 )  
11/21/08   CHF     74,963,201       68,131,022       (115,369 )  
11/21/08   CHF     74,963,201       68,131,022       (99,840 )  
11/21/08   CHF     74,963,201       68,131,022       (91,767 )  
11/21/08   CHF     74,963,201       68,131,022       (153,104 )  
11/21/08   HKD     432,596,250       55,511,789       (25,454 )  
11/21/08   JPY     5,266,590,057       48,614,258       580,274    
11/21/08   JPY     5,266,590,057       48,614,258       551,343    
11/21/08   JPY     5,266,590,057       48,614,258       599,105    
11/21/08   JPY     5,266,590,057       48,614,258       598,667    
11/21/08   JPY     5,266,590,057       48,614,258       594,289    
11/21/08   JPY     5,266,590,057       48,614,258       614,771    
11/21/08   JPY     5,266,590,057       48,614,258       592,363    
11/21/08   NOK     252,492,105       46,193,932       (1,917,214 )  
11/21/08   NZD     13,225,648       9,149,779       (166,368 )  
11/21/08   NZD     13,626,425       9,427,045       (163,778 )  
11/21/08   NZD     13,225,648       9,149,779       (166,235 )  
11/21/08   SEK     283,984,430       43,810,960       (609,880 )  
11/21/08   SEK     283,984,430       43,810,960       (593,523 )  
11/21/08   SEK     283,984,430       43,810,960       (651,923 )  
11/21/08   SEK     283,984,430       43,810,960       (572,689 )  
11/21/08   SEK     283,984,430       43,810,960       (655,696 )  
11/21/08   SEK     283,984,430       43,810,960       (584,499 )  
11/21/08   SEK     283,984,430       43,810,960       (659,791 )  
11/21/08   SGD     35,450,931       25,101,218       (87,734 )  
11/21/08   SGD     35,450,931       25,101,218       (81,651 )  
11/21/08   SGD     35,450,931       25,101,218       (81,364 )  
11/21/08   SGD     35,450,931       25,101,218       (78,789 )  
11/21/08   SGD     35,450,931       25,101,218       (67,169 )  

 

See accompanying notes to the financial statements.


15



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — Continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
11/21/08   SGD     35,450,931     $ 25,101,218     $ (88,629 )  
11/21/08   SGD     35,450,931       25,101,218       (70,117 )  
    $ 1,474,142,800     $ (4,837,890 )  
Sales  
11/21/08   AUD     31,840,813     $ 27,081,896     $ 405,546    
11/21/08   AUD     31,840,813       27,081,896       394,497    
11/21/08   AUD     31,840,813       27,081,896       398,987    
11/21/08   AUD     31,840,813       27,081,896       399,273    
11/21/08   AUD     31,840,813       27,081,896       379,850    
11/21/08   AUD     31,840,813       27,081,896       391,313    
11/21/08   AUD     31,840,813       27,081,896       304,005    
11/21/08   CAD     15,974,818       15,032,081       44,476    
11/21/08   CAD     16,458,903       15,487,598       42,745    
11/21/08   CAD     15,974,818       15,032,081       29,408    
11/21/08   EUR     24,466,141       35,742,227       51,738    
11/21/08   EUR     24,466,141       35,742,227       73,268    
11/21/08   EUR     24,466,141       35,742,227       55,652    
11/21/08   EUR     24,466,141       35,742,227       70,821    
11/21/08   EUR     46,561,926       68,021,635       1,720,863    
11/21/08   EUR     24,466,141       35,742,227       109,551    
11/21/08   EUR     24,466,141       35,742,227       31,064    
11/21/08   GBP     31,417,184       56,939,593       1,333,094    
11/21/08   GBP     31,417,184       56,939,593       1,314,778    
11/21/08   GBP     31,417,184       56,939,593       1,297,373    
11/21/08   GBP     31,417,184       56,939,593       1,310,065    
11/21/08   GBP     42,454,184       76,942,733       1,628,489    
11/21/08   GBP     31,417,184       56,939,593       1,305,667    
11/21/08   GBP     39,791,184       72,116,388       1,711,713    
11/21/08   HKD     143,107,412       18,363,887       (14,430 )  
11/21/08   HKD     143,107,412       18,363,887       (14,409 )  
11/21/08   HKD     147,444,001       18,920,368       (17,291 )  
11/21/08   JPY     3,866,082,993       35,686,612       300,217    
11/21/08   JPY     2,197,400,000       20,283,517       (172,593 )  
11/21/08   NOK     83,516,503       15,279,510       (18,943 )  

 

See accompanying notes to the financial statements.


16



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — Continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
11/21/08   NOK     83,516,503     $ 15,279,510     $ 8,601    
11/21/08   NOK     86,047,306       15,742,525       (9,456 )  
11/21/08   NZD     39,976,770       27,656,762       833,842    
    $ 1,136,933,693     $ 15,699,774    

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  251     CAC 40   September 2008   $ 16,515,095     $ (85,536 )  
  775     DAX   September 2008     182,951,679       (11,938,557 )  
  730     E-Mini MSCI EAFE   September 2008     65,882,500       1,119,090    
  1,448     MSCI Singapore   September 2008     69,383,014       1,017,913    
  182     S&P/MIB   September 2008     38,492,502       841,388    
  1,594     TOPIX Index   September 2008     183,897,726       (12,861,875 )  
    $ 557,122,516     $ (21,907,577 )  
Sales      
  1,161     FTSE 100   September 2008   $ 119,540,835     $ (3,120,269 )  
  293     IBEX 35   September 2008     50,405,850       809,566    
  58     S&P Toronto 60   September 2008     8,985,685       788,489    
  407     SPI 200   September 2008     44,944,530       (472,069 )  
    $ 223,876,900     $ (1,994,283 )  

 

As of August 31, 2008, 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 Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

*  Non income-producing security.

As of August 31, 2008, 89.78% 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 International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $7,323,131,608) (Note 2)   $ 6,841,494,355    
Cash     43,092    
Foreign currency, at value (cost $7,113,838) (Note 2)     7,082,121    
Receivable for Fund shares sold     22,316,045    
Dividends and interest receivable     18,000,307    
Foreign taxes receivable     2,706,481    
Unrealized appreciation on open forward currency contracts (Note 2)     20,077,708    
Receivable for collateral on open futures contracts (Note 2)     61,919,000    
Receivable for variation margin on open futures contracts (Note 2)     4,436,123    
Receivable for expenses reimbursed by Manager (Note 3)     277,841    
Total assets     6,978,353,073    
Liabilities:  
Payable for Fund shares repurchased     1,517,272    
Payable to affiliate for (Note 3):  
Management fee     2,963,716    
Shareholder service fee     709,176    
Administration fee – Class M     2,840    
Trustees and Chief Compliance Officer of GMO Trust fees     15,322    
Payable for 12b-1 fee – Class M     7,264    
Unrealized depreciation on open forward currency contracts (Note 2)     9,215,824    
Accrued expenses     999,971    
Total liabilities     15,431,385    
Net assets   $ 6,962,921,688    

 

See accompanying notes to the financial statements.


19



GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 7,200,868,239    
Accumulated undistributed net investment income     122,867,108    
Accumulated net realized gain     134,709,480    
Net unrealized depreciation     (495,523,139 )  
    $ 6,962,921,688    
Net assets attributable to:  
Class II shares   $ 453,518,878    
Class III shares   $ 2,461,500,574    
Class IV shares   $ 4,031,280,916    
Class M shares   $ 16,621,320    
Shares outstanding:  
Class II     17,957,592    
Class III     96,442,996    
Class IV     157,992,958    
Class M     660,712    
Net asset value per share:  
Class II   $ 25.25    
Class III   $ 25.52    
Class IV   $ 25.52    
Class M   $ 25.16    

 

See accompanying notes to the financial statements.


20



GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $17,631,868)   $ 168,796,149    
Securities lending income     6,544,342    
Interest     2,835,091    
Total investment income     178,175,582    
Expenses:  
Management fee (Note 3)     19,488,261    
Shareholder service fee – Class II (Note 3)     547,695    
Shareholder service fee – Class III (Note 3)     1,959,353    
Shareholder service fee – Class IV (Note 3)     1,921,220    
12b-1 fee – Class M (Note 3)     22,968    
Administration fee – Class M (Note 3)     18,375    
Custodian and fund accounting agent fees     1,540,816    
Transfer agent fees     37,444    
Audit and tax fees     46,736    
Legal fees     85,284    
Trustees fees and related expenses (Note 3)     39,871    
Registration fees     13,156    
Miscellaneous     61,180    
Total expenses     25,782,359    
Fees and expenses reimbursed by Manager (Note 3)     (1,763,736 )  
Expense reductions (Note 2)     (7,417 )  
Net expenses     24,011,206    
Net investment income (loss)     154,164,376    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     199,742,575    
Closed futures contracts     (49,697,797 )  
Foreign currency, forward contracts and foreign currency related transactions     (11,687,812 )  
Net realized gain (loss)     138,356,966    
Change in net unrealized appreciation (depreciation) on:  
Investments     (908,883,084 )  
Open futures contracts     31,283,307    
Foreign currency, forward contracts and foreign currency related transactions     (14,361,534 )  
Net unrealized gain (loss)     (891,961,311 )  
Net realized and unrealized gain (loss)     (753,604,345 )  
Net increase (decrease) in net assets resulting from operations   $ (599,439,969 )  

 

See accompanying notes to the financial statements.


21



GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 154,164,376     $ 218,038,494    
Net realized gain (loss)     138,356,966       1,274,521,119    
Change in net unrealized appreciation (depreciation)     (891,961,311 )     (1,522,423,988 )  
Net increase (decrease) in net assets from operations     (599,439,969 )     (29,864,375 )  
Distributions to shareholders from:  
Net investment income  
Class II     (7,511,839 )     (12,407,304 )  
Class III     (41,029,341 )     (65,215,261 )  
Class IV     (66,497,886 )     (109,936,051 )  
Class M     (277,516 )     (443,458 )  
Total distributions from net investment income     (115,316,582 )     (188,002,074 )  
Net realized gains  
Class II     (26,461,563 )     (69,248,911 )  
Class III     (143,314,754 )     (349,607,893 )  
Class IV     (230,830,432 )     (574,842,698 )  
Class M     (1,002,702 )     (2,604,560 )  
Total distributions from net realized gains     (401,609,451 )     (996,304,062 )  
      (516,926,033 )     (1,184,306,136 )  
Net share transactions (Note 7):  
Class II     15,922,664       29,246,584    
Class III     246,052,089       350,165,933    
Class IV     540,628,844       254,901,122    
Class M     720,902       4,852,998    
Increase (decrease) in net assets resulting from net share
transactions
    803,324,499       639,166,637    
Total increase (decrease) in net assets     (313,041,503 )     (575,003,874 )  
Net assets:  
Beginning of period     7,275,963,191       7,850,967,065    
End of period (including accumulated undistributed net investment
income of $122,867,108 and $84,019,314, respectively)
  $ 6,962,921,688     $ 7,275,963,191    

 

See accompanying notes to the financial statements.


22




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 29.69     $ 34.99     $ 32.35     $ 29.04     $ 24.18     $ 16.04    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.60       0.93       0.79       0.65       0.49       0.44    
Net realized and unrealized
gain (loss)
    (2.96 )     (0.86 )     5.60       4.45       5.07       8.31    
Total from investment
operations
    (2.36 )     0.07       6.39       5.10       5.56       8.75    
Less distributions to shareholders:  
From net investment income     (0.46 )     (0.83 )     (0.54 )     (0.36 )     (0.66 )     (0.61 )  
From net realized gains     (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )        
Total distributions     (2.08 )     (5.37 )     (3.75 )     (1.79 )     (0.70 )     (0.61 )  
Net asset value, end of period   $ 25.25     $ 29.69     $ 34.99     $ 32.35     $ 29.04     $ 24.18    
Total Return(a)      (8.14 )%**      (1.11 )%     20.46 %     18.16 %     23.17 %     54.99 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 453,519     $ 510,006     $ 564,440     $ 567,313     $ 231,695     $ 85,625    
Net expenses to average daily
net assets
    0.75 %(b)*      0.76 %     0.76 %     0.76 %     0.76 %     0.76 %  
Net investment income to average
daily net assets
    2.08 %(c)**      2.59 %     2.32 %     2.16 %     1.88 %     2.15 %  
Portfolio turnover rate     26 %**      47 %     36 %     38 %     46 %     44 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.04 %     0.06 %     0.07 %     0.09 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


23



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 29.97     $ 35.28     $ 32.59     $ 29.23     $ 24.32     $ 16.13    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.61       0.94       0.81       0.72       0.59       0.45    
Net realized and unrealized
gain (loss)
    (2.98 )     (0.86 )     5.66       4.44       5.02       8.36    
Total from investment
operations
    (2.37 )     0.08       6.47       5.16       5.61       8.81    
Less distributions to shareholders:  
From net investment income     (0.46 )     (0.85 )     (0.57 )     (0.37 )     (0.66 )     (0.62 )  
From net realized gains     (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )        
Total distributions     (2.08 )     (5.39 )     (3.78 )     (1.80 )     (0.70 )     (0.62 )  
Net asset value, end of period   $ 25.52     $ 29.97     $ 35.28     $ 32.59     $ 29.23     $ 24.32    
Total Return(a)      (8.09 )%**      (1.06 )%     20.54 %     18.26 %     23.28 %     55.05 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,461,501     $ 2,615,878     $ 2,703,050     $ 2,795,610     $ 1,804,485     $ 1,350,850    
Net expenses to average daily
net assets
    0.68 %(b)*      0.69 %     0.69 %     0.69 %     0.69 %     0.69 %  
Net investment income to average
daily net assets
    2.08 %(c)**      2.61 %     2.36 %     2.39 %     2.30 %     2.22 %  
Portfolio turnover rate     26 %**      47 %     36 %     38 %     46 %     44 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.04 %     0.06 %     0.07 %     0.09 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


24



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 29.96     $ 35.26     $ 32.58     $ 29.22     $ 24.31     $ 16.12    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.62       0.96       0.80       0.74       0.54       0.43    
Net realized and unrealized
gain (loss)
    (2.97 )     (0.85 )     5.68       4.43       5.09       8.39    
Total from investment
operations
    (2.35 )     0.11       6.48       5.17       5.63       8.82    
Less distributions to shareholders:  
From net investment income     (0.47 )     (0.87 )     (0.59 )     (0.38 )     (0.68 )     (0.63 )  
From net realized gains     (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )        
Total distributions     (2.09 )     (5.41 )     (3.80 )     (1.81 )     (0.72 )     (0.63 )  
Net asset value, end of period   $ 25.52     $ 29.96     $ 35.26     $ 32.58     $ 29.22     $ 24.31    
Total Return(a)      (8.04 )%**      (0.98 )%     20.61 %     18.32 %     23.37 %     55.15 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 4,031,281     $ 4,131,392     $ 4,566,106     $ 3,150,741     $ 2,193,988     $ 863,612    
Net expenses to average daily
net assets
    0.62 %(b)*      0.63 %     0.63 %     0.63 %     0.63 %     0.63 %  
Net investment income to average
daily net assets
    2.12 %(c)**      2.67 %     2.32 %     2.45 %     2.06 %     2.08 %  
Portfolio turnover rate     26 %**      47 %     36 %     38 %     46 %     44 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.04 %     0.06 %     0.07 %     0.09 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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.


25



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value, beginning of period   $ 29.60     $ 34.93     $ 32.28     $ 28.98     $ 24.15     $ 20.92    
Income (loss) from investment operations:  
Net investment income (loss)      0.56       0.79       0.68       0.61       0.44       0.01    
Net realized and unrealized gain (loss)     (2.93 )     (0.81 )     5.62       4.41       5.04       3.73    
Total from investment operations     (2.37 )     (0.02 )     6.30       5.02       5.48       3.74    
Less distributions to shareholders:  
From net investment income     (0.45 )     (0.77 )     (0.44 )     (0.29 )     (0.61 )     (0.51 )  
From net realized gains     (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )        
Total distributions     (2.07 )     (5.31 )     (3.65 )     (1.72 )     (0.65 )     (0.51 )  
Net asset value, end of period   $ 25.16     $ 29.60     $ 34.93     $ 32.28     $ 28.98     $ 24.15    
Total Return(b)      (8.20 )%**      (1.36 )%     20.18 %     17.92 %     22.88 %     18.06 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 16,621     $ 18,687     $ 17,371     $ 29,984     $ 18,347     $ 7,408    
Net expenses to average daily net assets     0.98 %(c)*      0.99 %     0.99 %     0.99 %     0.99 %     0.99 %*   
Net investment income to average
daily net assets
    1.94 %(d)**      2.22 %     2.00 %     2.07 %     1.72 %     0.12 %*   
Portfolio turnover rate     26 %**      47 %     36 %     38 %     46 %     44 %††   
Fees and expenses reimbursed
by the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.04 %     0.06 %     0.07 %     0.09 %*   

 

(a)  Period from October 2, 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.

(c)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(d)  The ratio for the six months ended August 31, 2008, 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.

††  Calculation represents portfolio turnover of the Fund for year ended February 29, 2004.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


26




GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, 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/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, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold.


27



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 590,146,039     $ 11,658,567    
Level 2 - Other Significant Observable Inputs     6,251,348,316       20,077,708    
Level 3 - Significant Unobservable Inputs              
Total   $ 6,841,494,355     $ 31,736,275    

 

*  Other financial instruments include foreign currency, forward currency contracts and futures contracts.


28



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (28,478,306 )  
Level 2 - Other Significant Observable Inputs           (9,215,824 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (37,694,130 )  

 

**  Other financial instruments include forward currency contracts and futures contracts.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


29



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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


30



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility that the counterparties to the


31



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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. The Fund had no securities on loan at Aug ust 31, 2008.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes


32



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 7,334,491,352     $ 410,211,170     $ (903,208,167 )   $ (492,996,997 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.


33



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

Effective June 30, 2008, GMO receives a management fee for investment management services provided to the Fund that is paid monthly at the annual rate of 0.50% of average daily net assets. For the period from March 1, 2008 through June 29, 2008, the management fee rate was 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 for support services provided to Class M shareholders. That fee is paid monthly at the annual rate of 0.20% of average daily Class M net assets. 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 for the provision of services to Class M shareholders. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily Class M net assets.


34



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, administration and distribution (12b-1) 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 invest ment 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $35,915 and $20,700, 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, 2008 aggregated $2,115,972,095 and $1,814,630,744, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 10.73% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. The shareholder is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, 0.24% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 57.42% of the Fund's shares were held by accounts for which the Manager has investment discretion.


35



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class II:   Shares   Amount   Shares   Amount  
Shares sold     969,511     $ 25,830,462       2,870,488     $ 104,261,777    
Shares issued to shareholders
in reinvestment of distributions
    1,188,415       30,803,710       2,225,434       73,788,974    
Shares repurchased     (1,378,996 )     (40,711,508 )     (4,046,894 )     (148,804,167 )  
Net increase (decrease)     778,930     $ 15,922,664       1,049,028     $ 29,246,584    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,751,130     $ 224,494,514       11,261,644     $ 401,290,984    
Shares issued to shareholders
in reinvestment of distributions
    6,818,384       178,641,651       12,081,961       403,817,120    
Shares repurchased     (5,401,054 )     (157,084,076 )     (12,684,964 )     (454,942,171 )  
Net increase (decrease)     9,168,460     $ 246,052,089       10,658,641     $ 350,165,933    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     20,344,280     $ 572,914,780       25,699,917     $ 891,693,160    
Shares issued to shareholders
in reinvestment of distributions
    10,749,483       281,528,965       19,888,170       664,131,421    
Shares repurchased     (11,001,335 )     (313,814,901 )     (37,173,406 )     (1,300,923,459 )  
Net increase (decrease)     20,092,428     $ 540,628,844       8,414,681     $ 254,901,122    

 


36



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class M:   Shares   Amount   Shares   Amount  
Shares sold     56,006     $ 1,611,567       245,514     $ 9,021,667    
Shares issued to shareholders
in reinvestment of distributions
    49,563       1,280,218       92,415       3,048,018    
Shares repurchased     (76,112 )     (2,170,883 )     (204,043 )     (7,216,687 )  
Net increase (decrease)     29,457     $ 720,902       133,886     $ 4,852,998    

 


37




GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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, including the fact that the fees payable under the agreement were being reduced in connection with the renewal of the agreement. The Trustees considered information prepared by third-party data services concerning fees paid to managers of funds deemed by those services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account


38



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, such as the receipt of shareholder servicing fees pursuant to the Trust's s ervicing 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


39



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


40



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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.


41



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2008 (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     0.75 %   $ 1,000.00     $ 918.60     $ 3.63    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.42     $ 3.82    
Class III  
1) Actual     0.68 %   $ 1,000.00     $ 919.10     $ 3.29    
2) Hypothetical     0.68 %   $ 1,000.00     $ 1,021.78     $ 3.47    
Class IV  
1) Actual     0.62 %   $ 1,000.00     $ 919.60     $ 3.00    
2) Hypothetical     0.62 %   $ 1,000.00     $ 1,022.08     $ 3.16    
Class M  
1) Actual     0.98 %   $ 1,000.00     $ 918.00     $ 4.74    
2) Hypothetical     0.98 %   $ 1,000.00     $ 1,020.27     $ 4.99    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


42




GMO Core Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Core Plus Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.6 %  
Short-Term Investments     7.0    
Options Purchased     1.1    
Preferred Stocks     0.2    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Futures     (0.0 )  
Reverse Repurchase Agreements     (0.3 )  
Written Options     (0.5 )  
Forward Currency Contracts     (0.8 )  
Swaps     (1.1 )  
Other     (0.5 )  
      100.0 %  
Country / Region Summary**   % of Investments  
United States     93.2 %  
Euro Region***     8.5    
Switzerland     8.3    
Emerging     2.6    
Canada     0.4    
Sweden     (0.1 )  
Japan     (1.2 )  
Australia     (3.8 )  
United Kingdom     (7.9 )  
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value /
Principal Amount
  Description   Value ($)  
        DEBT OBLIGATIONS — 8.8%  
        Albania — 0.8%  
        Foreign Government Obligations  
USD     15,681,227     Republic of Albania Par Bond, Zero Coupon, due 08/31/25 (a) (b)      6,619,242    
        United States — 8.0%  
        Corporate Debt — 3.1%  
USD     5,000,000     Eastman Chemical Co., 7.25%, due 01/15/24     5,018,475    
USD     10,000,000     General Electric Capital Corp. MTN, 5.88%, due 02/15/12     10,371,600    
USD     5,000,000     Target Corp, 4.00%, due 06/15/13     4,829,240    
USD     5,000,000     Verizon Global Funding Corp, 4.38%, due 06/01/13     4,825,600    
      25,044,915    
        U.S. Government — 4.9%  
USD     12,000,000     U.S. Treasury Note, 3.13%, due 10/15/08 (c)      12,020,625    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/10 (b)      9,700,875    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/12 (b)      8,931,260    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 08/15/12 (b)      8,735,536    
      39,388,296    
    Total United States     64,433,211    
    TOTAL DEBT OBLIGATIONS (COST $67,946,893)     71,052,453    
        OPTIONS PURCHASED — 0.2%  
        Currency Options — 0.2%  
JPY     4,673,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     942,637    
JPY     4,629,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     933,716    
    Total Currency Options     1,876,353    
    TOTAL OPTIONS PURCHASED (COST $2,837,950)     1,876,353    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        PREFERRED STOCKS — 0.2%  
        United States — 0.2%  
    10,000     Home Ownership Funding 2 Preferred 144A, 1.00%     1,536,200    
    TOTAL PREFERRED STOCKS (COST $2,138,851)     1,536,200    
        MUTUAL FUNDS — 91.0%  
        United States — 91.0%  
        Affiliated Issuers  
    2,617,658     GMO Emerging Country Debt Fund, Class IV     24,972,457    
    23,255,328     GMO Short-Duration Collateral Fund     546,965,309    
    93,858     GMO Special Purpose Holding Fund (b) (d)      68,517    
    6,063,479     GMO World Opportunity Overlay Fund     160,318,382    
    Total United States     732,324,665    
    TOTAL MUTUAL FUNDS (COST $775,193,453)     732,324,665    
        SHORT-TERM INVESTMENTS — 1.4%  
        Money Market Funds — 0.1%  
    993,363     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     993,363    
        Other Short-Term Investments — 1.3%  
    6,000,000     U.S. Treasury Bill, 1.71%, due 12/11/08 (c) (e)      5,971,416    
    4,000,000     U.S. Treasury Bill, 1.98%, due 10/16/08 (e)      3,990,025    
      9,961,441    
    TOTAL SHORT-TERM INVESTMENTS (COST $10,946,523)     10,954,804    
          TOTAL INVESTMENTS — 101.6%
(Cost $859,063,670)
    817,744,475    
          Other Assets and Liabilities (net) — (1.6%)     (12,530,792 )  
    TOTAL NET ASSETS — 100.0%   $ 805,213,683    

 

See accompanying notes to the financial statements.


3



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys                              
9/09/08   AUD     44,800,000     $ 38,436,727     $ (4,347,273 )  
9/16/08   CAD     10,300,000       9,698,505       (156,068 )  
10/07/08   CHF     11,100,000       10,084,435       (122,555 )  
10/07/08   CHF     9,100,000       8,267,419       (4,857 )  
10/21/08   EUR     51,900,000       75,945,140       (3,813,223 )  
10/21/08   EUR     9,900,000       14,486,645       (188,521 )  
9/23/08   GBP     13,800,000       25,116,981       (2,400,219 )  
10/28/08   JPY     1,320,000,000       12,167,266       86,876    
10/14/08   NZD     15,900,000       11,058,966       (269,784 )  
    $ 205,262,084     $ (11,215,624 )  
Sales                              
9/09/08   AUD     4,200,000     $ 3,603,443     $ 456,277    
9/09/08   AUD     42,600,000       36,549,211       269,613    
9/09/08   AUD     11,000,000       9,437,590       105,900    
9/16/08   CAD     40,000,000       37,664,096       1,939,472    
9/16/08   CAD     12,100,000       11,393,389       151,487    
10/07/08   CHF     6,800,000       6,177,852       354,329    
9/23/08   GBP     7,500,000       13,650,533       783,412    
9/23/08   GBP     10,200,000       18,564,725       370,759    
10/28/08   JPY     7,803,700,000       71,931,587       (100,770 )  
10/28/08   JPY     780,000,000       7,189,748       18,258    
9/02/08   NOK     2,207,050       406,998       2,736    
    $ 216,569,172     $ 4,351,473    

 

See accompanying notes to the financial statements.


4



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date
  Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)
 
9/02/08   EUR 23,200,000     NOK 185,951,050     $ 255,353    
9/30/08   EUR 51,900,000     SEK 488,520,621       (433,558 )  
9/02/08   NOK 183,744,000     EUR 23,200,000       151,645    
11/04/08   EUR 23,200,000     NOK 184,259,040       (153,420 )  
    $ (179,980 )  

 

Futures Contracts

Number of
Contracts
      Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys                      
      16     Canadian Government Bond 10 Yr.   December 2008   $ 1,800,111     $ 227    
      183     Euro BOBL   September 2008     29,045,786       186,674    
      400     Euro Bund   September 2008     66,991,371       786,130    
      463     U.S. Long Bond (CBT)   December 2008     54,315,687       (287,147 )  
      201     U.S. Treasury Note 10 Yr. (CBT)   December 2008     23,215,500       (52,423 )  
      281     U.S. Treasury Note 2 Yr. (CBT)   December 2008     59,651,031       3,012    
      367     U.S. Treasury Note 5 Yr. (CBT)   December 2008     41,081,063       (2,759 )  
                    $ 276,100,549     $ 633,714    
Sales                      
      378     Australian Government Bond 10 Yr.   September 2008   $ 33,143,762     $ (554,877 )  
      293     Australian Government Bond 3 Yr.   September 2008     25,403,265       (137,869 )  
      10     Japanese Government Bond 10 Yr.
(TSE)
  September 2008     12,714,909       (40,138 )  
      487     UK Gilt Long Bond   December 2008     99,363,390       (238,267 )  
                    $ 170,625,326     $ (971,151 )  

 

See accompanying notes to the financial statements.


5



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

Principal
Amount
  Expiration
Date
  Description   Premiums   Market
Value
 
JPY     4,673,000,000     01/21/2009   JPY Call/USD Put Currency
Option, Strike 95.00
  $ (450,025 )   $ (181,499 )  
JPY     4,629,000,000     01/21/2009   JPY Call/USD Put Currency
Option, Strike 95.00
    (420,424 )     (179,744 )  
            $ (870,449 )   $ (361,243 )  

 

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   $ 4,799    
  350,000,000     USD   12/20/2008   JP Morgan
Chase Bank
  (Pay)     0.15 %   Reference security
within CDX Index
    1,727,282    
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.25 %   AT&T Wireless
Services, Inc.
    7,678    
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.30 %   Boeing Capital Corp.     (4,054 )  
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.66 %   Daimler AG     7,382    
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.39 %   SBC
Communications, Inc.
    740    
  5,000,000     USD   12/20/2009   Deutsche Bank AG   Receive     0.35 %   The Kroger Co.     (1,209 )  
  5,000,000     USD   12/20/2009   Barclays Bank PLC   Receive     0.38 %   Weyerhaeuser Co.     (55,978 )  
  5,000,000     USD   6/20/2010   Barclays Bank PLC   Receive     0.29 %   Merrill Lynch &
Co., Inc.
    (314,154 )  
  5,000,000     USD   6/20/2010   Lehman Brothers   Receive     0.40 %   PSEG Power LLC     (38,062 )  
  5,000,000     USD   6/20/2010   Lehman Brothers   Receive     0.20 %   Royal Bank
of Scotland PLC
    (46,772 )  

 

See accompanying notes to the financial statements.


6



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Annual
Premium
  Deliverable
On Default
  Market
Value
 
  5,000,000     USD   6/20/2010   UBS AG   Receive     0.52 %   TXU Electric    
   
                                Delivery Co.   $ 3,200    
  5,000,000     USD   6/20/2010   Barclays Bank PLC   Receive     0.17 %   Wachovia Corp.     (240,803 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.20 %   Bank of America Corp.     (137,461 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.19 %   Citigroup, Inc.     (179,136 )  
  5,000,000     USD   12/20/2010   Deutsche Bank AG   Receive     0.75 %   Enterprise Products
Partners LP
    (20,192 )  
  5,000,000     USD   12/20/2010   Citigroup   Receive     0.39 %   Exelon Generation
Co. LLC
    (73,122 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.45 %   First Energy Corp.     (247 )  
  5,000,000     USD   12/20/2010   Barclays Bank PLC   Receive     0.28 %   JP Morgan Chase Bank     (116,219 )  
  5,000,000     USD   12/20/2010   UBS AG   Receive     0.47 %   Progress Energy, Inc.     26,287    
  5,000,000     USD   3/20/2011   Barclays Bank PLC   Receive     0.25 %   Bell South     8,955    
  2,000,000     USD   6/20/2011   UBS AG   Receive     0.32 %   Boston Properties
Limited Partnership
    (68,581 )  
  3,000,000     USD   6/20/2011   Bank of
America, N.A.
  Receive     0.14 %   Credit Suisse First
Boston (USA), Inc.
    (37,131 )  
  5,000,000     USD   6/20/2011   Citigroup   Receive     0.37 %   Deutsche Telekom
International
Finance B.V.
    (53,487 )  
  2,000,000     USD   6/20/2011   UBS AG   Receive     0.26 %   ERP Operating LP     (81,007 )  
  4,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.20 %   Morgan Stanley     (237,216 )  
  2,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.30 %   Prologis     (132,116 )  
  5,000,000     USD   6/20/2011   Citigroup   Receive     0.49 %   Telecom Italia SpA     (80,592 )  
  3,000,000     USD   6/20/2011   Barclays Bank PLC   Receive     0.08 %   US Bancorp     (72,474 )  
  2,000,000     USD   12/20/2011   Barclays Bank PLC   Receive     0.04 %   UBS AG     (64,724 )  
  2,000,000     USD   12/20/2011   Barclays Bank PLC   Receive     0.11 %   Wachovia     (164,684 )  
  5,000,000     USD       3/20/2013   Barclays Bank PLC   Receive     0.25%     Goldman Sachs
Group, Inc.
    (256,710 )  
  2,000,000     USD   12/20/2013   UBS AG   Receive     0.34 %   CIT     (506,655 )  
  3,000,000     USD   12/20/2013   Lehman Brothers   Receive     0.25 %   Mid America Energy     (59,486 )  
  2,000,000     USD   12/20/2013   Barclays Bank PLC   Receive     0.25 %   SLM Corp.     (387,352 )  

 

See accompanying notes to the financial statements.


7



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Annual
Premium
  Deliverable
On Default
  Market
Value
 
  9,920,000     USD   3/20/2015   JP Morgan               Reference security    
   
                Chase Bank   Receive     0.70 %   within CDX Index   $ (480,604 )  
  25,000,000     USD   6/20/2015   JP Morgan
Chase Bank
  Receive     0.65 %   Reference security
within CDX Index
    (1,496,328 )  
  5,000,000     USD   6/20/2015   Lehman Brothers   Receive     0.65 %   Reference security
within CDX Index
    (299,266 )  
  1,000,000     USD   12/20/2016   UBS AG   Receive     0.15 %   Bank of America Corp.     (76,444 )  
  1,000,000     USD   12/20/2016   UBS AG   Receive     0.12 %   Citigroup Inc.     (99,481 )  
  1,000,000     USD   12/20/2016   Bank of
America, N.A.
  Receive     0.17 %   General Electric
Capital Corp.
    (93,815 )  
  1,000,000     USD   12/20/2016   Bank of
America, N.A.
  Receive     0.22 %   JP Morgan Chase Bank     (60,394 )  
  1,000,000     USD   12/20/2016   Barclays Bank PLC   Receive     0.33 %   Pacific Gas     (52,363 )  
  10,000,000     USD   12/20/2016   Lehman Brothers   Receive     0.65 %   Reference security
within CDX Index
    (597,784 )  
  1,000,000     USD   12/20/2016   Bank of America, N.A.   Receive     0.33 %   Well Point     (66,639 )  
  5,000,000     USD   1/20/2024   Goldman Sachs   (Pay)     1.11 %   Eastman Chemical Co.     (164,866 )  
    Premiums to (Pay) Receive   $ 701,670     $ (5,131,285 )  

 

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  10,100,000     USD   2/15/2010   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR   $ (2,283,231 )  
  10,100,000     USD   2/15/2012   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (2,255,077 )  
  10,100,000     USD   8/15/2012   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (2,242,638 )  
  12,200,000     SEK   9/17/2013   JP Morgan Chase Bank   Receive     4.40 %   3 month SEK STIBOR     (49,684 )  
  59,600,000     CHF   9/17/2013   Deutsche Bank AG   Receive     2.90 %   6 month CHF LIBOR     (544,200 )  
  64,700,000     CHF   9/17/2013   JP Morgan Chase Bank   Receive     2.90 %   6 month CHF LIBOR     (590,767 )  
  24,300,000     AUD   3/19/2018   JP Morgan Chase Bank   Receive     7.07 %   6 month AUD BBSW     658,583    
  15,680,000     USD   8/31/2025   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (2,321,192 )  
    Premiums to (Pay) Receive   $ 9,221,126     $ (9,628,206 )  

 

See accompanying notes to the financial statements.


8



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  80,000,000     USD   9/30/2008   UBS AG   1 month   Lehman Mortgage    
   
                    LIBOR - 0.02%   Total Return Index   $ 884,469    
  133,000,000     USD       10/31/2008   JP Morgan
Chase Bank
  1 month
LIBOR - 0.02%
  Return on
Lehman Aggregate
Total Return Index
    1,005,327    
  25,000,000     USD   11/28/2008   JP Morgan
Chase Bank
  1 month
LIBOR - 0.02%
  Lehman Aggregate
Total Return Index
       
  140,000,000     USD   12/31/2008   JP Morgan
Chase Bank
  1 month
LIBOR - 0.10%
  Lehman Mortgage
Total Return Index
    1,494,959    
  250,000,000     USD   8/19/2011   Morgan Stanley   3 month
LIBOR - 0.01%
  Lehman Aggregate
Total Return Index
    1,282,761    
    Premiums to (Pay) Receive   $     $ 4,667,516    

 

As of August 31, 2008, for the futures and/or swap 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:

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 is backed by the U.S. Government.

(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 has been segregated to cover margin requirements on open financial futures contracts and/or collateral on open swap contracts (Note 2).

(d)  Underlying investment represents interests in defaulted securities.

(e)  Rate shown represents yield-to-maturity.

See accompanying notes to the financial statements.


9



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

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.


10




GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $83,870,217) (Note 2)   $ 85,419,810    
Investments in affiliated issuers, at value (cost $775,193,453) (Notes 2 and 8)     732,324,665    
Receivable for investments sold     600,000    
Dividends and interest receivable     316,764    
Unrealized appreciation on open forward currency contracts (Note 2)     4,946,117    
Receivable for variation margin on open futures contracts (Note 2)     1,516,415    
Interest receivable for open swap contracts     4,950,346    
Receivable for open swap contracts (Note 2)     7,112,422    
Receivable for expenses reimbursed by Manager (Note 3)     54,931    
Total assets     837,241,470    
Liabilities:  
Written options outstanding, at value (premiums $870,449) (Note 2)     361,243    
Payable to broker for closed futures contracts     2,004,732    
Payable to affiliate for (Note 3):  
Management fee     172,464    
Shareholder service fee     73,868    
Trustees and Chief Compliance Officer of GMO Trust fees     2,371    
Unrealized depreciation on open forward currency contracts (Note 2)     11,990,248    
Payable for open swap contracts (Note 2)     17,204,397    
Accrued expenses     218,464    
Total liabilities     32,027,787    
Net assets   $ 805,213,683    

 

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, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 1,001,453,297    
Distributions in excess of net investment income     (71,812,101 )  
Accumulated net realized loss     (76,162,814 )  
Net unrealized depreciation     (48,264,699 )  
    $ 805,213,683    
Net assets attributable to:  
Class III shares   $ 114,277,413    
Class IV shares   $ 690,936,270    
Shares outstanding:  
Class III     12,839,426    
Class IV     77,512,543    
Net asset value per share:  
Class III   $ 8.90    
Class IV   $ 8.91    

 

See accompanying notes to the financial statements.


12



GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 3,871,398    
Interest     2,061,185    
Dividends     74,903    
Total investment income     6,007,486    
Expenses:  
Management fee (Note 3)     1,234,935    
Shareholder service fee – Class III (Note 3)     90,530    
Shareholder service fee – Class IV (Note 3)     433,621    
Custodian, fund accounting agent and transfer agent fees     215,740    
Audit and tax fees     39,652    
Legal fees     17,112    
Trustees fees and related expenses (Note 3)     5,856    
Registration fees     1,380    
Miscellaneous     7,084    
Total expenses     2,045,910    
Fees and expenses reimbursed by Manager (Note 3)     (273,516 )  
Expense reductions (Note 2)     (12 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (67,487 )  
Shareholder service fee waived (Note 3)     (15,855 )  
Net expenses     1,689,040    
Net investment income (loss)     4,318,446    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     1,451,643    
Investments in affiliated issuers     (23,093,138 )  
Realized gains distributions from affiliated issuers (Note 8)     753,610    
Closed futures contracts     1,455,260    
Closed swap contracts     (12,909,508 )  
Foreign currency, forward contracts and foreign currency related transactions     8,188,270    
Net realized gain (loss)     (24,153,863 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (4,190,811 )  
Investments in affiliated issuers     16,599,406    
Open futures contracts     (571,940 )  
Open swap contracts     4,440,681    
Written options     509,206    
Foreign currency, forward contracts and foreign currency related transactions     (10,633,600 )  
Net unrealized gain (loss)     6,152,942    
Net realized and unrealized gain (loss)     (18,000,921 )  
Net increase (decrease) in net assets resulting from operations   $ (13,682,475 )  

 

See accompanying notes to the financial statements.


13



GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,318,446     $ 50,658,808    
Net realized gain (loss)     (24,153,863 )     (7,666,110 )  
Change in net unrealized appreciation (depreciation)     6,152,942       (78,741,185 )  
Net increase (decrease) in net assets from operations     (13,682,475 )     (35,748,487 )  
Distributions to shareholders from:  
Net investment income  
Class III     (4,656,624 )     (12,275,863 )  
Class IV     (28,587,878 )     (99,097,283 )  
Total distributions from net investment income     (33,244,502 )     (111,373,146 )  
Net share transactions (Note 7):  
Class III     (4,664,202 )     (45,249,825 )  
Class IV     (286,493,319 )     (1,033,993,070 )  
Increase (decrease) in net assets resulting from net share
transactions
    (291,157,521 )     (1,079,242,895 )  
Total increase (decrease) in net assets     (338,084,498 )     (1,226,364,528 )  
Net assets:  
Beginning of period     1,143,298,181       2,369,662,709    
End of period (including distributions in excess of net investment
income of $71,812,101 and $42,886,045, respectively)
  $ 805,213,683     $ 1,143,298,181    

 

See accompanying notes to the financial statements.


14




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 9.42     $ 10.49     $ 10.32     $ 10.35     $ 10.40     $ 9.95    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.04       0.37       0.43       0.15       0.18       0.25    
Net realized and unrealized
gain (loss)
    (0.18 )     (0.63 )     0.27       0.17       0.24       0.91    
Total from investment
operations
    (0.14 )     (0.26 )     0.70       0.32       0.42       1.16    
Less distributions to shareholders:  
From net investment income     (0.38 )     (0.81 )     (0.53 )     (0.35 )     (0.25 )     (0.28 )  
From net realized gains                             (0.22 )     (0.43 )  
Total distributions     (0.38 )     (0.81 )     (0.53 )     (0.35 )     (0.47 )     (0.71 )  
Net asset value, end of period   $ 8.90     $ 9.42     $ 10.49     $ 10.32     $ 10.35     $ 10.40    
Total Return(b)      (1.59 )%**      (2.56 )%     6.85 %     3.10 %     4.01 %     11.99 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 114,277     $ 125,506     $ 187,045     $ 148,476     $ 1,216,251     $ 602,824    
Net expenses to average daily
net assets(c) 
    0.39 %(d)*      0.39 %(d)      0.39 %     0.39 %     0.39 %     0.39 %  
Net investment income to average
daily net assets(a) 
    0.96 %*      3.70 %     4.11 %     1.40 %     1.77 %     2.43 %  
Portfolio turnover rate     8 %**      44 %     72 %     62 %     108 %     114 %  
Fees and expenses reimbursed and/or
waived by the Manager to average
daily net assets:
    0.07 %*      0.06 %     0.06 %     0.06 %     0.07 %     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).

(d)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


15



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 9.44     $ 10.50     $ 10.33     $ 10.46    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.04       0.36       0.45       0.23    
Net realized and unrealized gain (loss)     (0.19 )     (0.61 )     0.26       (0.01 )(c)   
Total from investment operations     (0.15 )     (0.25 )     0.71       0.22    
Less distributions to shareholders:  
From net investment income     (0.38 )     (0.81 )     (0.54 )     (0.35 )  
Total distributions     (0.38 )     (0.81 )     (0.54 )     (0.35 )  
Net asset value, end of period   $ 8.91     $ 9.44     $ 10.50     $ 10.33    
Total Return(d)      (1.69 )%**      (2.42 )%     6.90 %     2.06 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 690,936     $ 1,017,792     $ 2,182,618     $ 2,618,011    
Net expenses to average daily net assets(e)      0.34 %(f)*      0.34 %(f)      0.34 %     0.34 %*   
Net investment income to average daily
net assets(b) 
    0.86 %*      3.60 %     4.33 %     2.16 %(g)   
Portfolio turnover rate     8 %**      44 %     72 %     62 %††   
Fees and expenses reimbursed and/or waived
by the Manager to average daily net assets:
    0.07 %*      0.06 %     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 net expense ratio does not include the effect of expense reductions.

(g)  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.


16




GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 seeking to exploit differences in global interest rates and currency and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of GMO 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 significant extent in credit default swaps; in shares of GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO Emerging Country Debt Fund ("ECDF").

As of August 31, 2008, 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 World Opportunity Overlay Fund and 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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


17



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

in the financial statements. Actual results could differ from those estimates. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 32.98% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

GMO Special Purpose Holding Fund ("SPHF"), is 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, 2008, the Fund received $212,552 through SPHF in conjunction with settlement agreements related to the default of those securities.


18



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 44,500,698     $ 976,043    
Level 2 - Other Significant Observable Inputs     739,188,347       12,058,539    
Level 3 - Significant Unobservable Inputs     34,055,430          
Total   $ 817,744,475     $ 13,034,582    

 

*  Other financial instruments include forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (1,313,480 )  
Level 2 - Other Significant Observable Inputs           (29,555,888 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (30,869,368 )  

 

**  Other financial instruments include forward currency contracts, futures contracts, swap agreements and written options.


19



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 33,957,631     $    
Accrued discounts/premiums     821,243          
Realized gain (loss)              
Realized gain distributions received     162,394            
Realized gain distributions paid     (212,552 )          
Change in unrealized appreciation/depreciation     (673,286 )        
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 34,055,430     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the


20



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


21



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

For the period ended August 31, 2008, 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   $     $           $    
Options written               JPY (9,302,000,000 )     (870,449 )  
Options exercised                          
Options expired                          
Options sold                          
Outstanding, end of period   $     $     JPY (9,302,000,000 )   $ (870,449 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities outstanding at the end of the period.


22



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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.


23



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had 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. The Fund had no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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,


24



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $26,648,463.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/28/2014   $ (34,693,380 )  
2/28/2015     (2,795,728 )  
2/29/2016     (33,008,915 )  
Total   $ (70,498,023 )  

 


25



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 892,164,137     $ 7,289,869     $ (81,709,531 )   $ (74,419,662 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).


26



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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 March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

In September 2008, the FASB issued Statement of Financial Accounting Standards No. 133-1 ("SFAS 133-1"), Accounting for Derivative Instruments and Hedging Activities, and Interpretation of Financial Accounting Standards No. 45-4, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 ("IFAS 45-1"). SFAS 133-1 and IFAS 45-4 are effective for interim periods ending after November 15, 2008. SFAS 133-1 and IFAS 45-4 require enhanced disclosures surrounding the Fund's selling of c redit derivatives . The Manager is currently evaluating the impact the adoption of SFAS 133-1 and IFAS 45-4 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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


27



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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 th e 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 20, 2009 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 reimburseme nt 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, 2008, 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
 
  0.016 %     0.003 %     0.010 %     0.029 %  

 

        


28



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $5,396 and $3,036, 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, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $     $ 10,000,000    
Investments (non-U.S. Government securities)     72,150,407       384,995,006    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 62.52% of the outstanding shares of the Fund were held by four shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 78.15% of the Fund's shares were held by accounts for which the Manager has investment discretion.


29



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold         $       7,093,489     $ 73,135,418    
Shares issued to shareholders
in reinvestment of distributions
    506,343       4,597,589       1,115,417       10,882,545    
Shares repurchased     (984,444 )     (9,261,791 )     (12,715,568 )     (129,267,788 )  
Net increase (decrease)     (478,101 )   $ (4,664,202 )     (4,506,662 )   $ (45,249,825 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $       12,016,620     $ 125,053,877    
Shares issued to shareholders
in reinvestment of distributions
    3,144,981       28,587,878       10,145,742       99,097,283    
Shares repurchased     (33,495,634 )     (315,081,197 )     (122,110,610 )     (1,258,144,230 )  
Net increase (decrease)     (30,350,653 )   $ (286,493,319 )     (99,948,248 )   $ (1,033,993,070 )  

 


30



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 37,549,507     $ 682,116     $ 12,000,000     $ 141,057     $ 541,058     $ 24,972,457    
GMO Short-Duration
Collateral Fund
    780,181,577       66,330,341       287,300,000       3,730,341             546,965,309    
GMO Special Purpose
Holding Fund
    118,261                         212,552       68,517    
GMO World Opportunity
Overlay Fund
    232,656,595       2,300,000       81,700,000                   160,318,382    
Totals   $ 1,050,505,940     $ 69,312,457     $ 381,000,000     $ 3,871,398     $ 753,610     $ 732,324,665    

 

9.  Subsequent events

Subsequent to August 31, 2008, the Fund received redemption requests in the amount of $398,811,022.

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.89% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


31




GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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


32



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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, notin g 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 advisory fees, shareholder fees and most other expenses 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.


33



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


34



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.42 %   $ 1,000.00     $ 984.10     $ 2.10    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class IV      
1) Actual     0.36 %   $ 1,000.00     $ 983.10     $ 1.80    
2) Hypothetical     0.36 %   $ 1,000.00     $ 1,023.39     $ 1.84    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


35




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Global Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Global Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.2 %  
Short-Term Investments     9.0    
Options Purchased     1.1    
Swaps     0.7    
Futures     0.6    
Loan Participations     0.1    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.3 )  
Written Options     (0.5 )  
Forward Currency Contracts     (3.4 )  
Other     (1.6 )  
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region***     38.3 %  
United States     34.3    
Japan     22.2    
Switzerland     7.0    
Emerging     2.4    
Canada     1.9    
Sweden     0.4    
Denmark     0.1    
United Kingdom     (3.1 )  
Australia     (3.5 )  
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Global Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value /
Principal Amount /
Shares
  Description   Value ($)  
        DEBT OBLIGATIONS — 0.2%  
        Australia — 0.2%  
        Asset-Backed Securities  
USD     761,034     Medallion Trust, Series 03-1G, Class A, Variable Rate, 3 mo.
LIBOR + .19%, 2.99%, due 12/21/33
    711,711    
    TOTAL DEBT OBLIGATIONS (COST $761,034)     711,711    
        OPTIONS PURCHASED — 0.2%  
        Currency Options — 0.2%  
JPY     1,918,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     386,899    
JPY     1,899,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     383,047    
    Total Currency Options     769,946    
    TOTAL OPTIONS PURCHASED (COST $1,164,532)     769,946    
        MUTUAL FUNDS — 99.7%  
        United States — 99.7%  
        Affiliated Issuers  
    1,010,077     GMO Emerging Country Debt Fund, Class III     9,636,133    
    10,577,033     GMO Short-Duration Collateral Fund     248,771,819    
    45,838     GMO Special Purpose Holding Fund (a) (b)      33,462    
    2,502,018     GMO World Opportunity Overlay Fund     66,153,353    
    Total United States     324,594,767    
    TOTAL MUTUAL FUNDS (COST $341,786,159)     324,594,767    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.8%  
        Money Market Funds — 0.3%  
    1,020,401     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     1,020,401    
        Other Short-Term Investments — 2.5%  
    6,000,000     U.S. Treasury Bill, 1.67%, due 09/25/08 (c) (d)      5,993,079    
    1,000,000     U.S. Treasury Bill, 1.80%, due 09/18/08 (c) (d)      999,112    
    1,000,000     U.S. Treasury Bill, 2.07%, due 06/05/09 (c) (d)      984,455    
      7,976,646    
    TOTAL SHORT-TERM INVESTMENTS (COST $8,993,672)     8,997,047    
            TOTAL INVESTMENTS — 102.9%
(Cost $352,705,397)
    335,073,471    
            Other Assets and Liabilities (net) — (2.9%)     (9,424,730 )  
    TOTAL NET ASSETS — 100.0%   $ 325,648,741    

 

See accompanying notes to the financial statements.


3



GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
9/09/08   AUD     19,300,000     $ 16,558,680     $ (1,872,820 )  
9/16/08   CAD     2,700,000       2,542,327       (40,911 )  
10/07/08   CHF     4,300,000       3,906,583       (47,476 )  
10/07/08   CHF     3,700,000       3,361,478       (1,975 )  
10/21/08   EUR     104,400,000       152,768,259       (7,670,529 )  
10/21/08   EUR     4,500,000       6,584,839       (85,691 )  
9/23/08   GBP     15,700,000       28,575,116       (2,730,684 )  
10/28/08   JPY     8,010,100,000       73,834,105       103,435    
10/28/08   JPY     480,000,000       4,424,460       31,591    
10/14/08   NZD     6,300,000       4,381,854       (106,896 )  
    $ 296,937,701     $ (12,421,956 )  
Sales  
9/09/08   AUD     1,300,000     $ 1,115,352     $ 141,228    
9/09/08   AUD     16,900,000       14,499,570       106,958    
9/09/08   AUD     3,800,000       3,260,258       36,584    
9/16/08   CAD     9,200,000       8,662,742       446,079    
9/16/08   CAD     5,100,000       4,802,172       96,329    
10/07/08   CHF     1,900,000       1,726,164       99,004    
9/23/08   GBP     2,600,000       4,732,185       264,911    
9/23/08   GBP     3,200,000       5,824,227       118,389    
10/28/08   JPY     460,000,000       4,240,108       10,768    
9/02/08   NOK     913,615       168,478       1,132    
    $ 49,031,256     $ 1,321,382    

 

See accompanying notes to the financial statements.


4



GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date
  Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)
 
9/02/08   EUR 9,500,000     NOK 76,153,615     $ 106,382    
9/30/08   EUR 23,400,000     SEK 220,330,865       (184,179 )  
9/02/08   NOK 75,240,000     EUR 9,500,000       62,096    
11/04/08   EUR 9,500,000     NOK 75,450,900       (62,823 )  
    $ (78,524 )  

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  49     Canadian Government Bond 10 Yr.   December 2008   $ 5,512,846     $ 904    
  261     Euro BOBL   September 2008     41,425,956       305,242    
  510     Euro Bund   September 2008     85,413,998       1,151,326    
  800     Federal Fund 30 day   September 2008     326,642,796       540    
  54     Japanese Government
Bond 10 Yr. (TSE)
  September 2008     68,660,510       803,859    
  177     U.S. Long Bond (CBT)   December 2008     20,764,313       (109,242 )  
  76     U.S. Treasury Note 10 Yr. (CBT)   December 2008     8,778,000       (19,594 )  
  169     U.S. Treasury Note 5 Yr. (CBT)   December 2008     18,917,438       (969 )  
                $ 576,115,857     $ 2,132,066    
Sales      
  89     Australian Government Bond 10 Yr.   September 2008   $ 7,803,690     $ (101,671 )  
  98     Australian Government Bond 3 Yr.   September 2008     8,496,655       (40,220 )  
  48     U.S Treasury Note 2 Yr. (CBT)   December 2008     10,189,500       (2,250 )  
  96     UK Gilt Long Bond   December 2008     19,587,034       (46,697 )  
                $ 46,076,879     $ (190,838 )  

 

See accompanying notes to the financial statements.


5



GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

Principal
Amount
  Expiration
Date
  Description   Premiums   Market
Value
 
JPY 1,918,000,000     01/21/2009   JPY Call/USD Put Currency
Option, Strike 95.00
  $ (184,709 )   $ (74,495 )  
JPY 1,899,000,000     01/21/2009   JPY Call/USD Put Currency
Option, Strike 95.00
    (172,475 )     (73,738 )  
        $ (357,184 )   $ (148,233 )  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  17,400,000     SEK   9/17/2013   JP Morgan   Receive     4.40 %   3 month SEK STIBOR    
   
                Chase Bank                   $ (70,860 )  
  23,200,000     CHF   9/17/2013   Deutsche Bank AG   Receive     2.90 %   6 month CHF LIBOR     (211,836 )  
  19,400,000     CHF   9/17/2013   JP Morgan
Chase Bank
  Receive     2.90 %   6 month CHF LIBOR     (177,139 )  
  3,100,000     AUD   3/19/2018   JP Morgan
Chase Bank
  Receive     7.07 %   6 month AUD BBSW     84,017    
  3,000,000     EUR   3/21/2030   UBS AG   Receive     5.90 %   3 Month Floating
Rate EUR LIBOR
    683,380    
    Premiums to (Pay) Receive   $ 569,375     $ 307,562    

 

See accompanying notes to the financial statements.


6



GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  75,000,000     USD   9/24/2008   JP Morgan Chase Bank   3 month   Return on  
 
                LIBOR - 0.03%   JP Morgan  
 
                    Hedged Traded  
 
                    Total Return  
 
                    Government  
 
                    Bond Index   $ 1,605,991    
    Premiums to (Pay) Receive   $     $ 1,605,991    

 

As of August 31, 2008, for the futures and/or swap 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:

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

STIBOR - Stockholm Interbank Offered Rate

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2008, which are subject to change based on the terms of the 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)  Underlying investment represents interests in defaulted securities.

(c)  Rate shown represents yield-to-maturity.

(d)  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
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 Global Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $10,919,238) (Note 2)   $ 10,478,704    
Investments in affiliated issuers, at value (cost $341,786,159) (Notes 2 and 8)     324,594,767    
Receivable for investments sold     200,000    
Dividends and interest receivable     8,387    
Unrealized appreciation on open forward currency contracts (Note 2)     1,624,886    
Receivable for variation margin on open futures contracts (Note 2)     196,906    
Interest receivable for open swap contracts     40,557    
Receivable for open swap contracts (Note 2)     2,373,388    
Receivable for expenses reimbursed by Manager (Note 3)     7,087    
Total assets     339,524,682    
Liabilities:  
Written options outstanding, at value (premiums $357,184) (Note 2)     148,233    
Payable to broker for closed futures contracts     295,431    
Payable to affiliate for (Note 3):  
Management fee     52,957    
Shareholder service fee     41,808    
Trustees and Chief Compliance Officer of GMO Trust fees     631    
Unrealized depreciation on open forward currency contracts (Note 2)     12,803,984    
Payable for open swap contracts (Note 2)     459,835    
Accrued expenses     73,062    
Total liabilities     13,875,941    
Net assets   $ 325,648,741    
Net assets consist of:  
Paid-in capital   $ 374,357,038    
Distributions in excess of net investment income     (18,232,660 )  
Accumulated net realized loss     (6,316,499 )  
Net unrealized depreciation     (24,159,138 )  
    $ 325,648,741    
Net assets attributable to:  
Class III shares   $ 325,648,741    
Shares outstanding:  
Class III     41,720,421    
Net asset value per share:  
Class III   $ 7.81    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,696,968    
Interest     69,212    
Dividends     24,712    
Total investment income     1,790,892    
Expenses:  
Management fee (Note 3)     323,581    
Shareholder service fee – Class III (Note 3)     255,458    
Custodian, fund accounting agent and transfer agent fees     69,184    
Audit and tax fees     32,568    
Legal fees     4,140    
Trustees fees and related expenses (Note 3)     1,861    
Registration fees     2,024    
Miscellaneous     2,207    
Total expenses     691,023    
Fees and expenses reimbursed by Manager (Note 3)     (6,975 )  
Expense reductions (Note 2)     (1,872 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (20,995 )  
Shareholder service fee waived (Note 3)     (7,400 )  
Net expenses     653,781    
Net investment income (loss)     1,137,111    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     30,853    
Investments in affiliated issuers     (2,774,790 )  
Realized gains distributions from affiliated issuers (Note 8)     312,612    
Closed futures contracts     167,222    
Closed swap contracts     (231,998 )  
Foreign currency, forward contracts and foreign currency related transactions     10,180,173    
Net realized gain (loss)     7,684,072    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (452,093 )  
Investments in affiliated issuers     (694,909 )  
Open futures contracts     (1,602,720 )  
Open swap contracts     (60,600 )  
Written options     208,951    
Foreign currency, forward contracts and foreign currency related transactions     (22,526,944 )  
Net unrealized gain (loss)     (25,128,315 )  
Net realized and unrealized gain (loss)     (17,444,243 )  
Net increase (decrease) in net assets resulting from operations   $ (16,307,132 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,137,111     $ 12,741,125    
Net realized gain (loss)     7,684,072       10,424,511    
Change in net unrealized appreciation (depreciation)     (25,128,315 )     (3,353,820 )  
Net increase (decrease) in net assets from operations     (16,307,132 )     19,811,816    
Distributions to shareholders from:  
Net investment income  
Class III     (19,772,881 )     (23,714,054 )  
Net share transactions (Note 7):  
Class III     23,114,263       157,195,473    
Total increase (decrease) in net assets     (12,965,750 )     153,293,235    
Net assets:  
Beginning of period     338,614,491       185,321,256    
End of period (including distributions in excess of net investment
income of $18,232,660 and accumulated undistributed net
investment income of $403,110, respectively)
  $ 325,648,741     $ 338,614,491    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 8.70     $ 8.92     $ 8.53     $ 9.11     $ 8.73     $ 9.20    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.03       0.42       0.38       0.18       0.21       0.12    
Net realized and unrealized
gain (loss)
    (0.41 )     0.11       0.38       (0.57 )     0.63       1.42    
Total from investment
operations
    (0.38 )     0.53       0.76       (0.39 )     0.84       1.54    
Less distributions to shareholders:  
From net investment income     (0.51 )     (0.75 )     (0.37 )     (0.19 )     (0.46 )        
From net realized gains                                   (1.90 )  
Return of capital                                   (0.11 )  
Total distributions     (0.51 )     (0.75 )     (0.37 )     (0.19 )     (0.46 )     (2.01 )  
Net asset value, end of period   $ 7.81     $ 8.70     $ 8.92     $ 8.53     $ 9.11     $ 8.73    
Total Return(b)      (4.72 )%**      6.50 %     8.99 %     (4.33 )%     9.52 %     20.21 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 325,649     $ 338,614     $ 185,321     $ 168,324     $ 170,750     $ 138,684    
Net expenses to average daily
net assets(c) 
    0.38 %(d)*      0.38 %(d)      0.39 %     0.37 %     0.33 %     0.32 %  
Net investment income to average
daily net assets(a) 
    0.67 %*      4.86 %     4.33 %     2.12 %     2.40 %     1.44 %  
Portfolio turnover rate     18 %**      20 %     22 %     20 %     38 %     45 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:
    0.02 %*      0.03 %     0.06 %     0.07 %     0.12 %     0.12 %  

 

(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)  The net expense ratio does not include the effect of expense reductions.

†  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, 2008 (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 seeking to exploit differences in global interest rates and 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 i ssued by private issuers; in shares of GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.


12



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 35.90% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $103,806 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


13



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 10,620,588     $ 2,261,871    
Level 2 - Other Significant Observable Inputs     324,419,421       3,998,274    
Level 3 - Significant Unobservable Inputs     33,462          
Total   $ 335,073,471     $ 6,260,145    

 

*  Other financial instruments include forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (320,643 )  
Level 2 - Other Significant Observable Inputs           (13,412,052 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (13,732,695 )  

 

**  Other financial instruments include forward currency contracts, futures contracts, swap agreements and written options.


14



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 57,756     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     79,287          
Realized gain distributions paid     (103,806 )        
Change in unrealized appreciation/depreciation     225          
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 33,462     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the


15



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


16



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

For the period ended August 31, 2008, 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   $     $           $    
Options written               JPY (3,817,000,000 )     (357,184 )  
Options exercised                          
Options expired                          
Options sold                          
Outstanding, end of period   $     $     JPY (3,817,000,000 )   $ (357,184 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities outstanding at the end of the period.


17



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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.


18



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, if any, after giving effect to any available capital loss carryovers for U.S. federal income tax purposes. Therefore, no


19



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/29/2012   $ (7,605,871 )  
2/28/2014     (7,575,780 )  
2/28/2015     (269,796 )  
Total   $ (15,451,447 )  

 

As of August 31, 2008, 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)
 
$ 360,183,146     $ 1,436,302     $ (26,545,977 )   $ (25,109,675 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.


20



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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.


21



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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 th e 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded 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.


22



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2008, 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 %     0.009 %     0.028 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $1,585 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.

4.  Purchases and sales of securities

For the period ended August 31, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $     $ 3,000,000    
Investments (non-U.S. Government securities)     68,170,306       56,972,834    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 65.30% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned


23



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 31.01% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,366,529     $ 11,741,501       15,937,195     $ 139,052,495    
Shares issued to shareholders
in reinvestment of distributions
    2,363,492       19,546,079       2,820,633       23,399,087    
Shares repurchased     (944,274 )     (8,173,317 )     (606,251 )     (5,256,109 )  
Net increase (decrease)     2,785,747     $ 23,114,263       18,151,577     $ 157,195,473    

 

8.   Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 9,885,128     $ 261,966     $     $ 53,160     $ 208,806     $ 9,636,133    
GMO Short-Duration
Collateral Fund
    241,749,211       58,843,808       46,800,000       1,643,808             248,771,819    
GMO Special Purpose
Holding Fund
    57,756                         103,806       33,462    
GMO World Opportunity
Overlay Fund
    66,066,597       7,900,000       9,900,000                   66,153,353    
Totals   $ 317,758,692     $ 67,005,774     $ 56,700,000     $ 1,696,968     $ 312,612     $ 324,594,767    

 


24



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.97% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


25




GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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, notin g 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 advisory fees, shareholder fees and most other expenses 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.


27



GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


28



GMO Global Bond Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.41 %   $ 1,000.00     $ 952.80     $ 2.02    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


29




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Consolidated Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)
Consolidated Investments Concentration Summary
(a)
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     86.3 %  
Short-Term Investments     14.9    
Futures     0.9    
Forward Currency Contracts     0.0    
Swaps     (0.4 )  
Other     (1.7 )  
      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, 2008 (Unaudited)

Par Value ($) /
Shares
  Description   Value ($)  
        DEBT OBLIGATIONS — 15.9%  
        U.S. Government — 15.9%  
    5,000,000     U.S. Treasury Note, 2.38%, due 08/31/10 (a)      5,001,563    
    TOTAL DEBT OBLIGATIONS (COST $4,997,687)     5,001,563    
        MUTUAL FUNDS — 74.2%  
        Affiliated Issuers — 74.2%  
    990,541     GMO Short-Duration Collateral Fund     23,297,531    
    TOTAL MUTUAL FUNDS (COST $24,802,254)     23,297,531    
        SHORT-TERM INVESTMENTS — 10.1%  
        Money Market Funds — 1.6%  
    504,427     SSgA USD Liquidity Fund-Class I Stable NAV Shares (a)      504,427    
    TOTAL MONEY MARKET FUNDS (COST $504,427)     504,427    
        Other Short-Term Investments — 8.5%  
    1,450,000     Fannie Mae Discount Note, 2.28%, due 09/29/08 (a) (b)      1,447,383    
    1,225,000     Federal Home Loan Mortgage Corp. Discount Note, 2.05%, due 09/15/08 (a) (b)      1,223,971    
    TOTAL OTHER SHORT TERM INVESTMENTS (COST $2,671,354)     2,671,354    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,175,781)     3,175,781    
          TOTAL INVESTMENTS — 100.3%
(Cost $32,975,722)
    31,474,875    
          Other Assets and Liabilities (net) — (0.3%)     (96,226 )  
    TOTAL NET ASSETS — 100.0%   $ 31,378,649    

 

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, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts (a)

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  23     Cocoa   December 2008   $ 663,320     $ 41,710    
  1     Corn   December 2008     29,250       613    
  5     Crude Oil   October 2008     577,300       15,270    
  4     Heating Oil   October 2008     536,239       13,390    
  2     Soybean   November 2008     132,400       5,400    
  8     Soybean Meal   December 2008     286,400       (6,638 )  
  4     Gasoline RBOB   October 2008     479,506       22,411    
    $ 2,704,415     $ 92,156    
Sales      
  5     Coffee "C"   December 2008   $ 273,281     $ (10,837 )  
  31     Cotton No. 2   December 2008     1,081,590       102,591    
  1     Gold 100 OZ   December 2008     83,520       (700 )  
  7     Lean Hogs   October 2008     191,590       15,465    
  47     Live Cattle   October 2008     1,956,140       26,900    
  3     Natural Gas   October 2008     238,290       6,900    
  3     Silver   December 2008     205,605       (480 )  
  4     Soybean Oil   December 2008     130,080       448    
  7     Sugar (World)   October 2008     100,038       7,101    
  10     Wheat   December 2008     400,625       41,625    
    $ 4,660,759     $ 189,013    

 

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, 2008 (Unaudited)

Swap Agreements (a)

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  15,486,115     USD   4/14/2009   Barclay's Capital   1 month   Return on DJ-AIG  
 
                T-Bill + 0.19%   Commodity Total  
 
                    Return Index   $ (65,877 )  
    Premiums to (Pay) Receive   $     $ (65,877 )  

 

As of August 31, 2008, for the futures and/or swap 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 Consolidated Schedule of Investments:

(a)  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.

(b)  Rate shown represents yield-to-maturity.

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


4




GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)


Consolidating Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

    GMO Alternative
Asset Opportunity
Fund
  GMO
Alternative Asset
SPC Ltd.
  Eliminations   Consolidated
Totals
 
Assets:  
Investments in unaffiliated issuers,
at value (consolidated
cost $8,173,468) (Note 2)
  $     $ 8,177,344     $     $ 8,177,344    
Investments in affiliated issuers,
at value (consolidated
cost $24,802,254) (Note 2)
    31,423,953             (8,126,422 )     23,297,531    
Cash     11,266                   11,266    
Dividends and interest receivable     7       2,134             2,141    
Receivable for securities sold           5,048,853             5,048,853    
Receivable for variation margin on
open futures contracts (Note 2)
          6,979             6,979    
Receivable for expenses reimbursed
by Manager (Note 3)
    8,432       9,889             18,321    
Total assets     31,443,658       13,245,199       (8,126,422 )     36,562,435    
Liabilities:  
Payable for investments purchased           4,998,312             4,998,312    
Payable for open swap contracts (Note 2)           65,877             65,877    
Payable to affiliate for (Note 3):  
Management fee     12,114                   12,114    
Shareholder service fee     4,038                   4,038    
Trustees and Chief Compliance
Officer of GMO Trust fees
    137                   137    
Accrued expenses     48,720       54,588             103,308    
Total liabilities     65,009       5,118,777             5,183,786    
Net assets   $ 31,378,649     $ 8,126,422     $ (8,126,422 )   $ 31,378,649    
Shareholders' capital   $ 31,378,649                     $ 31,378,649    
Shares outstanding     1,026,006                       1,026,006    
Net asset value per share   $ 30.58                     $ 30.58    

 

See accompanying notes to the financial statements.


5



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)


Consolidating Statement of Operations — For the Six Months Ended August 31, 2008 (Unaudited)

    GMO Alternative
Asset Opportunity
Fund
  GMO
Alternative
Asset SPC Ltd.
  Eliminations   Consolidated
Totals
 
Investment Income:  
Dividend from affiliated issuers (Note 8)   $ 158,934     $     $     $ 158,934    
Interest     252       103,139             103,391    
Dividends           13,452             13,452    
Total income     159,186       116,591             275,777    
Expenses:  
Management fee (Note 3)     76,526                   76,526    
Shareholder service fee (Note 3)     25,509                   25,509    
Custodian and transfer agent fees     2,300       40,112             42,412    
Audit and tax fees     45,172       10,120             55,292    
Legal fees     368       1,472             1,840    
Trustees fees and related expenses (Note 3)     222                   222    
Miscellaneous     184       3,036             3,220    
Total expenses     150,281       54,740             205,021    
Fees and expenses reimbursed by
Manager (Note 3)
    (47,932 )     (54,740 )           (102,672 )  
Net expenses     102,349                   102,349    
Net investment income     56,837       116,591             173,428    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers           5,517             5,517    
Investments in affiliated issuers     (4,418 )                 (4,418 )  
Closed futures contracts           (266,466 )           (266,466 )  
Closed swap contracts           (382,592 )           (382,592 )  
Net realized gain (loss)     (4,418 )     (643,541 )           (647,959 )  
Change in net unrealized appreciation
(depreciation) on:
 
Investments in unaffiliated issuers           (4,961 )           (4,961 )  
Investments in affiliated issuers     (2,645,760 )           2,146,170       (499,590 )  
Open futures contracts           133,944             133,944    
Open swap contracts           (1,748,203 )           (1,748,203 )  
Net unrealized gain (loss)     (2,645,760 )     (1,619,220 )     2,146,170       (2,118,810 )  
Net realized and unrealized gain (loss)     (2,650,178 )     (2,262,761 )     2,146,170       (2,766,769 )  
Net increase (decrease) in net assets
resulting from operations
  $ (2,593,341 )   $ (2,146,170 )   $ 2,146,170     $ (2,593,341 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 173,428     $ 2,400,062    
Net realized gain (loss)     (647,959 )     2,207,780    
Change in net unrealized appreciation (depreciation)     (2,118,810 )     (3,054,525 )  
Net increase (decrease) in net assets from operations     (2,593,341 )     1,553,317    
Fund share transactions: (Note 7)  
Proceeds from sale of shares           3,431,990    
Cost of shares repurchased           (145,526,957 )  
Net increase (decrease) in Fund share transactions           (142,094,967 )  
Total increase (decrease) in net assets     (2,593,341 )     (140,541,650 )  
Net assets:  
Beginning of period     33,971,990       174,513,640    
End of period   $ 31,378,649     $ 33,971,990    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 33.11     $ 28.54     $ 26.63     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.17       0.69       1.28       0.73    
Net realized and unrealized gain (loss)     (2.70 )     3.88 (c)      0.63       0.90    
Total from investment operations     (2.53 )     4.57       1.91       1.63    
Net asset value, end of period   $ 30.58     $ 33.11     $ 28.54     $ 26.63    
Total Return(d)      (7.64 )%**      16.01 %     7.17 %     6.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 31,379     $ 33,972     $ 174,514     $ 181,947    
Net expenses to average daily net assets(e)      0.60 %*      0.60 %     0.60 %     0.61 %*   
Net investment income to average daily net assets(b)      1.02 %*      2.41 %     4.60 %     3.12 %*   
Portfolio turnover rate     50 %**      24 %     12 %     13 %**   
Fees and expenses reimbursed by the Manager  
to average daily net assets:     0.60 %*      0.21 %     0.12 %     0.15 %*   

 

(a)  Period from April 11, 2005 (commencement of operations) to 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 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)  Total returns would have been lower had certain expenses not been reimbursed during the periods shown.

(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.


8




GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2008 (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 (e.g., currencies). 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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, 2008 (Unaudited)

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 26.32% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.


10



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 5,001,563     $ 299,824    
Level 2 - Other Significant Observable Inputs     26,473,312          
Level 3 - Significant Unobservable Inputs              
Total   $ 31,474,875     $ 299,824    

 

*  Other financial instruments include futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (18,655 )  
Level 2 - Other Significant Observable Inputs           (65,877 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (84,532 )  

 

**  Other financial instruments include futures contracts and swap agreements.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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


11



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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


12



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 brokers 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. The Fund had no repurchase agreements outsta nding 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, 2008, 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)
 
$ 34,652,200     $     $ (3,177,325 )   $ (3,177,325 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Distributions

The Fund does not intend to make any distributions to its shareholders but may do so in the sole discretion of the Trustees.


13



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Investment risks

Because of the Fund's indirect exposure to the global commodity markets, the value of its shares is affected by factors particular to the commodity markets and may fluctuate more than the value of shares of a fund with a broader range of investments. Commodity prices can be extremely volatile and are affected by a wide range of factors, including changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, international economic, political, and regulatory developments, and developments affecting a particular industry or commodity, such as drought, floods, or other weather conditions, livestock disease, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand, and tariffs. The value of the Fund's investments in commodi ty-related derivatives may fluctuate more than the relevant underlying commodity or commodities or commodity index.


14



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about Funds' derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.45% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund incurs fees and expenses indirectly as a shareholder in the GMO Short-Duration Collateral Fund. For the period ended August 31, 2008, 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 %  

 


15



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $222 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.

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 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

For the period ended August 31, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 13,552,344     $ 13,547,597    
Investments (non-U.S. Government securities)     158,934       44,100    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 83.43% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and all of the Fund's shares were held by accounts for which the Manager had investment discretion.


16



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Shares sold         $       117,663     $ 3,431,990    
Shares repurchased                 (5,206,092 )     (145,526,957 )  
Net increase (decrease)         $       (5,088,429 )   $ (142,094,967 )  

 

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, 2008 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
  $ 23,686,705     $ 158,934     $ 44,100     $ 158,934     $     $ 23,297,531    
Totals   $ 23,686,705     $ 158,934     $ 44,100     $ 158,934     $     $ 23,297,531    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.76% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the private placement memorandum, which can be obtained by calling 1-617-346-7646 (collect).


17




GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of


18



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

the investment techniques used to manage the Fund. 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client relatio nships. 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, 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


19



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


20



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 923.60     $ 2.91    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.18     $ 3.06    

 

*  Expenses are calculated using the Fund's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


21




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     97.6 %  
Short-Term Investments     5.5    
Options Purchased     0.8    
Loan Participations     0.1    
Forward Currency Contracts     0.0    
Loan Assignments     0.0    
Futures     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.2 )  
Written Options     (0.4 )  
Swaps     (2.7 )  
Other     (0.7 )  
      100.0 %  

 

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


1




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 15.5%  
        Canada — 0.3%  
        Corporate Debt  
    15,000,000     TransAlta Corp., 5.75%, due 12/15/13     14,618,250    
        Italy — 0.2%  
        Corporate Debt  
    10,000,000     Telecom Italia Capital, 4.95%, due 09/30/14     9,061,950    
        Mexico — 0.2%  
        Corporate Debt  
    10,000,000     Telefonos de Mexico SA de CV, 5.50%, due 01/27/15     9,714,100    
        United States — 14.8%  
        Corporate Debt — 1.2%  
    7,000,000     CVS Corp., 6.13%, due 08/15/16     7,092,820    
    10,000,000     Eastman Chemical Co., 7.25%, due 01/15/24     10,036,950    
    10,000,000     Kinder Morgan Energy Partners, L.P., 6.00%, due 02/01/17     9,940,780    
    5,000,000     Ryder System, Inc., MTN, 5.85%, due 11/01/16     4,622,000    
    10,000,000     Southwest Airlines Co., 5.75%, due 12/15/16     9,121,800    
    5,000,000     Spectra Energy Capital, Series B, 6.75%, due 07/15/18     4,963,115    
    5,000,000     Wyeth, 5.50%, due 02/01/14     5,098,300    
      50,875,765    
        Structured Notes — 0.5%  
    20,000,000     Boston Scientific Corp., 5.25%, due 11/15/15     18,800,000    
    5,000,000     RPM UK Group, 144A, 6.70%, due 11/01/15     4,962,680    
      23,762,680    
        U.S. Government — 13.1%  
    6,000,000     U.S. Treasury Note, 3.13%, due 10/15/08 (a)      6,010,313    
    564,500,000     U.S. Treasury Note, 2.38%, due 08/31/10     564,676,406    
      570,686,719    
    Total United States     645,325,164    
    TOTAL DEBT OBLIGATIONS (COST $683,157,681)     678,719,464    

 

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, 2008 (Unaudited)

Principal Amount /
Shares
  Description   Value ($)  
        OPTIONS PURCHASED — 0.1%  
        Options on Interest Rate Swaps — 0.0%  
USD     1,000,000,000     USD Swaption Put, Expires 10/29/08, Strike 3.27%     1,440,070    
        Options on Futures — 0.1%  
USD     2,000,000     U.S. Treasury Note 5 Yr. (CBT) Call, Expires 09/26/08, Strike 111.50     1,906,250    
    TOTAL OPTIONS PURCHASED (COST $4,431,000)     3,346,320    
        MUTUAL FUNDS — 87.0%  
        United States — 87.0%  
        Affiliated Issuers  
    8,272,839     GMO Emerging Country Debt Fund, Class III     78,922,885    
    124,769,530     GMO Short-Duration Collateral Fund     2,934,579,345    
    29,667,691     GMO World Opportunity Overlay Fund     784,413,760    
    Total United States     3,797,915,990    
    TOTAL MUTUAL FUNDS (COST $3,921,888,504)     3,797,915,990    
        SHORT-TERM INVESTMENTS — 0.0%  
        Money Market Funds — 0.0%  
    2,094,882     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     2,094,882    
    TOTAL SHORT-TERM INVESTMENTS (COST $2,094,882)     2,094,882    
            TOTAL INVESTMENTS — 102.6%
(Cost $4,611,572,067)
    4,482,076,656    
            Other Assets and Liabilities (net) — (2.6%)     (114,136,297 )  
    TOTAL NET ASSETS — 100.0%   $ 4,367,940,359    

 

See accompanying notes to the financial statements.


3



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  342     U.S. Treasury Note 2 Yr. (CBT)   December 2008   $ 72,600,188     $ 15,006    
Sales      
  1,187     U.S. Treasury Note 10 Yr.   December 2008   $ 137,098,500     $ 302,462    
  308     U.S. Treasury Note 5 Yr. (CBT)   December 2008     34,476,750       (924 )  
  90     U.S. Long Bond (CBT)   December 2008     10,558,125       55,308    
                $ 182,133,375     $ 356,846    

 

Written Options

    Notional
Amount
  Expiration
Date
      Description   Premiums   Market
Value
 
Call   $ 400,000,000     9/26/2008   USD   U.S. Treasury Note 5 Yr. (CBT),            
   
                    Strike 113.00%   $ (1,425,500 )   $ (1,218,750 )  
Call     1,000,000,000     10/29/2008   USD   Interest Rate Swaption,
Strike 2.77%
    (800,000 )     (141,930 )  
Call     1,000,000,000     10/29/2008   USD   Interest Rate Swaption,
Strike 3.02%
    (1,512,500 )     (546,570 )  
    $ (3,738,000 )   $ (1,907,250 )  

 

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.   $ 1,340,353    
  5,000,000     USD   3/20/2014   Morgan Stanley   (Pay)     0.15 %   Wyeth     46,632    
  10,000,000     USD   9/30/2014   Goldman Sachs   (Pay)     0.74 %   Telecom Italia Capital     397,335    

 

See accompanying notes to the financial statements.


4



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

    Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Annual
Premium
  Deliverable
On Default
  Market
Value
 
      10,000,000     USD   2/20/2015   JP Morgan   (Pay)     0.61 %   Telefonos de Mexico    
   
            Chase Bank           SA de CV   $ 453,507    
      5,000,000     USD   11/1/2015   Goldman Sachs   (Pay)     0.62 %   RPM UK     198,453    
      15,000,000     USD   12/20/2015   Barclays Bank PLC   (Pay)     0.73 %   Boston Scientific Corp.     737,430    
      5,000,000     USD   12/20/2015   Morgan Stanley   (Pay)     0.81 %   Boston Scientific Corp.     221,571    
      7,000,000     USD   9/20/2016   Barclays Bank PLC   (Pay)     0.32 %   CVS Corp.     145,831    
      5,000,000     USD   12/20/2016   Morgan Stanley   (Pay)     0.46 %   Ryder System,
Inc., MTN
   
323,507
   
      10,000,000     USD   12/20/2016   Barclays Bank PLC   (Pay)     0.72 %   Southwest Airlines     656,026    
      10,000,000     USD   2/1/2017   Goldman Sachs   (Pay)     0.49 %   Kinder Morgan
Energy Partners LP
    475,189    
      5,000,000     USD   7/15/2018   Goldman Sachs   (Pay)     0.93 %   Spectra Energy Capital     65,570    
      10,000,000     USD   1/20/2024   Goldman Sachs   (Pay)     1.11 %   Eastman Chemical Co.     (329,733 )  
  Premiums to (Pay) Receive   $     $ 4,731,671    

 

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  2,755,000,000     USD   2/11/2012   Deutsche Bank AG   Receive     3.85 %   3 month LIBOR   $ (15,871,721 )  
  2,766,000,000     USD   2/16/2012   Merrill Lynch   Receive     3.90 %   3 month LIBOR     (13,852,853 )  
  1,398,000,000     USD   3/4/2012   Morgan Stanley   Receive     3.80 %   3 month LIBOR     (10,409,710 )  
  2,776,000,000     USD   3/5/2012   Citigroup   Receive     3.73 %   3 month LIBOR     (24,142,852 )  
  1,390,000,000     USD   3/5/2012   Morgan Stanley   Receive     3.71 %   3 month LIBOR     (12,693,470 )  
  1,388,000,000     USD   3/20/2012   Deutsche Bank AG   Receive     3.54 %   3 month LIBOR     (17,482,101 )  
  500,000,000     USD   9/2/2013   Citigroup   Receive     4.04 %   3 month LIBOR     271,794    
  500,000,000     USD   9/2/2013   Morgan Stanley   Receive     4.04 %   3 month LIBOR     305,707    
  666,000,000     USD   2/11/2020   Deutsche Bank AG   (Pay)     5.00 %   3 month LIBOR     (9,530,593 )  
  668,000,000     USD   2/18/2020   Merrill Lynch   (Pay)     5.10 %   3 month LIBOR     (14,465,814 )  
  333,000,000     USD   3/4/2020   Morgan Stanley   (Pay)     5.00 %   3 month LIBOR     (4,400,674 )  
  660,000,000     USD   3/5/2020   Citigroup   (Pay)     4.94 %   3 month LIBOR     (5,705,762 )  
  333,000,000     USD   3/5/2020   Morgan Stanley   (Pay)     4.93 %   3 month LIBOR     (2,627,394 )  
  333,000,000     USD   3/20/2020   Deutsche Bank AG   (Pay)     4.72 %   3 month LIBOR     2,838,802    
    Premiums to (Pay) Receive   $ 3,368,000     $ (127,766,641 )  

 

See accompanying notes to the financial statements.


5



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, for the futures and/or swap 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:

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

(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:

USD - United States Dollar

See accompanying notes to the financial statements.


6




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $689,683,563) (Note 2)   $ 684,160,666    
Investments in affiliated issuers, at value (cost $3,921,888,504) (Notes 2 and 8)     3,797,915,990    
Receivable for investments sold     570,015,533    
Receivable for Fund shares sold     3,962,017    
Dividends and interest receivable     1,480,811    
Receivable for variation margin on open futures contracts (Note 2)     309,454    
Interest receivable for open swap contracts     3,139,780    
Receivable for open swap contracts (Note 2)     8,477,707    
Receivable for closed swap contracts (Note 2)     1,563,220    
Receivable for expenses reimbursed by Manager (Note 3)     115,371    
Total assets     5,071,140,549    
Liabilities:  
Payable for investments purchased     564,309,462    
Payable for Fund shares repurchased     4,123,015    
Written options outstanding, at value (premiums $3,738,000) (Note 2)     1,907,250    
Payable to affiliate for (Note 3):  
Management fee     932,661    
Shareholder service fee     220,302    
Trustees and Chief Compliance Officer of GMO Trust fees     9,961    
Payable for open swap contracts (Note 2)     131,512,677    
Accrued expenses     184,862    
Total liabilities     703,200,190    
Net assets   $ 4,367,940,359    

 

See accompanying notes to the financial statements.


7



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 4,709,315,325    
Distributions in excess of net investment income     (9,447,238 )  
Accumulated net realized loss     (84,967,949 )  
Net unrealized depreciation     (246,959,779 )  
    $ 4,367,940,359    
Net assets attributable to:  
Class III shares   $ 187,214,407    
Class VI shares   $ 4,180,725,952    
Shares outstanding:  
Class III     8,235,894    
Class VI     184,033,950    
Net asset value per share:  
Class III   $ 22.73    
Class VI   $ 22.72    

 

See accompanying notes to the financial statements.


8



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 20,674,684    
Interest     6,966,633    
Dividends     98,353    
Total investment income     27,739,670    
Expenses:  
Management fee (Note 3)     6,054,175    
Shareholder service fee – Class III (Note 3)     155,096    
Shareholder service fee – Class VI (Note 3)     1,275,050    
Custodian, fund accounting agent and transfer agent fees     254,104    
Audit and tax fees     33,856    
Legal fees     66,332    
Trustees fees and related expenses (Note 3)     29,433    
Registration fees     2,024    
Miscellaneous     31,740    
Total expenses     7,901,810    
Fees and expenses reimbursed by Manager (Note 3)     (366,436 )  
Expense reductions (Note 2)     (34 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (171,958 )  
Shareholder service fee waived (Note 3)     (60,605 )  
Net expenses     7,302,777    
Net investment income (loss)     20,436,893    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     1,614,351    
Investments in affiliated issuers     (92,635,177 )  
Realized gains distributions from affiliated issuers (Note 8)     1,710,186    
Closed futures contracts     (4,041,126 )  
Closed swap contracts     (1,685,309 )  
Written options     3,286,980    
Foreign currency, forward contracts and foreign currency related transactions     574    
Net realized gain (loss)     (91,749,521 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (5,063,896 )  
Investments in affiliated issuers     42,801,929    
Open futures contracts     3,551,528    
Open swap contracts     (161,100,679 )  
Written options     1,830,750    
Foreign currency, forward contracts and foreign currency related transactions     (3,400 )  
Net unrealized gain (loss)     (117,983,768 )  
Net realized and unrealized gain (loss)     (209,733,289 )  
Net increase (decrease) in net assets resulting from operations   $ (189,296,396 )  

 

See accompanying notes to the financial statements.


9



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 20,436,893     $ 119,328,375    
Net realized gain (loss)     (91,749,521 )     (36,796,389 )  
Change in net unrealized appreciation (depreciation)     (117,983,768 )     (126,139,356 )  
Net increase (decrease) in net assets from operations     (189,296,396 )     (43,607,370 )  
Distributions to shareholders from:  
Net investment income  
Class III     (4,360 )     (5,772,752 )  
Class VI     (997,551 )     (97,139,821 )  
Total distributions from net investment income     (1,001,911 )     (102,912,573 )  
Net realized gains  
Class III           (344,272 )  
Class VI           (5,909,472 )  
Total distributions from net realized gains           (6,253,744 )  
      (1,001,911 )     (109,166,317 )  
Net share transactions (Note 7):  
Class III     (81,585,635 )     59,121,073    
Class VI     (759,752,178 )     3,042,002,441    
Increase (decrease) in net assets resulting from net share
transactions
    (841,337,813 )     3,101,123,514    
Total increase (decrease) in net assets     (1,031,636,120 )     2,948,349,827    
Net assets:  
Beginning of period     5,399,576,479       2,451,226,652    
End of period (including distributions in excess of net investment
income of $9,447,238 and $28,882,220, respectively)
  $ 4,367,940,359     $ 5,399,576,479    

 

See accompanying notes to the financial statements.


10




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 23.60     $ 25.22     $ 25.06    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.08       0.78       0.96    
Net realized and unrealized gain (loss)     (0.95 )     (1.37 )     0.34    
Total from investment operations     (0.87 )     (0.59 )     1.30    
Less distributions to shareholders:  
From net investment income     (0.00 )(c)      (0.97 )     (1.14 )  
From net realized gains           (0.06 )        
Total distributions     (0.00 )     (1.03 )     (1.14 )  
Net asset value, end of period   $ 22.73     $ 23.60     $ 25.22    
Total Return(d)      (3.68 )%**      (2.39 )%     5.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 187,214     $ 277,879     $ 226,917    
Net expenses to average daily net assets(e)      0.39 %(f)*      0.38 %(f)      0.39 %*   
Net investment income to average daily net assets(b)      0.65 %*      3.12 %     5.96 %*   
Portfolio turnover rate     42 %**      67 %     7 %**††   
Fees and expenses reimbursed and/or waived by the Manager
to average daily net assets:
    0.02 %*      0.04 %     0.06 %*   

 

(a)  Period from July 13, 2006 (commencement of operations) through February 28, 2007.

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

(c)  Distributions from net investment income were less than $0.01 per share.

(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).

(f)  The net expense ratio does not include the effect of expense reductions.

†  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.


11



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 23.57     $ 25.22     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.10       0.97       0.76    
Net realized and unrealized gain (loss)     (0.94 )     (1.55 )     0.61    
Total from investment operations     (0.84 )     (0.58 )     1.37    
Less distributions to shareholders:  
From net investment income     (0.01 )     (1.01 )     (1.15 )  
From net realized gains           (0.06 )        
Total distributions     (0.01 )     (1.07 )     (1.15 )  
Net asset value, end of period   $ 22.72     $ 23.57     $ 25.22    
Total Return(c)      (3.58 )%**      (2.35 )%     5.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 4,180,726     $ 5,121,698     $ 2,224,310    
Net expenses to average daily net assets(d)      0.30 %(e)*      0.29 %(e)      0.29 %*   
Net investment income to average daily net assets(b)      0.85 %*      3.87 %     4.01 %*   
Portfolio turnover rate     42 %**      67 %     7 %**   
Fees and expenses reimbursed and/or waived by the Manager
to average daily net assets:
    0.02 %*      0.04 %     0.06 %*   

 

(a)  Period from May 31, 2006 (commencement of operations) through February 28, 2007.

(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.

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

(e)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


12




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 may seek additional returns by seeking to exploit differences in global interest rates and currency and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of GMO Short-Duration Collateral Fund; in futures contracts, currency options, currency forwards, swap contracts, interest rate options, swaps on interest rates, and other types of derivatives; in U.S. and foreign investment-grade bonds, including U.S. and foreign govern ment 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 GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO Emerging Country Debt Fund ("ECDF").

As of August 31, 2008, 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.

The Fund currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing


13



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 31.35% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


14



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 649,609,604     $ 372,776    
Level 2 - Other Significant Observable Inputs     3,832,467,052       8,477,707    
Level 3 - Significant Unobservable Inputs              
Total   $ 4,482,076,656     $ 8,850,483    

 

*  Other financial instruments include futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (924 )  
Level 2 - Other Significant Observable Inputs           (133,419,927 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (133,420,851 )  

 

**  Other financial instruments include futures contracts, swap agreements, and written options.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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


15



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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.


16



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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, 2008, 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   $     $     $     $    
Options written                 (3,200,000,000 )     (7,029,380 )  
Options exercised                          
Options expired                          
Options sold                   800,000,000       3,291,380    
Outstanding, end of period   $     $     $ (2,400,000,000 )   $ (3,738,000 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.


17



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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 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


18



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

issuer) or to take an active long or short position with respect to the likelihood of a particular issuer's default. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to risk that the market value of the securities the Fund has sold under the agreement may decline below the price at


19



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had 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. The Fund had no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes


20



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $157,824.

As of August 31, 2008, 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)
 
$ 4,637,406,499     $ 19,516,652     $ (174,846,495 )   $ (155,329,843 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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


21



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

class of shares, are charged to that class's operations. In addition, the Fund also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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. 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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.


22



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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 th e 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). 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 Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded 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, 2008, 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)
 
Shareholder
Service Fees
  Indirect Interest
Expense
  Total Indirect
Expenses
 
  0.009 %     0.003 %     0.005 %     0.017 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $25,017 and $14,352, 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, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follow:

    Purchases   Sales  
U.S. Government securities   $ 1,664,670,234     $ 1,123,711,924    
Investments (non-U.S. Government securities)     32,743,035       1,395,193,395    

 


23



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 77.71% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Two of the shareholders are other funds of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,146,889     $ 26,191,295       14,637,641     $ 354,355,271    
Shares issued to shareholders
in reinvestment of distributions
    153       3,491       210,515       5,059,119    
Shares repurchased     (4,687,862 )     (107,780,421 )     (12,069,867 )     (300,293,317 )  
Net increase (decrease)     (3,540,820 )   $ (81,585,635 )     2,778,289     $ 59,121,073    

 


24



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     3,394,201     $ 77,695,476       188,277,166     $ 4,555,951,605    
Shares issued to shareholders
in reinvestment of distributions
    43,636       997,528       4,301,787       103,049,293    
Shares repurchased     (36,668,214 )     (838,445,182 )     (63,520,875 )     (1,616,998,457 )  
Net increase (decrease)     (33,230,377 )   $ (759,752,178 )     129,058,078     $ 3,042,002,441    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2008 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
  $ 80,962,232     $ 2,145,580     $     $ 435,393     $ 1,710,186     $ 78,922,885    
GMO Short-Duration
Collateral Fund
    4,314,050,306       20,239,291       1,331,100,000       20,239,291             2,934,579,345    
GMO World
Opportunity
Overlay Fund
    821,340,094             60,500,000                   784,413,760    
Totals   $ 5,216,352,632     $ 22,384,871     $ 1,391,600,000     $ 20,674,684     $ 1,710,186     $ 3,797,915,990    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.85% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


25




GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In


26



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 respe ct to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for advisory fees, shareholder fees and most other expenses 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 legal


27



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


28



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.41 %   $ 1,000.00     $ 963.20     $ 2.03    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    
Class VI      
1) Actual     0.32 %   $ 1,000.00     $ 964.20     $ 1.58    
2) Hypothetical     0.32 %   $ 1,000.00     $ 1,023.59     $ 1.63    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


29




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Short-Duration Investment Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     93.3 %  
Short-Term Investments     4.8    
Forward Currency Contracts     0.0    
Futures     (0.0 )  
Swaps     (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 Short-Duration Investment Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value ($) /
Shares
  Description   Value ($)  
        DEBT OBLIGATIONS — 22.7%  
        U.S. Government Agency — 22.7%  
    105,000     Agency for International Development Floater (Support of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 2.37%, due 10/01/12
    104,738    
    676,575     Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 2.37%, due 10/01/12
    674,890    
    587,129     Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 1.93%, due 10/01/11
    583,827    
    35,942     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 2.32%, due 05/01/14
    35,763    
    255,339     Small Business Administration Pool #502320,
Variable Rate, Prime - 2.19%, 2.81%, due 08/25/18
    257,343    
    Total U.S. Government Agency     1,656,561    
    TOTAL DEBT OBLIGATIONS (COST $1,660,277)     1,656,561    
        MUTUAL FUNDS — 74.6%  
        Affiliated Issuers — 74.6%  
    231,576     GMO Short-Duration Collateral Fund     5,446,670    
    9,192     GMO Special Purpose Holding Fund (a) (b)      6,710    
    TOTAL MUTUAL FUNDS (COST $5,944,467)     5,453,380    
            TOTAL INVESTMENTS — 97.3%
(Cost $7,604,744)
    7,109,941    
            Other Assets and Liabilities (net) — 2.7%     195,206    
    TOTAL NET ASSETS — 100.0%   $ 7,305,147    

 

See accompanying notes to the financial statements.


2



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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, 2008, which are subject to change based on the terms of the 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)  Underlying investment represents interests in defaulted securities.

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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $1,660,277) (Note 2)   $ 1,656,561    
Investments in affiliated issuers, at value (cost $5,944,467) (Notes 2 and 8)     5,453,380    
Cash     194,173    
Receivable for investments sold     1,858    
Interest receivable     11,897    
Receivable for expenses reimbursed by Manager (Note 3)     3,906    
Total assets     7,321,775    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     311    
Shareholder service fee     934    
Trustees and Chief Compliance Officer of GMO Trust fees     16    
Accrued expenses     15,367    
Total liabilities     16,628    
Net assets   $ 7,305,147    
Net assets consist of:  
Paid-in capital   $ 12,106,015    
Accumulated undistributed net investment income     28,582    
Accumulated net realized loss     (4,334,647 )  
Net unrealized depreciation     (494,803 )  
    $ 7,305,147    
Net assets attributable to:  
Class III shares   $ 7,305,147    
Shares outstanding:  
Class III     873,078    
Net asset value per share:  
Class III   $ 8.37    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 37,101    
Interest     17,168    
Total investment income     54,269    
Expenses:  
Management fee (Note 3)     1,852    
Shareholder service fee – Class III (Note 3)     5,557    
Custodian, fund accounting agent and transfer agent fees     1,196    
Audit and tax fees     18,216    
Legal fees     92    
Trustees fees and related expenses (Note 3)     37    
Registration fees     1,840    
Miscellaneous     212    
Total expenses     29,002    
Fees and expenses reimbursed by Manager (Note 3)     (21,528 )  
Net expenses     7,474    
Net investment income (loss)     46,795    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (35 )  
Realized gains distributions from affiliated issuers (Note 8)     20,816    
Net realized gain (loss)     20,781    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (133 )  
Investments in affiliated issuers     (119,340 )  
Net unrealized gain (loss)     (119,473 )  
Net realized and unrealized gain (loss)     (98,692 )  
Net increase (decrease) in net assets resulting from operations   $ (51,897 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 46,795     $ 531,638    
Net realized gain (loss)     20,781       234,625    
Change in net unrealized appreciation (depreciation)     (119,473 )     (393,401 )  
Net increase (decrease) in net assets from operations     (51,897 )     372,862    
Distributions to shareholders from:  
Net investment income  
Class III     (19,292 )     (529,051 )  
Net share transactions (Note 7):  
Class III     942       (23,783,143 )  
Total increase (decrease) in net assets     (70,247 )     (23,939,332 )  
Net assets:  
Beginning of period     7,375,394       31,314,726    
End of period (including accumulated undistributed net investment
income of $28,582 and $1,079, respectively)
  $ 7,305,147     $ 7,375,394    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 8.45     $ 8.93     $ 8.82     $ 8.77     $ 8.75     $ 8.68    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.05       0.32       0.47       0.27       0.23       0.12    
Net realized and unrealized
gain (loss)
    (0.11 )     (0.28 )     0.11       0.07       (0.01 )     0.07    
Total from investment
operations
    (0.06 )     0.04       0.58       0.34       0.22       0.19    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.52 )     (0.47 )     (0.29 )     (0.20 )     (0.12 )  
Return of capital                                   (0.00 )(b)   
Total distributions     (0.02 )     (0.52 )     (0.47 )     (0.29 )     (0.20 )     (0.12 )  
Net asset value, end of period   $ 8.37     $ 8.45     $ 8.93     $ 8.82     $ 8.77     $ 8.75    
Total Return(c)      (0.69 )%**      0.40 %     6.62 %     3.83 %     2.49 %     2.24 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 7,305     $ 7,375     $ 31,315     $ 29,454     $ 29,607     $ 44,156    
Net expenses to average daily
net assets(d) 
    0.20 %*      0.20 %     0.20 %     0.20 %     0.20 %     0.21 %  
Net investment income to
average daily net assets(a) 
    1.26 %*      3.59 %     5.21 %     3.01 %     2.57 %     1.36 %  
Portfolio turnover rate     3 %**      5 %     12 %     17 %     101 %     4 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.58 %*      0.60 %     0.14 %     0.13 %     0.10 %     0.10 %  

 

(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, 2008 (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 to the extent consistent with the preservation of capital and liquidity. 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 adjustable rate fixed income securities, in particular asset-backed securities, issued by a wide range of private and government issuers. In addition, the Fund invests 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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


8



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 49.11% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $20,816 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.


9



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs     7,103,231          
Level 3 - Significant Unobservable Inputs     6,710          
Total   $ 7,109,941     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 11,582     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     15,965            
Realized gain distributions paid     (20,816 )          
Change in unrealized appreciation/depreciation     (21 )        
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 6,710     $    

 


10



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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.


11



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/29/2012   $ (500,299 )  
2/28/2013     (708 )  
2/28/2014     (3,024,063 )  
2/29/2016     (226,383 )  
Total   $ (3,751,453 )  

 

As of August 31, 2008, 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)
 
$ 8,212,700     $ 8,004     $ (1,110,763 )   $ (1,102,759 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have


12



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.


13



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.05% of the Fund's average daily net assets. Excluded Expenses include 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 th e 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, 2008, 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 Trust's independent Trustees and CCO the period ended August 31, 2008 was $37 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, 2008, aggregated $237,101 and $183,382, respectively.


14



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 54.59% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 15.11% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 80.76% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4     $ 32       55,544     $ 469,351    
Shares issued to shareholders
in reinvestment of distributions
    2,296       19,289       60,822       528,993    
Shares repurchased     (2,176 )     (18,379 )     (2,751,782 )     (24,781,487 )  
Net increase (decrease)     124     $ 942       (2,635,416 )   $ (23,783,143 )  

 


15



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 5,324,037     $ 237,101     $     $ 37,101     $     $ 5,446,670    
GMO Special Purpose
Holding Fund
    11,582                         20,816       6,710    
Totals   $ 5,335,619     $ 237,101     $     $ 37,101     $ 20,816     $ 5,453,380    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.77% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


16




GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives.


17



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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. 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 Ma nager because of the opportunity that record might create for the Manager to increase assets under management, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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, 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


18



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


19



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 993.10     $ 1.00    
2) Hypothetical     0.20 %   $ 1,000.00     $ 1,024.20     $ 1.02    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


20




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     98.8 %  
Short-Term Investments     1.4    
Other     (0.2 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Industrials     19.6 %  
Information Technology     17.5    
Health Care     17.3    
Energy     15.4    
Consumer Discretionary     15.2    
Materials     5.6    
Financials     5.2    
Consumer Staples     4.0    
Telecommunication Services     0.1    
Utilities     0.1    
      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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 98.8%  
        Consumer Discretionary — 15.0%  
    600     1-800-FLOWERS.COM, Inc. *      3,684    
    100     Aaron Rents, Inc.     2,856    
    800     Advance Auto Parts, Inc.     34,432    
    1,600     Aeropostale, Inc. *      55,776    
    200     Arbitron, Inc.     9,592    
    400     Bally Technologies, Inc. *      13,692    
    800     Big Lots, Inc. *      23,656    
    500     BorgWarner, Inc.     20,675    
    500     Buckle, Inc.     26,000    
    200     Capella Education Co. *      9,942    
    300     Children's Place Retail Stores, Inc. *      12,585    
    100     Chipotle Mexican Grill, Inc.-Class B *      6,507    
    700     Choice Hotels International, Inc.     18,893    
    100     Columbia Sportswear Co.     4,039    
    200     Deckers Outdoor Corp. *      22,738    
    300     DeVry, Inc.     15,474    
    500     Dollar Tree, Inc. *      19,180    
    600     Exide Technologies *      7,404    
    300     Family Dollar Stores, Inc.     7,476    
    600     Finish Line (The), Inc.-Class A     7,254    
    950     Fossil, Inc. *      28,424    
    1,000     Gentex Corp.     15,930    
    300     Gymboree Corp. (The) *      11,775    
    500     Hasbro, Inc.     18,700    
    700     Hillenbrand, Inc.     16,646    
    500     Interactive Data Corp.     15,050    
    200     ITT Educational Services, Inc. *      17,782    
    600     Jack in the Box, Inc. *      14,238    
    400     John Wiley and Sons, Inc.-Class A     19,032    
    100     Jos. A. Bank Clothiers, Inc. *      2,599    
    2,100     LKQ Corp. *      39,333    
    1,100     Marvel Entertainment, Inc. *      37,257    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Discretionary — continued  
    300     Matthews International Corp.-Class A     15,078    
    900     NetFlix, Inc. *      27,756    
    300     New York & Co., Inc. *      3,540    
    500     Panera Bread Co.-Class A *      26,870    
    200     Papa John's International, Inc. *      5,584    
    200     PF Chang's China Bistro, Inc. *      5,196    
    100     Polaris Industries, Inc.     4,509    
    200     Pre-Paid Legal Services, Inc. *      8,928    
    800     Priceline.com, Inc. *      74,384    
    2,100     Ross Stores, Inc.     84,441    
    300     Sonic Corp. *      4,347    
    400     Strayer Education, Inc.     83,936    
    300     Thor Industries, Inc.     6,894    
    600     True Religion Apparel, Inc. *      16,290    
    600     Tupperware Corp.     21,432    
    300     Universal Electronics, Inc. *      7,866    
    3,300     Urban Outfitters, Inc. *      117,546    
    400     Warnaco Group (The), Inc. *      20,628    
    200     WMS Industries, Inc. *      6,720    
    500     Wolverine World Wide, Inc.     13,165    
    600     World Wrestling Entertainment, Inc.     9,762    
    Total Consumer Discretionary     1,123,493    
        Consumer Staples — 3.9%  
    100     Alberto-Culver Co.     2,616    
    400     Boston Beer Co., Inc.-Class A *      17,988    
    600     Cal-Maine Foods, Inc.     23,694    
    900     Central European Distribution Corp. *      51,921    
    200     Chattem, Inc. *      14,024    
    700     Church & Dwight Co., Inc.     43,750    
    1,800     Darling International, Inc. *      24,714    
    1,400     Flowers Foods, Inc.     37,016    
    600     Green Mountain Coffee Roasters, Inc. *      21,894    
    100     Herbalife Ltd.     4,710    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — continued  
    150     Inter Parfums, Inc.     2,128    
    200     J & J Snack Foods Corp.     6,738    
    200     Lancaster Colony Corp.     6,956    
    200     McCormick & Co., Inc. (Non Voting)     8,090    
    700     National Beverage Corp. *      6,384    
    100     NBTY, Inc. *      3,324    
    300     Nu Skin Enterprises, Inc.-Class A     5,025    
    100     Sanderson Farms, Inc.     3,431    
    100     USANA Health Sciences, Inc. *      3,786    
    200     WD-40 Co.     6,978    
    Total Consumer Staples     295,167    
        Energy — 15.2%  
    600     Alpha Natural Resources, Inc. *      59,460    
    800     Arena Resources, Inc. *      35,736    
    900     Atwood Oceanics, Inc. *      36,594    
    200     Berry Petroleum Co.     8,324    
    400     BPZ Resources, Inc. *      7,880    
    1,100     Cabot Oil & Gas Corp.     48,884    
    200     CARBO Ceramics, Inc.     12,020    
    800     Comstock Resources, Inc. *      51,952    
    400     Concho Resources, Inc. *      13,068    
    200     Contango Oil & Gas Co. *      14,224    
    500     Continental Resources, Inc. *      25,085    
    100     Dawson Geophysical Co. *      6,273    
    1,800     Denbury Resources, Inc. *      44,802    
    400     Encore Acquisition Co. *      20,624    
    500     FMC Technologies, Inc. *      26,780    
    800     Foundation Coal Holdings, Inc.     47,320    
    700     Frontline Ltd.     42,287    
    300     Golar LNG Ltd.     4,812    
    100     Hercules Offshore, Inc. *      2,207    
    200     IHS, Inc.-Class A *      12,832    
    700     International Coal Group, Inc. *      7,161    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    500     James River Coal Co. *      21,085    
    200     Knightsbridge Tankers Ltd.     5,796    
    100     Lufkin Industries, Inc.     9,279    
    300     Mariner Energy, Inc. *      8,727    
    1,700     Massey Energy Co.     112,132    
    600     McMoRan Exploration Co. *      16,410    
    800     Oceaneering International, Inc. *      49,928    
    300     Oil States International, Inc. *      16,689    
    400     Patriot Coal Corp. *      23,984    
    1,300     Patterson-UTI Energy, Inc.     36,946    
    700     Petrohawk Energy Corp. *      24,227    
    100     Petroleum Development Corp. *      6,079    
    400     Petroquest Energy, Inc. *      7,396    
    100     PHI, Inc. *      3,841    
    200     Quicksilver Resources, Inc. *      4,838    
    200     Range Resources Corp.     9,284    
    200     Rowan Cos., Inc.     7,388    
    500     RPC, Inc.     9,115    
    300     St. Mary Land & Exploration Co.     12,666    
    300     Superior Energy Services, Inc. *      14,112    
    100     T-3 Energy Services, Inc. *      5,583    
    100     Tidewater, Inc.     6,067    
    300     Unit Corp. *      20,319    
    1,000     W&T Offshore, Inc.     35,160    
    1,100     Walter Industries, Inc.     103,180    
    400     Whiting Petroleum Corp. *      38,496    
    Total Energy     1,137,052    
        Financials — 5.1%  
    100     Arthur J. Gallagher & Co.     2,648    
    200     Brown & Brown, Inc.     4,056    
    300     Capitol Federal Financial     13,116    
    300     Cash America International, Inc.     12,417    
    200     Cohen & Steers, Inc.     5,820    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    1,700     Eaton Vance Corp.     60,707    
    100     Erie Indemnity Co.-Class A     4,625    
    200     EZCORP, Inc.-Class A *      3,118    
    1,200     Federated Investors, Inc.-Class B     40,128    
    100     GAMCO Investors, Inc.-Class A     4,740    
    100     Greenhill & Co., Inc.     6,610    
    100     HCC Insurance Holdings, Inc.     2,518    
    200     Health Care REIT, Inc.     10,374    
    100     Home Properties, Inc.     5,275    
    200     Investment Technology Group, Inc. *      6,400    
    600     Knight Capital Group, Inc.-Class A *      10,344    
    400     Nationwide Health Properties, Inc. REIT     13,768    
    200     Omega Healthcare Investors, Inc. REIT     3,568    
    400     optionsXpress Holdings, Inc.     9,228    
    500     Oritani Financial Corp. *      8,430    
    100     PartnerRe Ltd.     6,891    
    400     Philadelphia Consolidated Holding Corp. *      23,892    
    2,000     SEI Investment Co.     47,240    
    100     TFS Financial Corp.     1,222    
    1,700     Waddell and Reed Financial, Inc.     54,740    
    200     Westamerica Bancorporation     10,240    
    200     World Acceptance Corp. *      7,804    
    Total Financials     379,919    
        Health Care — 17.1%  
    200     Abaxis, Inc. *      3,978    
    500     Abiomed, Inc. *      9,010    
    300     Acorda Therapeutics, Inc. *      8,445    
    500     Allos Therapeutics *      4,665    
    500     Amedisys, Inc. *      26,610    
    500     ArthoCare Corp. *      12,820    
    800     Auxilium Pharmaceuticals, Inc. *      31,448    
    100     Beckman Coulter, Inc.     7,382    
    600     BioMarin Pharmaceutical, Inc. *      18,084    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    200     Bio-Rad Laboratories, Inc. *      21,520    
    400     Bruker Corp. *      6,176    
    100     CardioNet, Inc. *      3,050    
    300     Centene Corp. *      6,774    
    400     Charles River Laboratories International, Inc. *      26,244    
    200     CorVel Corp. *      5,822    
    1,000     Covance, Inc. *      94,340    
    300     CryoLife, Inc. *      4,734    
    500     Cyberonics, Inc. *      10,725    
    100     Datascope Corp.     5,000    
    200     DENTSPLY International, Inc.     7,838    
    300     Dionex Corp. *      19,557    
    600     Edwards Lifesciences Corp. *      35,526    
    300     Emergency Medical Services, LP *      9,984    
    900     eResearch Technology, Inc. *      12,141    
    200     Exactech, Inc. *      5,174    
    200     Gen-Probe, Inc. *      11,950    
    300     Haemonetics Corp. *      18,816    
    200     HealthExtras, Inc. *      6,520    
    300     Healthways, Inc. *      5,715    
    500     Henry Schein, Inc. *      29,240    
    100     Hill-Rom Holdings, Inc.     2,994    
    900     Idexx Laboratories, Inc. *      50,670    
    900     Illumina, Inc. *      77,517    
    200     ImClone Systems, Inc. *      12,880    
    500     Immucor, Inc. *      16,105    
    200     Incyte Corp. *      2,046    
    200     Intuitive Surgical, Inc. *      59,054    
    300     Invitrogen Corp. *      12,738    
    200     ISIS Pharmaceuticals, Inc. *      3,536    
    100     Kendle International, Inc. *      4,945    
    200     Kensey Nash Corp. *      7,202    
    100     Landauer, Inc.     6,526    
    100     Lincare Holdings, Inc. *      3,300    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    600     Luminex Corp. *      15,294    
    200     Martek Biosciences Corp. *      6,682    
    400     Medicines Co. *      9,744    
    1,800     Meridian Bioscience, Inc.     51,156    
    700     Merit Medical Systems, Inc. *      13,552    
    400     Momenta Pharmaceuticals, Inc. *      5,736    
    300     Natus Medical, Inc. *      7,380    
    600     Owens & Minor, Inc.     27,672    
    600     PAREXEL International Corp. *      19,062    
    900     Patterson Cos., Inc. *      29,286    
    500     Pediatrix Medical Group, Inc. *      28,475    
    100     PerkinElmer, Inc.     2,841    
    2,300     Perrigo Co.     80,477    
    1,600     Pharmaceutical Product Development, Inc.     65,280    
    100     ResMed, Inc. *      4,680    
    400     Rigel Pharmaceuticals, Inc. *      9,464    
    1,000     Savient Pharmaceuticals, Inc. *      22,730    
    500     Steris Corp.     18,385    
    200     SurModics, Inc. *      7,794    
    700     Techne Corp. *      54,019    
    1,800     Tenet Healthcare Corp. *      10,854    
    100     Universal Health Services, Inc.-Class B     6,178    
    1,000     Valeant Pharmaceuticals International *      18,310    
    200     Varian, Inc. *      9,942    
    100     Vital Sign, Inc.     7,385    
    100     Waters Corp. *      6,825    
    100     Young Innovations, Inc.     2,049    
    300     Zoll Medical Corp. *      10,431    
    Total Health Care     1,280,484    
        Industrials — 19.4%  
    100     Acuity Brands, Inc.     4,351    
    200     Advisory Board Co. (The) *      6,182    
    100     Aerovironment, Inc. *      3,346    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    400     American Ecology Corp.     12,984    
    800     Ametek, Inc.     38,832    
    200     Applied Industrial Technologies, Inc.     5,822    
    100     Argon ST, Inc. *      2,497    
    100     Axsys Technologies, Inc. *      6,793    
    100     AZZ, Inc. *      4,345    
    100     Badger Meter, Inc.     4,604    
    1,200     Bucyrus International, Inc.     83,820    
    300     CBIZ, Inc. *      2,550    
    100     Chart Industries, Inc. *      4,618    
    100     CIRCOR International, Inc.     6,026    
    700     Clarcor, Inc.     27,951    
    300     Clean Harbors, Inc. *      24,342    
    200     Colfax Corp. *      4,918    
    100     Con-way, Inc.     4,910    
    1,800     Copart, Inc. *      79,218    
    100     Corporate Executive Board Co. (The)     3,640    
    900     Donaldson Co., Inc.     39,519    
    200     Dynamic Materials Corp.     6,154    
    1,000     Energy Conversion Devices, Inc. *      75,170    
    100     ESCO Technologies, Inc. *      4,761    
    200     Exponent, Inc. *      6,152    
    500     Flowserve Corp.     66,060    
    200     Forward Air Corp.     7,058    
    1,100     FTI Consulting, Inc. *      80,740    
    300     Genesee & Wyoming, Inc.-Class A *      12,903    
    500     Gorman-Rupp Co.     20,115    
    600     Graco, Inc.     22,890    
    200     GrafTech International Ltd. *      4,064    
    300     Harsco Corp.     15,792    
    700     Healthcare Services Group, Inc.     13,636    
    400     Heartland Express, Inc.     6,608    
    200     HUB Group, Inc.-Class A *      7,988    
    200     Idex Corp.     7,414    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    600     II-VI, Inc. *      26,346    
    500     Jacobs Engineering Group, Inc. *      36,910    
    1,500     JB Hunt Transport Services, Inc.     54,675    
    400     Kansas City Southern *      20,572    
    400     Kirby Corp. *      18,316    
    200     Knight Transportation, Inc.     3,578    
    600     Landstar System, Inc.     29,412    
    200     Lincoln Electric Holdings, Inc.     16,154    
    400     Lindsay Corp.     32,764    
    100     M&F Worldwide Corp. *      4,402    
    200     Middleby Corp. *      10,672    
    300     Mine Safety Appliances Co.     10,899    
    900     MSC Industrial Direct Co., Inc.-Class A     45,837    
    400     Navigant Consulting, Inc. *      6,924    
    400     Nordson Corp.     21,452    
    200     Old Dominion Freight Line, Inc. *      6,654    
    100     Orbital Sciences Corp. *      2,644    
    300     Pacer International, Inc.     6,324    
    500     Pall Corp.     20,305    
    600     Polypore International, Inc. *      16,458    
    300     Quanex Building Products Corp.     4,938    
    600     Raven Industries, Inc.     27,138    
    200     Robbins & Myers, Inc.     8,970    
    600     Rollins, Inc.     10,662    
    200     Ryder Systems, Inc.     12,904    
    200     Sauer-Danfoss, Inc.     6,554    
    300     Stanley, Inc. *      10,218    
    800     Stericycle, Inc. *      47,440    
    200     Sun Hydraulics Corp.     6,618    
    200     Team, Inc. *      7,622    
    500     Teledyne Technologies, Inc. *      31,165    
    300     Titan Machinery, Inc. *      7,806    
    300     Valmont Industries, Inc.     32,022    
    500     Wabtec Corp.     29,535    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    300     Waste Connections, Inc. *      10,893    
    500     Watson Wyatt Worldwide, Inc.     29,295    
    1,000     Woodward Governor Co.     46,330    
    Total Industrials     1,450,181    
        Information Technology — 17.3%  
    300     ADTRAN, Inc.     6,840    
    2,072     Ansys, Inc. *      91,893    
    600     Blackbaud, Inc.     12,114    
    100     Broadridge Financial Solutions, Inc.     1,997    
    100     CACI International, Inc.-Class A *      5,065    
    100     Cass Information Systems, Inc.     3,642    
    200     Compuware Corp. *      2,286    
    400     Concur Technologies, Inc. *      17,580    
    500     Cree, Inc. *      11,655    
    300     Digital River, Inc. *      13,125    
    400     Dolby Laboratories, Inc.-Class A *      16,280    
    300     Earthlink, Inc. *      2,796    
    850     Factset Research Systems, Inc.     53,304    
    300     Faro Technologies, Inc. *      7,086    
    4,100     FLIR Systems, Inc. *      146,370    
    300     Forrester Research, Inc. *      10,377    
    200     Global Cash Access, Inc. *      1,198    
    1,300     Global Payments, Inc.     62,673    
    600     Hewitt Associates, Inc.-Class A *      24,126    
    200     Hittite Microwave Corp. *      7,078    
    1,400     Informatica Corp. *      23,618    
    400     Integral Systems, Inc. *      17,996    
    100     InterDigital, Inc. *      2,654    
    100     Itron, Inc. *      10,358    
    500     IXYS Corp. *      6,365    
    200     j2 Global Communications, Inc. *      4,934    
    800     Jack Henry and Associates, Inc.     16,024    
    800     Mantech International Corp.-Class A *      47,112    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    200     McAfee, Inc. *      7,912    
    600     Mettler-Toledo International, Inc. *      63,120    
    1,100     Micrel, Inc.     10,131    
    1,400     Micros Systems, Inc. *      43,148    
    600     Microsemi Corp. *      16,500    
    100     Multi-Fineline Electronix, Inc. *      1,706    
    500     National Instruments Corp.     16,140    
    300     Net 1 UEPS Technologies, Inc. *      8,046    
    100     Netlogic Microsystems, Inc. *      3,473    
    600     Pegasystems, Inc.     8,796    
    200     Pericom Semiconductor Corp. *      2,728    
    200     Plexus Corp. *      5,606    
    200     PMC-Sierra, Inc. *      1,800    
    200     Power Integrations, Inc. *      5,886    
    300     Progress Software Corp. *      8,763    
    1,600     QLogic Corp. *      29,888    
    200     Quality Systems, Inc.     8,564    
    400     Quest Software, Inc. *      5,916    
    400     Radiant Systems, Inc. *      3,648    
    400     Renaissance Learning, Inc.     5,076    
    500     Rofin-Sinar Technologies, Inc. *      20,210    
    300     Salesforce.com, Inc. *      16,806    
    200     ScanSource, Inc. *      6,018    
    600     Semtech Corp. *      8,874    
    1,500     Silicon Image, Inc. *      10,395    
    300     Silicon Laboratories, Inc. *      10,113    
    1,100     Skyworks Solutions, Inc. *      10,670    
    1,000     Sohu.Com, Inc. *      75,300    
    800     Solera Holdings, Inc. *      24,664    
    500     SRA International, Inc.-Class A *      11,740    
    400     STEC, Inc. *      4,052    
    600     Stratasys, Inc. *      9,996    
    1,200     Sybase, Inc. *      41,292    
    200     Synaptics, Inc. *      10,468    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    1,000     Syntel, Inc.     33,070    
    200     TNS, Inc. *      4,580    
    1,100     Total System Services, Inc.     21,912    
    1,300     Trimble Navigation Ltd. *      44,005    
    700     Volterra Semiconductor Corp. *      11,004    
    300     Websense, Inc. *      6,792    
    500     Western Digital Corp. *      13,630    
    100     Wind River Systems, Inc. *      1,105    
    400     Zebra Technologies Corp. *      12,488    
    Total Information Technology     1,292,577    
        Materials — 5.6%  
    200     Airgas, Inc.     11,848    
    500     AK Steel Holding Corp.     26,305    
    200     AptarGroup, Inc.     8,078    
    300     Balchem Corp.-Class B     8,187    
    400     Calgon Carbon Corp. *      8,532    
    100     CF Industries Holdings, Inc.     15,240    
    1,200     Cleveland-Cliffs, Inc.     121,464    
    200     FMC Corp.     14,708    
    300     Greif, Inc.-Class A     20,733    
    100     Intrepid Potash, Inc. *      4,736    
    100     Koppers Holdings, Inc.     4,581    
    300     NewMarket Corp.     20,382    
    200     Royal Gold, Inc.     6,942    
    300     RPM, Inc.     6,480    
    100     Schnitzer Steel Industries, Inc.-Class A     6,841    
    300     ShengdaTech, Inc. *      2,850    
    200     Sigma-Aldrich Corp.     11,352    
    100     Silgan Holdings, Inc.     5,234    
    700     Steel Dynamics, Inc.     17,381    
    1,600     Terra Industries, Inc.     80,224    
    700     Valhi, Inc.     12,831    
    Total Materials     414,929    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Telecommunication Services — 0.1%  
    300     Premiere Global Services, Inc. *      4,536    
    300     Syniverse Holdings, Inc. *      4,977    
    Total Telecommunication Services     9,513    
        Utilities — 0.1%  
    100     Energen Corp.     5,584    
    TOTAL COMMON STOCKS (COST $7,145,539)     7,388,899    
        SHORT-TERM INVESTMENTS — 1.4%  
        Money Market Funds — 1.4%  
    104,732     State Street Institutional Treasury Money Market Fund-Institutional Class     104,732    
    TOTAL SHORT-TERM INVESTMENTS (COST $104,732)     104,732    
          TOTAL INVESTMENTS — 100.2%
(Cost $7,250,271)
    7,493,631    
          Other Assets and Liabilities (net) — (0.2%)     (12,422 )  
    TOTAL NET ASSETS — 100.0%   $ 7,481,209    

 

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

See accompanying notes to the financial statements.


14




GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $7,250,271) (Note 2)   $ 7,493,631    
Receivable for investments sold     182,924    
Dividends and interest receivable     2,422    
Receivable for expenses reimbursed by Manager (Note 3)     8,742    
Total assets     7,687,719    
Liabilities:  
Payable for investments purchased     157,112    
Payable to affiliate for (Note 3):  
Management fee     1,979    
Shareholder service fee     957    
Trustees and Chief Compliance Officer of GMO Trust fees     19    
Accrued expenses     46,443    
Total liabilities     206,510    
Net assets   $ 7,481,209    
Net assets consist of:  
Paid-in capital   $ 8,938,722    
Accumulated undistributed net investment income     403    
Accumulated net realized loss     (1,701,276 )  
Net unrealized appreciation     243,360    
    $ 7,481,209    
Net assets attributable to:  
Class III shares   $ 7,481,209    
Shares outstanding:  
Class III     524,646    
Net asset value per share:  
Class III   $ 14.26    

 

See accompanying notes to the financial statements.


15



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 23,408    
Interest     57    
Total investment income     23,465    
Expenses:  
Management fee (Note 3)     12,845    
Shareholder service fee – Class III (Note 3)     6,215    
Custodian, fund accounting agent and transfer agent fees     24,012    
Audit and tax fees     27,508    
Legal fees     92    
Trustees fees and related expenses (Note 3)     58    
Registration fees     276    
Miscellaneous     185    
Total expenses     71,191    
Fees and expenses reimbursed by Manager (Note 3)     (52,072 )  
Net expenses     19,119    
Net investment income (loss)     4,346    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (350,526 )  
Closed futures contracts     19,099    
Net realized gain (loss)     (331,427 )  
Change in net unrealized appreciation (depreciation) on investments     747,065    
Net realized and unrealized gain (loss)     415,638    
Net increase (decrease) in net assets resulting from operations   $ 419,984    

 

See accompanying notes to the financial statements.


16



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,346     $ 59,683    
Net realized gain (loss)     (331,427 )     1,071,606    
Change in net unrealized appreciation (depreciation)     747,065       (2,475,643 )  
Net increase (decrease) in net assets from operations     419,984       (1,344,354 )  
Distributions to shareholders from:  
Net investment income  
Class III     (3,943 )     (57,832 )  
Net realized gains  
Class III           (3,159,111 )  
Return of capital  
Class III           (44,360 )  
      (3,943 )     (3,261,303 )  
Net share transactions (Note 7):  
Class III     (1,138,697 )     (12,589,446 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     5,717       79,121    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (1,132,980 )     (12,510,325 )  
Total increase (decrease) in net assets     (716,939 )     (17,115,982 )  
Net assets:  
Beginning of period     8,198,148       25,314,130    
End of period (including accumulated undistributed net investment
income of $403 and $0, respectively)
  $ 7,481,209     $ 8,198,148    

 

See accompanying notes to the financial statements.


17




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,
2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 13.59     $ 18.93     $ 19.67     $ 21.96     $ 21.78     $ 13.52    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.01       0.06       0.07       0.06       0.03       0.00 (a)   
Net realized and unrealized gain
(loss)
    0.67       (1.79 )     0.79       2.93       1.96       8.28    
Total from investment operations     0.68       (1.73 )     0.86       2.99       1.99       8.28    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.06 )     (0.09 )     (0.07 )     (0.01 )     (0.02 )  
From net realized gains           (3.49 )     (1.51 )     (5.21 )     (1.80 )        
Return of capital           (0.06 )                          
Total distributions     (0.01 )     (3.61 )     (1.60 )     (5.28 )     (1.81 )     (0.02 )  
Net asset value, end of period   $ 14.26     $ 13.59     $ 18.93     $ 19.67     $ 21.96     $ 21.78    
Total Return(b)      4.98 %**      (11.74 )%     4.86 %     14.63 %     10.50 %     61.22 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 7,481     $ 8,198     $ 25,314     $ 29,804     $ 38,801     $ 41,662    
Net expenses to average daily net
assets
    0.46 %*      0.46 %     0.46 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    0.10 %*      0.30 %     0.38 %     0.30 %     0.16 %     0.02 %  
Portfolio turnover rate     71 %**      118 %     109 %     87 %     110 %     97 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:
    1.26 %*      0.48 %     0.60 %     0.35 %     0.26 %     0.24 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts: 
  $ 0.01     $ 0.07     $ 0.03     $ 0.08     $ 0.04     $ 0.06    

 

(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 shareholder.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


18




GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 U.S. companies that issue stocks included in the Russell 2500 Index, and in companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


19



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 7,388,899     $    
Level 2 - Other Significant Observable Inputs     104,732          
Level 3 - Significant Unobservable Inputs              
Total   $ 7,493,631     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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


20



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility that the


21



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.


22



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $1,250,145.

As of August 31, 2008, 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)
 
$ 7,309,930     $ 507,225     $ (323,524 )   $ 183,701    

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increase s or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.


23



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasi ng 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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


24



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $58 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, 2008 aggregated $5,710,753 and $6,888,436, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 74.02% of the outstanding shares of the Fund were held by five shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust.


25



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Redemptions from (or investments into) the Fund or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and 97.06% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     72     $ 995       626     $ 10,677    
Shares issued to shareholders
in reinvestment of distributions
    198       2,759       191,266       3,213,436    
Shares repurchased     (78,935 )     (1,142,451 )     (925,656 )     (15,813,559 )  
Purchase premiums           5             53    
Redemption fees           5,712             79,068    
Net increase (decrease)     (78,665 )   $ (1,132,980 )     (733,764 )   $ (12,510,325 )  

 


26




GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


28



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


29



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 1,049.80     $ 2.38    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


30




GMO International Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.0 %  
Short-Term Investments     2.4    
Preferred Stocks     0.4    
Forward Currency Contracts     0.1    
Futures     (0.2 )  
Other     1.3    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     23.5 %  
Japan     21.5    
France     12.7    
Germany     8.4    
Switzerland     7.4    
Australia     4.8    
Canada     3.5    
Finland     3.0    
Netherlands     3.0    
Italy     2.6    
Spain     1.7    
Hong Kong     1.4    
Singapore     1.4    
Sweden     1.4    
Norway     1.1    
Belgium     0.9    
Denmark     0.9    
Ireland     0.4    
Greece     0.3    
Austria     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financials     16.6 %  
Health Care     13.7    
Energy     12.4    
Materials     11.8    
Consumer Discretionary     10.5    
Industrials     9.8    
Information Technology     7.4    
Consumer Staples     7.3    
Telecommunication Services     5.6    
Utilities     4.9    
      100.0 %  

 


1




GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.0%        
        Australia — 4.7%        
  141     Aristocrat Leisure Ltd     708    
  730,094     Australia and New Zealand Banking Group Ltd     10,280,928    
  170,877     Australian Stock Exchange Ltd     5,126,804    
  871,506     BHP Billiton Ltd     30,608,837    
  1,401,205     BlueScope Steel Ltd     11,017,717    
  285,318     CSL Ltd     9,957,688    
  1,266,234     Foster's Group Ltd     6,043,515    
  120,076     Incitec Pivot Ltd     16,335,508    
  1,902,422     Mirvac Group Ltd     4,667,550    
  286,903     Newcrest Mining Ltd *      6,728,018    
  1,024,425     Santos Ltd     17,524,333    
  2,734,817     Stockland     12,239,090    
  1,529,495     Suncorp-Metway Ltd     14,849,832    
  704,948     TABCORP Holdings Ltd     5,149,678    
  4,262,769     Telstra Corp Ltd     15,823,715    
  959,997     Westpac Banking Corp     19,185,249    
  641,861     Woodside Petroleum Ltd     34,476,208    
  848,445     Woolworths Ltd     20,483,602    
    Total Australia     240,498,980    
        Austria — 0.1%        
  88,416     OMV AG     5,664,505    
        Belgium — 0.8%        
  100,833     Belgacom SA     4,015,080    
  33,429     Colruyt SA     9,114,091    
  882,333     Dexia     12,469,471    
  1,300,543     Fortis     18,007,723    
    Total Belgium     43,606,365    

 

See accompanying notes to the financial statements.


2



GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        Canada — 3.3%        
  161,900     Agrium Inc     13,693,953    
  355,000     Bank of Montreal     15,556,743    
  120,500     Canadian Natural Resources     10,286,419    
  93,400     Magna International Inc Class A     5,364,035    
  458,200     National Bank of Canada     21,585,199    
  364,900     Potash Corp of Saskatchewan Inc     63,494,937    
  292,800     Research In Motion Ltd *      35,674,831    
  172,100     Sun Life Financial Inc     6,637,309    
    Total Canada     172,293,426    
        Denmark — 0.8%        
  202,325     Novo-Nordisk A/S Class B     11,294,163    
  232,425     Vestas Wind Systems A/S *      31,538,542    
    Total Denmark     42,832,705    
        Finland — 2.9%        
  267,053     Fortum Oyj     10,961,420    
  164,137     KCI Konecranes Oyj     5,417,479    
  343,277     Neste Oil Oyj     8,185,387    
  3,055,481     Nokia Oyj     76,501,327    
  446,863     Outokumpu Oyj     10,700,482    
  48,005     Outotec Oyj     2,180,754    
  210,738     Rautaruukki Oyj     7,148,007    
  673,584     Sampo Oyj Class A     16,945,631    
  563,791     Tietoenator Oyj     11,069,538    
    Total Finland     149,110,025    
        France — 12.3%        
  87,652     Air Liquide SA     10,646,238    
  370,976     Alstom     37,684,562    
  633,885     Arcelor Mittal     49,729,524    
  613,616     BNP Paribas     55,044,497    
  108,966     Casino Guichard-Perrachon SA     10,677,993    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        France — continued        
  101,330     Cie de Saint-Gobain     6,190,846    
  174,708     Essilor International SA     9,294,069    
  1,380,163     France Telecom SA     40,693,992    
  801,642     GDF Suez     46,148,394    
  117,811     Hermes International     16,730,772    
  78,952     L'Oreal SA     7,836,742    
  65,360     Nexans SA     8,236,085    
  202,947     Peugeot SA     9,642,334    
  124,251     Renault SA     10,375,370    
  1,649,909     Sanofi-Aventis     117,053,637    
  356,562     Societe Generale     34,394,861    
  108,810     Suez Environnement SA *      3,125,550    
  1,756,902     Total SA     126,209,088    
  158,858     UbiSoft Entertainment SA *      14,818,232    
  46,723     Union du Credit-Bail Immobilier     9,701,109    
  36,902     Vallourec SA     10,265,792    
    Total France     634,499,687    
        Germany — 7.7%        
  94,101     Adidas AG     5,496,523    
  512,022     Altana AG     8,160,547    
  506,354     BASF AG     29,221,061    
  234,197     Bayerische Motoren Werke AG     9,666,621    
  82,120     Bilfinger & Berger AG     5,763,736    
  271,776     Deutsche Boerse AG     25,473,876    
  1,087,890     E.ON AG     63,420,933    
  318,141     Epcos AG     8,207,892    
  385,503     GEA Group AG     12,112,318    
  409,240     Hannover Rueckversicherungs AG (Registered)     17,359,438    
  274,980     K&S AG     32,966,254    
  80,575     Kloeckner & Co AG     3,180,492    
  142,475     Linde AG     17,877,368    
  21,360     MAN AG     2,085,784    
  52,975     Norddeutsche Affinerie AG     2,441,129    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued        
  88,252     Q-Cells AG *      8,835,208    
  164,964     RWE AG     17,766,204    
  109,178     Salzgitter AG     16,718,421    
  541,163     SAP AG     30,317,163    
  332,134     SGL Carbon AG *      19,879,411    
  140,230     Solarworld AG     7,204,222    
  393,294     Suedzucker AG     6,666,392    
  126,497     ThyssenKrupp AG     6,298,127    
  139,575     Volkswagen AG     41,616,278    
    Total Germany     398,735,398    
        Greece — 0.3%        
  330,232     National Bank of Greece SA     14,556,921    
        Hong Kong — 1.4%        
  3,467,721     CLP Holdings Ltd     28,131,745    
  2,702,500     Hong Kong Electric Holdings Ltd     17,158,828    
  651,500     Hong Kong Exchanges and Clearing Ltd     8,415,750    
  939,000     Sun Hung Kai Properties Ltd     12,803,696    
  2,083,000     Yue Yuen Industrial Holdings     5,770,966    
    Total Hong Kong     72,280,985    
        Ireland — 0.4%        
  430,752     CRH Plc     11,236,558    
  265,691     DCC Plc     6,426,920    
    Total Ireland     17,663,478    
        Italy — 2.5%        
  963,057     Bulgari SPA     9,848,997    
  1,033,644     Enel SPA     9,490,739    
  3,330,010     ENI SPA     108,016,719    
    Total Italy     127,356,455    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — 20.8%        
  304,030     Acom Co Ltd     8,467,840    
  328,850     Aiful Corp     2,657,867    
  1,365,600     Alps Electric Co Ltd     12,342,309    
  477,600     Asahi Breweries     8,846,485    
  191,400     Astellas Pharma Inc     8,621,001    
  404,400     Canon Inc     18,134,815    
  5,253     CyberAgent Inc     5,019,253    
  998,200     Daiei Inc *      7,890,900    
  730,000     Daiichi Chuo Kisen Kaisha     4,343,461    
  559,948     Daiichi Sankyo Co Ltd     16,846,004    
  336,200     Daikin Industries Ltd     11,332,774    
  2,812,000     Daikyo Inc     3,971,102    
  2,037     DeNa Co Ltd     9,938,285    
  174,400     Eisai Co Ltd     6,935,696    
  86,800     FamilyMart Co Ltd     3,515,650    
  196,800     Fanuc Ltd     14,641,605    
  213,500     Fast Retailing Co Ltd     21,549,852    
  2,707,000     Fuji Heavy Industries Ltd     15,474,859    
  1,801,000     Hitachi Ltd     13,264,265    
  2,128,200     Honda Motor Co Ltd     69,118,967    
  264,600     Hoya Corp     5,393,905    
  2,089     INPEX Holdings Inc     22,747,496    
  1,247,000     Itochu Corp     10,031,828    
  898     Japan Real Estate Investment Corp     8,375,480    
  859,000     Japan Steel Works Ltd (The)     14,793,654    
  154,800     JFE Holdings Inc     6,541,848    
  657,000     Kao Corp     18,601,645    
  2,312,000     Kawasaki Kisen Kaisha Ltd     16,391,476    
  5,301     Kenedix Inc     3,019,340    
  10,328     KK DaVinci Advisors *      3,344,926    
  92,100     Komatsu Ltd     1,927,607    
  479,200     Konami Corp     14,633,321    
  164,700     Kyushu Electric Power Co Inc     3,626,642    
  2,210,000     Marubeni Corp     13,674,099    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  2,085,000     Matsushita Electric Industrial Co Ltd     42,854,773    
  1,551,000     Mazda Motor Corp     8,255,710    
  871,000     Meiji Dairies Corp     4,973,767    
  1,724,600     Mitsubishi Corp     47,373,170    
  629,000     Mitsui & Co     10,724,039    
  1,333,000     Mitsui OSK Lines Ltd     15,798,817    
  2,089,600     Mitsui Trust Holding Inc     11,520,352    
  498     Mixi Inc *      4,033,091    
  491,000     NGK Insulators Ltd     5,892,739    
  413,000     Nikon Corp     13,404,401    
  128,900     Nintendo Co Ltd     60,513,380    
  719     Nippon Building Fund Inc     7,779,960    
  942,000     Nippon Denko Co Ltd     8,106,852    
  2,863,000     Nippon Light Metal     4,319,646    
  3,383,000     Nippon Mining Holdings Inc     18,791,182    
  2,925,000     Nippon Oil Corp     18,242,956    
  5,120     Nippon Telegraph & Telephone Corp     25,170,639    
  1,025,000     Nippon Yakin Koguo Co Ltd     5,046,600    
  1,806,000     Nippon Yusen KK     14,412,346    
  3,150,100     Nissan Motor Co     23,928,446    
  9,198     NTT Docomo Inc     14,496,214    
  208,100     Ono Pharmaceutical Co Ltd     10,896,740    
  6,666,000     Osaka Gas Co Ltd     24,253,165    
  644,000     Pacific Metals Co Ltd     4,121,322    
  12,585     Resona Holdings Inc     14,647,856    
  509,000     Ricoh Company Ltd     8,401,871    
  202,100     Rohm Co Ltd     11,635,515    
  6,344,000     Sanyo Electric Co Ltd *      12,649,560    
  135,400     Seiko Epson Corp     3,906,238    
  1,430,900     Seven & I Holdings Co Ltd     41,678,622    
  449,000     Sharp Corp     5,712,653    
  586,700     Shin-Etsu Chemical Co Ltd     32,638,230    
  6,218,100     Sojitz Corp     17,741,889    
  660,500     SUMCO Corp     13,084,906    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  280,000     Taisho Pharmaceutical Co Ltd     5,939,211    
  760,600     Takeda Pharmaceutical Co Ltd     39,733,963    
  547,060     Takefuji Corp     7,245,880    
  177,600     TDK Corp     10,288,284    
  1,276,000     Tokyo Gas Co Ltd     5,323,818    
  866,800     Tokyo Steel Manufacturing Co     9,151,908    
  354,000     TonenGeneral Sekiyu KK     2,848,331    
  170,100     Toyota Motor Corp     7,589,588    
  827,000     UNY Co Ltd     9,116,839    
    Total Japan     1,070,261,726    
        Netherlands — 2.9%        
  2,360,386     Aegon NV     27,805,279    
  66,317     Corio NV     4,877,506    
  449,928     Heineken NV     21,093,955    
  1,895,773     ING Groep NV     59,061,431    
  267,205     Koninklijke DSM     15,378,909    
  203,122     OCE NV     1,972,248    
  380,217     Reed Elsevier NV     6,357,272    
  154,281     TomTom NV *      3,810,671    
  94,632     Wereldhave NV     10,553,889    
    Total Netherlands     150,911,160    
        Norway — 1.0%        
  344,800     DnB NOR ASA     3,997,461    
  809,800     StatoilHydro ASA     24,840,965    
  364,000     Tandberg ASA     7,874,160    
  257,450     Yara International ASA     15,940,645    
    Total Norway     52,653,231    
        Singapore — 1.4%        
  412,200     MobileOne Ltd     555,738    
  2,928,000     Oversea-Chinese Banking Corp     16,592,310    
  2,733,000     Singapore Exchange Ltd     12,068,363    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Singapore — continued        
  9,853,000     Singapore Telecommunications     24,318,043    
  1,242,000     United Overseas Bank Ltd     16,531,339    
    Total Singapore     70,065,793    
        Spain — 1.6%        
  975,428     Iberdrola SA     11,753,246    
  165,275     Inditex SA     7,686,412    
  620,140     Repsol YPF SA     19,181,271    
  1,813,241     Telefonica SA     44,802,458    
    Total Spain     83,423,387    
        Sweden — 1.3%        
  606,600     Electrolux AB Series B     7,782,877    
  383,200     Hennes & Mauritz AB Class B     18,989,741    
  857,200     Investor AB Class B     18,048,188    
  245,200     SKF AB Class B     3,713,366    
  403,700     Svenska Handelsbanken AB Class A     9,713,670    
  544,600     Swedbank AB     9,570,167    
    Total Sweden     67,818,009    
        Switzerland — 7.2%        
  1,662,882     ABB Ltd *      40,786,706    
  131,713     Actelion Ltd *      7,560,492    
  156,419     Baloise Holding Ltd     13,382,131    
  199,011     CIE Financiere Richemont SA Class A     11,579,435    
  1,832,180     Nestle SA (Registered)     80,725,070    
  2,525,679     Novartis AG (Registered)     140,701,984    
  120,745     Roche Holding AG (Non Voting)     20,318,780    
  48,805     Swatch Group AG     11,470,657    
  104,235     Syngenta AG (Registered)     27,967,250    
  701,425     UBS AG (Registered) *      15,246,240    
    Total Switzerland     369,738,745    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      United Kingdom — 22.6%        
  1,694,558       3 i Group Plc     28,315,867    
  483,302     Alliance & Leicester Plc     2,866,115    
  1,315,639     AMEC Plc     20,180,959    
  1,693,363     AstraZeneca Plc     82,554,733    
  5,546,448     Barclays Plc     35,491,347    
  1,466,851     BBA Aviation Plc     3,545,792    
  119,657     Berkeley Group Holdings Plc *      1,846,620    
  4,312,960     BG Group Plc     95,667,276    
  460,842     BHP Billiton Plc     14,353,359    
  852,197     British American Tobacco Plc     28,790,755    
  641,418     Cadbury Plc     7,360,988    
  909,642     Capita Group Plc     11,703,656    
  720,457     Compass Group Plc     4,794,541    
  954,394     Diageo Plc     17,626,640    
  11,362,906     DSG International Plc     10,209,375    
  893,591     FirstGroup Plc     9,848,386    
  7,799,421     GlaxoSmithKline Plc     183,526,663    
  6,027,011     HBOS Plc     34,498,197    
  1,940,294     Home Retail Group     8,933,060    
  707,677     ICAP Plc     6,093,521    
  435,754     Imperial Tobacco Group Plc     14,367,158    
  1,115,234     Kesa Electricals Plc     3,275,212    
  1,050,873     Kingfisher Plc     2,538,340    
  1,698,984     Ladbrokes Plc     6,983,100    
  563,586     London Stock Exchange     8,098,875    
  773,035     Michael Page International Plc     5,150,359    
  418,646     Next Plc     8,077,872    
  3,231,060     Northern Foods Plc     3,827,151    
  2,845,307     Old Mutual Plc     5,032,008    
  234,773     Provident Financial Plc     3,875,869    
  342,857     Reckitt Benckiser Group Plc     17,332,921    
  936,109     Rio Tinto Plc     88,863,649    
  18,805,824     Royal Bank of Scotland Group     79,982,554    
  567,226     Royal Dutch Shell Group Class A (Amsterdam)     19,740,153    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  1,370,789     Royal Dutch Shell Plc A Shares (London)     47,905,396    
  417,628     Royal Dutch Shell Plc B Shares (London)     14,360,734    
  286,269     Scottish & Southern Energy Plc     7,540,117    
  9,544,941     Signet Group Plc     10,896,991    
  625,943     Smith & Nephew Plc     7,511,547    
  254,997     Spectris Plc     3,850,115    
  2,404,744     Stagecoach Group Plc     13,960,093    
  2,937,716     Taylor Woodrow Plc     2,887,424    
  1,914,380     Tesco Plc     13,269,309    
  1,354,646     Tomkins Plc     3,659,280    
  659,677     Travis Perkins Plc     8,033,610    
  1,375,957     Trinity Mirror Plc     2,687,998    
  471,484     Unilever Plc     12,646,212    
  42,909,492     Vodafone Group Inc     109,653,208    
  576,582     WH Smith Plc     4,029,410    
  2,207,833     Wolseley Plc     17,814,261    
  198,286     Xstrata Plc     11,055,068    
    Total United Kingdom     1,167,113,844    
    TOTAL COMMON STOCKS (COST $5,459,287,869)     4,951,084,825    
        PREFERRED STOCKS — 0.4%        
        Germany — 0.4%        
  131,566     Volkswagen AG 1.73%     20,280,376    
    TOTAL PREFERRED STOCKS (COST $6,708,776)     20,280,376    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.4%        
    125,700,000     HBOS Treasury Services Time Deposit, 2.05%, due 09/02/08     125,700,000    
    700,000     HSBC Time Deposit, 2.15%, due 09/02/08     700,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $126,400,000)     126,400,000    
        TOTAL INVESTMENTS — 98.8%
(Cost $5,592,396,645)
    5,097,765,201    
      Other Assets and Liabilities (net) — 1.2%     59,910,589    
    TOTAL NET ASSETS — 100.0%   $ 5,157,675,790    

 

See accompanying notes to the financial statements.


12



GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   CHF     45,542,163     $ 41,391,430     $ (65,747 )  
11/21/08   CHF     31,580,163       28,701,933       (57,504 )  
11/21/08   CHF     31,580,163       28,701,933       (66,202 )  
11/21/08   CHF     31,580,163       28,701,933       (48,341 )  
11/21/08   CHF     31,580,163       28,701,933       (48,602 )  
11/21/08   CHF     31,580,163       28,701,933       (38,659 )  
11/21/08   CHF     31,580,163       28,701,933       (64,499 )  
11/21/08   EUR     5,171,000       7,554,238       (14,146 )  
11/21/08   GBP     4,161,000       7,541,276       (17,559 )  
11/21/08   HKD     53,165,333       6,822,303       5,353    
11/21/08   HKD     53,165,333       6,822,303       5,668    
11/21/08   HKD     54,776,403       7,029,039       5,838    
11/21/08   JPY     3,577,047,447       33,018,615       406,612    
11/21/08   JPY     3,577,047,447       33,018,615       417,550    
11/21/08   JPY     3,577,047,447       33,018,615       402,330    
11/21/08   JPY     3,577,047,447       33,018,615       403,639    
11/21/08   JPY     3,577,047,447       33,018,615       406,910    
11/21/08   JPY     4,967,570,447       45,854,101       452,396    
11/21/08   JPY     3,577,047,447       33,018,615       394,120    
11/21/08   NZD     13,040,700       9,021,828       (156,738 )  
11/21/08   NZD     12,657,150       8,756,480       (111,942 )  
11/21/08   NZD     12,657,150       8,756,480       (165,545 )  
11/21/08   SEK     196,707,071       30,346,472       (454,180 )  
11/21/08   SEK     196,707,071       30,346,472       (451,566 )  
11/21/08   SEK     196,707,071       30,346,472       (396,684 )  
11/21/08   SEK     196,707,071       30,346,472       (404,864 )  
11/21/08   SEK     196,707,071       30,346,472       (457,016 )  
11/21/08   SEK     196,707,071       30,346,472       (422,445 )  
11/21/08   SEK     196,707,071       30,346,472       (411,115 )  
    $ 732,298,070     $ (952,938 )  

 

See accompanying notes to the financial statements.


13



GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
11/21/08   AUD     17,858,190     $ 15,189,111     $ 221,257    
11/21/08   AUD     17,858,190       15,189,111       223,775    
11/21/08   AUD     17,858,190       15,189,111       223,935    
11/21/08   AUD     17,858,190       15,189,111       219,471    
11/21/08   AUD     17,858,190       15,189,111       213,042    
11/21/08   AUD     17,858,190       15,189,111       170,504    
11/21/08   AUD     17,858,190       15,189,111       227,454    
11/21/08   CAD     16,105,208       15,154,776       40,694    
11/21/08   CAD     15,631,526       14,709,048       43,520    
11/21/08   CAD     15,631,526       14,709,048       (4,483 )  
11/21/08   DKK     51,338,820       10,054,206       15,349    
11/21/08   DKK     51,338,820       10,054,206       19,186    
11/21/08   DKK     85,880,742       16,818,904       55,626    
11/21/08   EUR     11,513,446       16,819,824       14,618    
11/21/08   EUR     11,513,446       16,819,824       34,479    
11/21/08   EUR     11,862,338       17,329,516       17,647    
11/21/08   GBP     28,173,101       51,060,111       1,148,006    
11/21/08   GBP     17,450,101       31,626,057       740,443    
11/21/08   GBP     19,636,101       35,587,900       748,695    
11/21/08   GBP     17,450,101       31,626,057       720,602    
11/21/08   GBP     17,450,101       31,626,057       727,652    
11/21/08   GBP     19,065,101       34,553,036       755,609    
11/21/08   GBP     17,450,101       31,626,057       712,208    
11/21/08   HKD     7,794,134       1,000,162       (162 )  
11/21/08   JPY     1,304,140,000       12,038,111       (163,726 )  
11/21/08   JPY     327,135,000       3,019,681       (5,029 )  
11/21/08   NOK     84,890,842       15,530,948       6,180    
11/21/08   NOK     84,890,842       15,530,948       9,994    
11/21/08   NOK     87,463,292       16,001,583       (9,611 )  
11/21/08   SEK     25,465,340       3,928,599       71,401    
11/21/08   SGD     5,337,153       3,778,999       12,293    
11/21/08   SGD     5,337,153       3,778,999       12,249    
11/21/08   SGD     5,498,885       3,893,514       10,419    
    $ 564,999,948     $ 7,233,297    

 

See accompanying notes to the financial statements.


14



GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  166     DAX   September 2008   $ 39,187,069     $ (2,531,250 )  
  1,017     MSCI Singapore   September 2008     48,731,026       714,929    
  182     S&P/MIB   September 2008     38,492,502       (2,035,592 )  
                $ 126,410,597     $ (3,851,913 )  
Sales      
  12     AEX   September 2008   $ 1,452,908     $ (11,988 )  
  82     CAC 40   September 2008     5,395,370       (86,549 )  
  542     FTSE 100   September 2008     55,806,316       (1,158,922 )  
  4     Hang Seng   September 2008     544,807       (11,601 )  
  10     IBEX 35   September 2008     1,720,336       (23,502 )  
  67     OMXS 30   September 2008     903,883       (423 )  
  455     S&P Toronto 60   September 2008     70,491,147       6,108,689    
  153     SPI 200   September 2008     16,895,609       (774,336 )  
  1,002     TOPIX   September 2008     115,599,449       (8,394,906 )  
                $ 268,809,825     $ (4,353,538 )  

 

As of August 31, 2008, 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.


15



GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

*  Non income-producing security.

As of August 31, 2008, 92.98% of the Net Assets of the Fund were valued using fair value prices based on models used by a third party vendor (Note 2).

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.


16




GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $5,592,396,645) (Note 2)   $ 5,097,765,201    
Cash     66,487    
Foreign currency, at value (cost $3,761,812) (Note 2)     3,741,436    
Receivable for Fund shares sold     893,391    
Dividends and interest receivable     12,017,784    
Foreign taxes receivable     2,528,844    
Unrealized appreciation on open forward currency contracts (Note 2)     10,316,724    
Receivable for collateral on open futures contracts (Note 2)     33,519,000    
Receivable for variation margin on open futures contracts (Note 2)     3,493,859    
Receivable for expenses reimbursed by Manager (Note 3)     210,774    
Total assets     5,164,553,500    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     1,674,825    
Shareholder service fee     344,992    
Trustees and Chief Compliance Officer of GMO Trust fees     11,522    
Unrealized depreciation on open forward currency contracts (Note 2)     4,036,365    
Accrued expenses     810,006    
Total liabilities     6,877,710    
Net assets   $ 5,157,675,790    

 

See accompanying notes to the financial statements.


17



GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 5,660,393,966    
Accumulated undistributed net investment income     90,171,382    
Accumulated net realized loss     (95,716,521 )  
Net unrealized depreciation     (497,173,037 )  
    $ 5,157,675,790    
Net assets attributable to:  
Class III shares   $ 977,295,146    
Class IV shares   $ 875,345,730    
Class VI shares   $ 3,305,034,914    
Shares outstanding:  
Class III     29,070,161    
Class IV     26,044,831    
Class VI     98,355,502    
Net asset value per share:  
Class III   $ 33.62    
Class IV   $ 33.61    
Class VI   $ 33.60    

 

See accompanying notes to the financial statements.


18



GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $11,604,048)   $ 110,623,647    
Securities lending income     3,158,804    
Interest     2,087,422    
Total investment income     115,869,873    
Expenses:  
Management fee (Note 3)     10,569,330    
Shareholder service fee – Class III (Note 3)     747,291    
Shareholder service fee – Class IV (Note 3)     424,590    
Shareholder service fee – Class VI (Note 3)     996,293    
Custodian and fund accounting agent fees     1,192,044    
Transfer agent fees     24,932    
Audit and tax fees     41,584    
Legal fees     64,032    
Trustees fees and related expenses (Note 3)     30,990    
Registration fees     6,072    
Miscellaneous     45,908    
Total expenses     14,143,066    
Fees and expenses reimbursed by Manager (Note 3)     (1,358,889 )  
Expense reductions (Note 2)     (19,918 )  
Net expenses     12,764,259    
Net investment income (loss)     103,105,614    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (52,595,434 )  
Closed futures contracts     (35,682,058 )  
Foreign currency, forward contracts and foreign currency related transactions     (6,402,432 )  
Net realized gain (loss)     (94,679,924 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (455,035,280 )  
Open futures contracts     15,212,707    
Foreign currency, forward contracts and foreign currency related transactions     (6,558,855 )  
Net unrealized gain (loss)     (446,381,428 )  
Net realized and unrealized gain (loss)     (541,061,352 )  
Net increase (decrease) in net assets resulting from operations   $ (437,955,738 )  

 

See accompanying notes to the financial statements.


19



GMO International Core Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 103,105,614     $ 130,597,450    
Net realized gain (loss)     (94,679,924 )     262,829,020    
Change in net unrealized appreciation (depreciation)     (446,381,428 )     (538,336,524 )  
Net increase (decrease) in net assets from operations     (437,955,738 )     (144,910,054 )  
Distributions to shareholders from:  
Net investment income  
Class III     (13,159,640 )     (15,752,992 )  
Class IV     (12,329,603 )     (13,850,618 )  
Class VI     (47,705,637 )     (70,382,406 )  
Total distributions from net investment income     (73,194,880 )     (99,986,016 )  
Net realized gains  
Class III     (7,902,343 )     (44,597,287 )  
Class IV     (7,358,071 )     (40,295,188 )  
Class VI     (28,358,623 )     (183,168,178 )  
Total distributions from net realized gains     (43,619,037 )     (268,060,653 )  
      (116,813,917 )     (368,046,669 )  
Net share transactions (Note 7):  
Class III     161,539,433       81,033,866    
Class IV     18,626,374       308,789,561    
Class VI     100,171,604       2,587,884,351    
Increase (decrease) in net assets resulting from net share
transactions
    280,337,411       2,977,707,778    
Total increase (decrease) in net assets     (274,432,244 )     2,464,751,055    
Net assets:  
Beginning of period     5,432,108,034       2,967,356,979    
End of period (including accumulated undistributed net investment
income of $90,171,382 and $60,260,648, respectively)
  $ 5,157,675,790     $ 5,432,108,034    

 

See accompanying notes to the financial statements.


20




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 37.25     $ 39.38     $ 35.23     $ 30.81     $ 26.75     $ 18.04    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.68       1.01       0.86       0.72       0.55       0.40    
Net realized and unrealized
gain (loss)
    (3.54 )     (0.51 )     6.06       4.79       4.54       8.81    
Total from investment
operations
    (2.86 )     0.50       6.92       5.51       5.09       9.21    
Less distributions to shareholders:  
From net investment income     (0.48 )     (0.68 )     (0.77 )     (0.16 )     (0.54 )     (0.50 )  
From net realized gains     (0.29 )     (1.95 )     (2.00 )     (0.93 )     (0.49 )        
Total distributions     (0.77 )     (2.63 )     (2.77 )     (1.09 )     (1.03 )     (0.50 )  
Net asset value, end of period   $ 33.62     $ 37.25     $ 39.38     $ 35.23     $ 30.81     $ 26.75    
Total Return(a)      (7.74 )%**      0.69 %     20.04 %     18.26 %     19.20 %     51.46 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 977,295     $ 917,685     $ 877,816     $ 820,336     $ 321,463     $ 201,333    
Net expenses to average daily
net assets
    0.53 %(b)*      0.53 %(b)      0.53 %     0.54 %     0.55 %     0.55 %  
Net investment income to average
daily net assets
    3.63 %*      2.44 %     2.29 %     2.26 %     1.98 %     1.77 %  
Portfolio turnover rate     19 %**      43 %     47 %     43 %     45 %     43 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.05 %*      0.05 %     0.05 %     0.10 %     0.14 %     0.27 %  

 

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


21



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value, beginning
of period
  $ 37.23     $ 39.36     $ 35.21     $ 30.80     $ 26.75     $ 21.08    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.69       1.04       0.85       0.65       0.56       0.16    
Net realized and unrealized
gain (loss)
    (3.54 )     (0.52 )     6.09       4.87       4.54       6.03    
Total from investment
operations
    (2.85 )     0.52       6.94       5.52       5.10       6.19    
Less distributions to shareholders:  
From net investment income     (0.48 )     (0.70 )     (0.79 )     (0.18 )     (0.56 )     (0.52 )  
From net realized gains     (0.29 )     (1.95 )     (2.00 )     (0.93 )     (0.49 )        
Total distributions     (0.77 )     (2.65 )     (2.79 )     (1.11 )     (1.05 )     (0.52 )  
Net asset value, end of period   $ 33.61     $ 37.23     $ 39.36     $ 35.21     $ 30.80     $ 26.75    
Total Return(b)      (7.71 )%**      0.75 %     20.14 %     18.31 %     19.24 %     29.71 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 875,346     $ 947,063     $ 711,712     $ 1,183,535     $ 255,580     $ 24,134    
Net expenses to average daily
net assets
    0.47 %(c)*      0.47 %(c)      0.47 %     0.48 %     0.49 %     0.49 %*   
Net investment income to average
daily net assets
    3.71 %*      2.51 %     2.27 %     1.98 %     2.01 %     0.99 %*   
Portfolio turnover rate     19 %**      43 %     47 %     43 %     45 %     43 %††   
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.05 %*      0.05 %     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.

(c)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  Calculated using average shares outstanding throughout the period.

††  Calculation represtents portfolio turnover of the Fund for year ended February 29, 2004.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


22



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 37.22     $ 39.35     $ 36.09    
Income (loss) from investment operations:  
Net investment income (loss)      0.69       0.98       0.74    
Net realized and unrealized gain (loss)     (3.53 )     (0.45 )     5.33    
Total from investment operations     (2.84 )     0.53       6.07    
Less distributions to shareholders:  
From net investment income     (0.49 )     (0.71 )     (0.81 )  
From net realized gains     (0.29 )     (1.95 )     (2.00 )  
Total distributions     (0.78 )     (2.66 )     (2.81 )  
Net asset value, end of period   $ 33.60     $ 37.22     $ 39.35    
Total Return(b)      (7.70 )%**      0.78 %     17.24 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,305,035     $ 3,567,360     $ 1,377,829    
Net expenses to average daily net assets     0.44 %(c)*      0.44 %(c)      0.44 %*   
Net investment income to average daily net assets     3.73 %*      2.36 %     2.11 %*   
Portfolio turnover rate     19 %**      43 %     47 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.05 %*      0.05 %     0.05 %*   

 

(a)  Period from March 28, 2006 (commencement of operations) through February 28, 2007.

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  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.


23




GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, 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 EAFE Index (Europe, Australasia, and Far East). The Fund typically makes equity investments in companies from developed countries, other than the U.S.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange


24



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 301,818,976     $ 10,565,054    
Level 2 - Other Significant Observable Inputs     4,795,946,225       10,316,724    
Level 3 - Significant Unobservable Inputs              
Total   $ 5,097,765,201     $ 20,881,778    

 

*  Other financial instruments include foreign currency, forward currency contracts and futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (15,029,069 )  
Level 2 - Other Significant Observable Inputs           (4,036,365 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (19,065,434 )  

 

**  Other financial instruments include forward currency contracts and futures contracts.


25



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities.


26



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.


27



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.


28



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Securities lending

The Fund may lend its securities to qualified brokers. 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. The Fund had no securities on loan at Aug ust 31, 2008.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


29



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 5,595,589,486     $ 309,687,229     $ (807,511,514 )   $ (497,824,285 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State


30



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.38% of the Fund's average daily net assets. Excluded Expenses include 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


31



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 fee paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2008 was $26,942 and $15,548, 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, 2008 aggregated $1,224,401,157 and $1,029,638,529, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 24.49% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 39.15% of the Fund's shares were held by accounts for which the Manager has investment discretion.


32



GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
 
Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4,925,315     $ 180,009,043       11,949,449     $ 492,041,742    
Shares issued to shareholders
in reinvestment of distributions
    564,924       19,568,950       1,414,279       58,116,527    
Shares repurchased     (1,055,036 )     (38,038,560 )     (11,019,208 )     (469,124,403 )  
Net increase (decrease)     4,435,203     $ 161,539,433       2,344,520     $ 81,033,866    
    Six Months Ended
August 31, 2008
(Unaudited)
 
Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     1,671,167     $ 62,217,117       15,988,725     $ 658,843,076    
Shares issued to shareholders
in reinvestment of distributions
    506,212       17,530,126       1,206,587       49,719,301    
Shares repurchased     (1,568,373 )     (61,120,869 )     (9,841,902 )     (399,772,816 )  
Net increase (decrease)     609,006     $ 18,626,374       7,353,410     $ 308,789,561    
    Six Months Ended
August 31, 2008
(Unaudited)
 
Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     3,319,315     $ 128,947,408       74,361,787     $ 3,110,181,310    
Shares issued to shareholders
in reinvestment of distributions
    2,196,568       76,045,177       6,180,798       253,296,700    
Shares repurchased     (3,000,712 )     (104,820,981 )     (19,719,605 )     (775,593,659 )  
Net increase (decrease)     2,515,171     $ 100,171,604       60,822,980     $ 2,587,884,351    

 


33




GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 ove rall 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


34



GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


35



GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


36



GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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.


37



GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2008 (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     $ 922.60     $ 2.57    
2) Hypothetical     0.53 %   $ 1,000.00     $ 1,022.53     $ 2.70    
Class IV      
1) Actual     0.47 %   $ 1,000.00     $ 922.90     $ 2.28    
2) Hypothetical     0.47 %   $ 1,000.00     $ 1,022.84     $ 2.40    
Class VI      
1) Actual     0.44 %   $ 1,000.00     $ 923.00     $ 2.13    
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.99     $ 2.24    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


38




GMO International Growth Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Growth Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.2 %  
Short-Term Investments     3.9    
Forward Currency Contracts     0.3    
Preferred Stocks     0.3    
Rights and Warrants     0.0    
Futures     (0.1 )  
Other     1.4    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     23.1 %  
Japan     18.5    
Switzerland     12.7    
France     8.4    
Canada     6.6    
Germany     6.6    
Australia     5.6    
Spain     3.9    
Finland     3.8    
Denmark     2.7    
Hong Kong     2.3    
Netherlands     1.7    
Singapore     1.2    
Sweden     0.9    
Greece     0.6    
Norway     0.6    
Belgium     0.2    
Ireland     0.2    
Italy     0.2    
Austria     0.1    
Portugal     0.1    
      100.0 %  

 


1



GMO International Growth Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Health Care     18.9 %  
Materials     13.6    
Consumer Staples     13.5    
Information Technology     10.0    
Energy     9.8    
Industrials     9.7    
Consumer Discretionary     9.0    
Telecommunication Services     6.4    
Financials     5.6    
Utilities     3.5    
      100.0 %  

 


2




GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 94.2%  
        Australia — 5.3%  
    639,442     AMP Ltd     3,785,693    
    85,752     Australia and New Zealand Banking Group Ltd     1,207,530    
    238,031     Australian Stock Exchange Ltd     7,141,618    
    394,414     BHP Billiton Ltd     13,852,520    
    772,562     Brambles Ltd     5,069,098    
    24,430     Cochlear Ltd     1,146,196    
    554,356     CSL Ltd     19,347,200    
    938,668     CSR Ltd     2,130,107    
    1,011,812     Foster's Group Ltd     4,829,203    
    1,100,514     Harvey Norman Holdings Ltd     3,473,011    
    69,587     Incitec Pivot Ltd     9,466,829    
    74,746     Leighton Holdings Ltd     2,949,613    
    40,845     Macquarie Group Ltd     1,514,594    
    527,404     Macquarie Infrastructure Group     982,844    
    288,508     Newcrest Mining Ltd *      6,765,656    
    452,084     Oil Search Ltd     2,309,701    
    212,964     Origin Energy Ltd     2,937,823    
    153,888     QBE Insurance Group Ltd     3,129,782    
    58,981     Rio Tinto Ltd     6,394,911    
    84,549     St George Bank     2,180,455    
    182,769     TABCORP Holdings Ltd     1,335,136    
    1,403,836     Telstra Corp Ltd     5,211,143    
    175,772     Westfarmers Ltd     4,608,345    
    366,506     Westpac Banking Corp     7,324,511    
    538,267     Woodside Petroleum Ltd     28,911,875    
    1,137,492     Woolworths Ltd     27,461,926    
    239,535     Worleyparsons Ltd     7,540,301    
    Total Australia     183,007,621    
      Austria — 0.1%  
    48,191     Oesterreichische Elektrizitaetswirtschafts AG Class A     3,633,583    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Belgium — 0.2%  
    61,829     Belgacom SA     2,461,976    
    9,780     Colruyt SA     2,666,422    
    74,799     Fortis     1,035,690    
    21,044     Mobistar SA     1,558,035    
    Total Belgium     7,722,123    
      Canada — 6.2%  
    95,400     Agrium Inc     8,069,198    
    47,700     Bank of Nova Scotia     2,203,508    
    53,900     Canadian Imperial Bank of Commerce     3,257,453    
    237,500     Canadian National Railway Co     12,461,033    
    66,000     Canadian Natural Resources     5,634,055    
    85,800     Canadian Pacific Railway Ltd     5,234,624    
    111,900     Enbridge Inc     4,692,887    
    46,600     EnCana Corp     3,502,680    
    98,500     Husky Energy Inc     4,354,483    
    76,100     IGM Financial Inc     3,181,465    
    102,800     Penn West Energy Trust     3,017,777    
    49,300     Petro-Canada     2,179,916    
    525,300     Potash Corp of Saskatchewan Inc     91,405,564    
    276,600     Research In Motion Ltd *      33,701,019    
    234,400     Royal Bank of Canada     10,761,914    
    180,900     Shoppers Drug Mart Corp     9,438,557    
    48,700     Sun Life Financial Inc     1,878,193    
    109,000     Suncor Energy Inc     6,241,477    
    45,500     Teck Cominco Ltd     1,900,904    
    Total Canada     213,116,707    
      Denmark — 2.6%  
    291     AP Moller-Maersk A/S Class A     3,260,846    
    197     AP Moller-Maersk A/S Class B     2,203,984    
    22,175     D/S Norden     2,095,166    
    222,900     H Lundbeck A/S     5,177,892    
    659,700     Novo-Nordisk A/S Class B     36,825,696    
    287,450     Vestas Wind Systems A/S *      39,005,072    
    Total Denmark     88,568,656    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Finland — 3.6%  
    164,805     Alma Media Corp     2,174,544    
    163,381     Amer Sports Oyj Class A     2,200,049    
    233,762     Fortum Oyj     9,594,962    
    89,635     KCI Konecranes Oyj     2,958,478    
    198,706     Kone Oyj Class B     6,154,248    
    3,228,274     Nokia Oyj     80,827,616    
    335,092     Nokian Renkaat Oyj     11,933,510    
    153,421     Outokumpu Oyj     3,673,785    
    33,897     Outotec Oyj     1,539,861    
    187,475     YIT Oyj     2,916,171    
    Total Finland     123,973,224    
      France — 7.9%  
    70,889     Air Liquide SA     8,610,199    
    107,636     Alstom     10,933,903    
    728,511     Arcelor Mittal     57,153,120    
    13,717     BNP Paribas     1,230,485    
    78,684     Carrefour SA     4,159,226    
    63,077     Credit Agricole SA     1,337,282    
    54,092     Dassault Systemes SA     3,269,184    
    68,842     Electricite de France     5,887,655    
    154,801     Essilor International SA     8,235,061    
    221,572     Groupe Danone     15,445,028    
    63,085     Hermes International     8,958,932    
    148,636     L'Oreal SA     14,753,546    
    16,950     Lafarge SA     2,044,817    
    41,580     LVMH Moet Hennessy Louis Vuitton SA     4,415,718    
    28,972     Neopost SA     3,020,494    
    525,461     Sanofi-Aventis     37,279,099    
    14,420     Societe Generale     1,390,989    
    967,145     Total SA     69,475,980    
    49,635     UbiSoft Entertainment SA *      4,629,940    
    129,236     Veolia Environnement     6,931,788    
    18,447     Wendel Investissement     2,033,906    
    Total France     271,196,352    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Germany — 5.9%  
    154,460     Adidas AG     9,022,146    
    311,062     Aixtron AG     3,251,584    
    9,534     Allianz SE (Registered)     1,589,372    
    69,018     BASF AG     3,982,943    
    106,132     Beiersdorf AG (Bearer)     6,178,245    
    25,082     Bilfinger & Berger AG     1,760,424    
    17,641     Deutsche Bank AG (Registered)     1,497,935    
    261,861     Deutsche Boerse AG     24,544,531    
    314,499     E.ON AG     18,334,409    
    85,205     Gildemeister AG     2,039,050    
    44,114     Hannover Rueckversicherungs AG (Registered)     1,871,259    
    233,213     K&S AG     27,958,975    
    50,688     Kloeckner & Co AG     2,000,779    
    67,025     Linde AG     8,410,111    
    16,501     MAN AG     1,611,307    
    9,958     Muenchener Rueckversicherungs AG (Registered)     1,544,155    
    79,836     Norddeutsche Affinerie AG     3,678,905    
    10,739     Puma AG Rudolf Dassler Sport     3,377,717    
    60,608     Q-Cells AG *      6,067,673    
    126,499     Qiagen NV *      2,675,401    
    27,309     RWE AG     2,941,110    
    17,742     Salzgitter AG     2,716,831    
    926,559     SAP AG     51,907,909    
    104,363     SGL Carbon AG *      6,246,500    
    36,024     Solarworld AG     1,850,709    
    45,222     Stada Arzneimittel AG     2,472,661    
    12,768     Wacker-Chemie AG     2,335,004    
    Total Germany     201,867,645    
      Greece — 0.6%  
    91,422     Alpha Bank A.E.     2,326,309    
    183,788     Coca Cola Hellenic Bottling Co SA     4,526,323    
    81,470     EFG Eurobank Ergasias     1,638,902    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Greece — continued  
    98,141     National Bank of Greece SA     4,326,143    
    167,634     OPAP SA     5,870,583    
    91,752     Piraeus Bank SA     2,472,986    
    Total Greece     21,161,246    
      Hong Kong — 2.1%  
    448,600     Bank of East Asia Ltd     1,773,299    
    1,721,500     CLP Holdings Ltd     13,965,599    
    1,009,200     Esprit Holdings Ltd     8,331,221    
    630,100     Hang Seng Bank Ltd     12,427,638    
    3,579,400     Hong Kong & China Gas     8,031,017    
    92,800     Hong Kong Aircraft Engineering Co Ltd     1,033,253    
    1,618,000     Hong Kong Electric Holdings Ltd     10,273,075    
    425,931     Hong Kong Exchanges and Clearing Ltd     5,501,962    
    1,480,000     Li & Fung Ltd     4,500,360    
    4,242,000     PCCW Ltd     2,654,036    
    208,000     Sun Hung Kai Properties Ltd     2,836,175    
    212,500     Swire Pacific Ltd Class A     2,122,590    
    Total Hong Kong     73,450,225    
      Ireland — 0.2%  
    338,168     Bank of Ireland     2,710,791    
    52,806     DCC Plc     1,277,348    
    64,710     Kerry Group Plc     1,754,881    
    Total Ireland     5,743,020    
      Italy — 0.2%  
    659,173     A2A SPA     2,060,278    
    76,985     Banco Popolare Scarl     1,466,458    
    145,729     Bulgari SPA     1,490,342    
    76,985     ENI SPA     2,497,190    
    Total Italy     7,514,268    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Japan — 17.5%  
    167,900     Aisin Seiki Co Ltd     4,420,166    
    316,400     Astellas Pharma Inc     14,251,227    
    836,050     Canon Inc     37,491,623    
    605     Central Japan Railway Co     6,284,661    
    418,000     Cosmo Oil Co Ltd     1,220,862    
    263,000     Daiichi Chuo Kisen Kaisha     1,564,836    
    267,400     Daiichi Sankyo Co Ltd     8,044,714    
    291,800     Daikin Industries Ltd     9,836,120    
    599     DeNa Co Ltd     2,922,451    
    115,100     Denso Corp     2,983,795    
    773     East Japan Railway Co     6,148,494    
    160,000     Eisai Co Ltd     6,363,024    
    126,900     Fanuc Ltd     9,441,157    
    90,800     Fast Retailing Co Ltd     9,164,996    
    44,300     Hirose Electric Co Ltd     4,296,790    
    63,400     Hisamitsu Pharmaceutical Co Inc     2,816,004    
    236,000     Hitachi Metals Ltd     3,504,276    
    95,100     Hokkaido Electric Power     2,125,042    
    621,000     Honda Motor Co Ltd     20,168,630    
    455,400     Hoya Corp     9,283,387    
    51,600     Ibiden Co Ltd     1,521,833    
    893     INPEX Holdings Inc     9,724,037    
    85,300     Ito En Ltd     1,305,366    
    411,000     Japan Steel Works Ltd (The)     7,078,221    
    1,730     Japan Tobacco Inc     8,210,426    
    126,000     JFE Holdings Inc     5,324,760    
    579,000     Kao Corp     16,393,231    
    193,000     Kawasaki Kisen Kaisha Ltd     1,368,320    
    52,300     Keyence Corp     10,579,286    
    222,700     Komatsu Ltd     4,661,000    
    390,000     Konica Minolta Holdings Inc     5,375,294    
    447,000     Marubeni Corp     2,765,757    
    2,600,000     Matsushita Electric Industrial Co Ltd     53,440,005    
    585,000     Mazda Motor Corp     3,113,856    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Japan — continued  
    1,128,000     Mitsubishi Corp     30,985,119    
    131,000     Mitsubishi Estate Co Ltd     2,893,645    
    74,000     Mitsui & Co     1,261,652    
    337,000     Mitsui OSK Lines Ltd     3,994,149    
    571,000     Mitsui Trust Holding Inc     3,148,029    
    1,104     Mizuho Financial Group Inc     4,699,626    
    71,300     Murata Manufacturing Co Ltd     3,133,053    
    148,000     NGK Insulators Ltd     1,776,223    
    241,000     Nikon Corp     7,821,939    
    81,400     Nintendo Co Ltd     38,214,035    
    171,000     Nippon Denko Co Ltd     1,471,626    
    205,000     Nippon Electric Glass Co Ltd     2,734,495    
    382,500     Nippon Mining Holdings Inc     2,124,631    
    241,000     Nippon Oil Corp     1,503,095    
    528,000     Nippon Yusen KK     4,213,576    
    52,900     Nissha Printing Co Ltd     2,856,995    
    98,900     Nitto Denko Corp     2,968,719    
    144,000     Nomura Research Institute     3,267,586    
    592     NTT Data Corp     2,429,911    
    3,294     NTT Docomo Inc     5,191,403    
    178,000     Olympus Corp     5,783,181    
    36,100     Ono Pharmaceutical Co Ltd     1,890,304    
    7,270     ORIX Corp     885,647    
    325,000     Osaka Gas Co Ltd     1,182,460    
    5,948     Rakuten Inc     3,312,958    
    2,492     Resona Holdings Inc     2,900,473    
    38,000     Rohm Co Ltd     2,187,776    
    74,600     Sankyo Co Ltd Gunma     3,532,202    
    8,714     SBI Holdings Inc     1,562,641    
    64,100     Secom Co     2,952,838    
    122,900     Sega Sammy Holdings Inc     1,165,698    
    611,800     Seven & I Holdings Co Ltd     17,820,239    
    27,200     Shimamura Co     1,523,279    
    387,700     Shin-Etsu Chemical Co Ltd     21,567,823    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Japan — continued  
    120,000     Shionogi and Co Ltd     2,705,268    
    225,000     Shiseido Co Ltd     5,268,097    
    449,000     Sojitz Corp     1,281,116    
    74,800     SUMCO Corp     1,481,833    
    1,262,000     Sumitomo Metal Industries Ltd     5,574,955    
    816,200     Takeda Pharmaceutical Co Ltd     42,638,523    
    270,400     Terumo Corp     15,042,986    
    58,600     Tokyo Electron Ltd     3,315,446    
    620,000     Toshiba Corp     3,458,259    
    110,900     Toyoda Gosei Co Ltd     2,471,393    
    90,800     Toyota Motor Corp     4,051,350    
    61,700     Toyota Tsusho Kaisha     1,055,008    
    73,000     Trend Micro Inc     2,470,567    
    42,800     Uni-Charm Corp     3,184,097    
    24,923     Yahoo Japan Corp     9,551,759    
    84,900     Yamada Denki Co Ltd     6,099,327    
    Total Japan     597,800,657    
      Netherlands — 1.6%  
    49,272     Boskalis Westminster     2,910,282    
    47,889     Fugro NV     3,693,236    
    235,511     Heineken NV (a)      11,041,452    
    51,700     ING Groep NV     1,610,676    
    534,509     Koninklijke KPN NV     9,069,103    
    220,429     Reed Elsevier NV     3,685,599    
    87,278     TomTom NV *      2,155,727    
    706,501     Unilever NV     19,494,386    
    Total Netherlands     53,660,461    
      Norway — 0.6%  
    43,100     Frontline Ltd     2,578,465    
    96,300     Seadrill Ltd     2,628,072    
    318,400     StatoilHydro ASA     9,767,058    
    63,380     Yara International ASA     3,924,327    
    Total Norway     18,897,922    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Portugal — 0.1%  
    357,111     Portugal Telecom SA     3,731,004    
      Singapore — 1.2%  
    660,000     Keppel Corp Ltd     4,583,415    
    1,471,000     Keppel Land Ltd     3,995,643    
    513,000     Sembcorp Industries Ltd     1,489,096    
    1,045,000     SembCorp Marine Ltd     2,769,705    
    401,000     Singapore Exchange Ltd     1,770,733    
    1,606,000     Singapore Press Holdings Ltd     4,645,562    
    2,318,000     Singapore Technologies Engineering Ltd     4,578,911    
    6,682,500     Singapore Telecommunications     16,492,979    
    Total Singapore     40,326,044    
      Spain — 3.7%  
    80,531     Abertis Infraestructuras SA     1,663,383    
    105,737     Banco Popular Espanol SA     1,117,371    
    83,022     Gas Natural SDG SA     3,846,253    
    327,418     Iberdrola SA     3,945,165    
    203,199     Inditex SA     9,450,136    
    104,344     Red Electrica de Espana     6,156,302    
    4,015,092     Telefonica SA     99,206,885    
    Total Spain     125,385,495    
      Sweden — 0.8%  
    364,850     Hennes & Mauritz AB Class B     18,080,394    
    118,600     Investor AB Class B     2,497,101    
    83,600     Kinnevik Investment AB Class B     1,240,135    
    212,400     Sandvik AB     2,632,332    
    120,000     Swedish Match AB     2,366,281    
    32,900     Vostok Gas Ltd *      1,749,982    
    Total Sweden     28,566,225    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      Switzerland — 12.0%  
      1,502,290     ABB Ltd *      36,847,750    
      245,367     CIE Financiere Richemont SA Class A     14,276,654    
    29,331     Credit Suisse Group     1,360,451    
    26,545     Geberit AG (Registered)     3,863,673    
    2,664,783     Nestle SA (Registered)     117,409,204    
    1,848,364     Novartis AG (Registered)     102,969,729    
    444,164     Roche Holding AG (Non Voting)     74,743,223    
    2,872     SGS SA (Registered)     3,679,955    
    19,477     Swatch Group AG     4,577,687    
    11,174     Swisscom AG (Registered)     3,580,531    
    116,500     Syngenta AG (Registered)     31,258,067    
    69,917     Synthes Inc     9,675,055    
    200,259     UBS AG (Registered) *      4,352,848    
    4,368     Zurich Financial Services AG     1,140,338    
    Total Switzerland     409,735,165    
      United Kingdom — 21.8%  
    399,447     3i Group Plc     6,674,713    
    525,373     Antofagasta Plc     5,905,223    
    731,819     AstraZeneca Plc     35,677,597    
    136,811     Aviva Plc     1,277,080    
    345,952     BAE Systems Plc     3,019,339    
    206,301     Barclays Plc     1,320,106    
    5,850,807     BG Group Plc     129,778,799    
    227,914     BHP Billiton Plc     7,098,597    
    936,507     British American Tobacco Plc     31,639,098    
    378,535     British Sky Broadcasting Plc     3,207,247    
    716,082     BT Group Plc     2,247,483    
    174,643     Bunzl Plc     2,270,108    
    578,429     Burberry Group Plc     4,708,270    
    455,439     Cadbury Plc     5,226,671    
    443,103     Capita Group Plc     5,701,062    
    715,776     Centrica Plc     4,260,929    
    884,104     Cobham Plc     3,695,696    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
      United Kingdom — continued  
    207,227     Daily Mail & General Trust Plc     1,399,012    
    2,433,194     Diageo Plc     44,938,499    
    1,871,317     DSG International Plc     1,681,346    
    211,950     Enterprise Inns Plc (Ordinary Shares)     1,166,052    
    7,099,684     GlaxoSmithKline Plc     167,061,287    
    234,071     HBOS Plc     1,339,806    
    186,786     HSBC Holdings Plc     2,939,014    
    244,926     ICAP Plc     2,108,959    
    424,438     Imperial Tobacco Group Plc     13,994,060    
    44,013     Kazakhmys Plc     1,032,821    
    87,487     London Stock Exchange     1,257,211    
    331,063     Man Group Plc     3,411,462    
    475,307     Marks & Spencer Group Plc     2,265,151    
    154,567     Next Plc     2,982,406    
    105,242     Persimmon Plc     712,380    
    274,716     Petrofac Ltd     3,258,385    
    167,752     Prudential Plc     1,665,896    
    632,817     Reckitt Benckiser Group Plc     31,991,668    
    913,575     Reed Elsevier Plc     10,441,328    
    751,958     Rio Tinto Plc     71,382,427    
    309,526     Royal Bank of Scotland Group     1,316,437    
    39,509     Royal Dutch Shell Plc B Shares (London)     1,358,573    
    454,648     Sage Group Plc     1,733,507    
    409,857     Scottish & Southern Energy Plc     10,795,335    
    492,089     Smith & Nephew Plc     5,905,249    
    132,870     Smiths Group Plc     2,762,702    
    605,393     Tesco Plc     4,196,213    
    96,877     Thomson Reuters Plc     2,706,188    
    242,671     Travis Perkins Plc     2,955,271    
    340,273     Tullow Oil Plc     5,100,266    
    261,232     Unilever Plc     7,006,802    
    79,518     United Utilities Group Plc     1,034,649    
    173,972     Vedanta Resources Plc     5,744,178    
    21,629,573     Vodafone Group Inc     55,273,366    

 

See accompanying notes to the financial statements.


13



GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
      United Kingdom — continued  
    331,173     William Hill Plc     1,703,642    
    245,966     Wolseley Plc     1,984,617    
    276,322     Xstrata Plc     15,405,820    
    Total United Kingdom     747,720,003    
    TOTAL COMMON STOCKS (COST $3,384,316,468)     3,226,777,646    
      PREFERRED STOCKS — 0.3%  
      Germany — 0.3%  
    33,054     Fresenius SE (Non Voting) 1.19%     2,704,804    
    11,295     Porsche AG (Non Voting) 0.71%     1,602,500    
    41,027     Volkswagen AG 1.73%     6,324,149    
    Total Germany     10,631,453    
    TOTAL PREFERRED STOCKS (COST $5,723,737)     10,631,453    
      RIGHTS AND WARRANTS — 0.0%  
      Australia — 0.0%  
    5,339     Leighton Holdings Rights, Expires 09/11/08 *      51,164    
    TOTAL RIGHTS AND WARRANTS (COST $34,155)     51,164    
      SHORT-TERM INVESTMENTS — 3.9%  
    10,868,000     Bank of New York Mellon Institutional Cash Reserves Fund (b)      10,868,000    
    124,300,000     HBOS Treasury Services Time Deposit, 2.05%, due 09/02/08     124,300,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $135,168,000)     135,168,000    
          TOTAL INVESTMENTS — 98.4%
(Cost $3,525,242,360)
    3,372,628,263    
          Other Assets and Liabilities (net) — 1.6%     53,343,077    
    TOTAL NET ASSETS — 100.0%   $ 3,425,971,340    

 

See accompanying notes to the financial statements.


14



GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   CHF     17,870,458     $ 16,241,737     $ (23,801 )  
11/21/08   CHF     18,411,987       16,733,911       (33,526 )  
11/21/08   CHF     17,870,458       16,241,737       (37,462 )  
11/21/08   EUR     13,136,588       19,191,049       (27,780 )  
11/21/08   EUR     13,136,588       19,191,049       (19,543 )  
11/21/08   EUR     13,136,588       19,191,049       (29,881 )  
11/21/08   EUR     13,136,588       19,191,049       (58,821 )  
11/21/08   EUR     13,136,588       19,191,049       (16,679 )  
11/21/08   JPY     4,696,098,771       43,348,230       529,914    
11/21/08   JPY     4,696,098,771       43,348,230       534,208    
11/21/08   JPY     4,696,098,771       43,348,230       491,620    
11/21/08   JPY     4,696,098,771       43,348,230       517,417    
11/21/08   JPY     4,696,098,771       43,348,230       548,178    
11/21/08   JPY     4,696,098,771       43,348,230       528,196    
11/21/08   JPY     4,696,098,771       43,348,230       533,818    
11/21/08   NOK     56,583,058       10,351,983       (6,661 )  
11/21/08   NOK     56,583,058       10,351,983       (4,119 )  
11/21/08   NOK     58,297,696       10,665,679       13,223    
11/21/08   NZD     5,354,339       3,704,243       (65,875 )  
11/21/08   NZD     5,516,591       3,816,493       (66,305 )  
11/21/08   NZD     5,354,339       3,704,243       (59,536 )  
11/21/08   SEK     147,939,989       22,823,057       (341,581 )  
11/21/08   SEK     147,939,989       22,823,057       (304,491 )  
11/21/08   SEK     147,939,989       22,823,057       (317,714 )  
11/21/08   SEK     147,939,989       22,823,057       (309,192 )  
11/21/08   SEK     147,939,989       22,823,057       (339,615 )  
11/21/08   SEK     147,939,989       22,823,057       (298,339 )  
11/21/08   SEK     147,939,989       22,823,057       (343,714 )  
11/21/08   SGD     22,504,022       15,934,091       (55,693 )  
11/21/08   SGD     22,504,022       15,934,091       (56,261 )  
11/21/08   SGD     22,504,022       15,934,091       (44,510 )  
11/21/08   SGD     22,504,022       15,934,091       (50,015 )  
    $ 714,702,627     $ 785,460    

 

See accompanying notes to the financial statements.


15



GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
11/21/08   AUD     23,226,824     $ 19,755,350     $ 295,833    
11/21/08   AUD     23,226,824       19,755,351       287,772    
11/21/08   AUD     23,226,824       19,755,351       291,048    
11/21/08   AUD     23,226,824       19,755,351       291,257    
11/21/08   AUD     23,226,824       19,755,351       277,088    
11/21/08   AUD     23,226,824       19,755,351       221,762    
11/21/08   AUD     23,226,824       19,755,351       285,450    
11/21/08   CAD     15,642,330       14,719,214       39,525    
11/21/08   CAD     15,642,330       14,719,214       40,625    
11/21/08   CAD     15,642,330       14,719,214       39,650    
11/21/08   CAD     15,642,330       14,719,214       28,796    
11/21/08   CAD     15,642,330       14,719,214       48,289    
11/21/08   CAD     15,642,330       14,719,214       (4,486 )  
11/21/08   CAD     15,642,330       14,719,214       43,550    
11/21/08   CHF     22,947,008       20,855,608       817,048    
11/21/08   CHF     22,947,008       20,855,608       765,405    
11/21/08   DKK     100,101,458       19,603,892       46,647    
11/21/08   DKK     100,101,458       19,603,892       29,620    
11/21/08   DKK     100,101,458       19,603,892       24,615    
11/21/08   DKK     100,101,458       19,603,892       43,107    
11/21/08   GBP     10,813,424       19,597,936       458,835    
11/21/08   GBP     10,813,424       19,597,936       452,531    
11/21/08   GBP     10,813,424       19,597,936       446,540    
11/21/08   GBP     10,813,424       19,597,936       435,229    
11/21/08   GBP     10,813,424       19,597,936       449,395    
11/21/08   GBP     10,813,424       19,597,936       441,339    
11/21/08   GBP     10,813,424       19,597,936       450,909    
11/21/08   HKD     140,592,035       18,041,107       (14,988 )  
11/21/08   HKD     140,592,035       18,041,107       (14,985 )  
11/21/08   HKD     144,852,400       18,587,808       (16,987 )  
11/21/08   JPY     1,656,394,000       15,289,659       (25,465 )  
11/21/08   NOK     207,894,440       38,034,701       1,419,200    
11/21/08   NOK     34,649,074       6,339,117       232,792    
11/21/08   NOK     17,324,537       3,169,559       37,887    
    $ 616,137,348     $ 8,664,833    

 

See accompanying notes to the financial statements.


16



GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  391     DAX   September 2008   $ 92,302,073     $ (4,958,402 )  
  455     E-Mini MSCI EAFE   September 2008     41,063,750       697,515    
  668     MSCI Singapore   September 2008     32,008,186       469,590    
                $ 165,374,009     $ (3,791,297 )  
Sales      
  102     S&P Toronto 60   September 2008   $ 15,802,411     $ 1,386,652    
  32     S&P/MIB   September 2008     6,767,912       216,766    
  197     SPI 200   September 2008     21,754,478       (466,905 )  
                $ 44,324,801     $ 1,136,513    

 

As of August 31, 2008, 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).

As of August 31, 2008, 88.27% 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 Growth Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $10,314,257
(cost $3,525,242,360) (Note 2)
  $ 3,372,628,263    
Cash     69,838    
Foreign currency, at value (cost $1,668,445) (Note 2)     1,664,058    
Receivable for Fund shares sold     21,220,168    
Dividends and interest receivable     5,189,814    
Foreign taxes receivable     1,956,116    
Unrealized appreciation on open forward currency contracts (Note 2)     12,438,318    
Receivable for collateral on open futures contracts (Note 2)     26,908,000    
Receivable for expenses reimbursed by Manager (Note 3)     170,923    
Total assets     3,442,245,498    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     10,868,000    
Payable to affiliate for (Note 3):  
Management fee     1,446,178    
Shareholder service fee     308,111    
Trustees and Chief Compliance Officer of GMO Trust fees     7,407    
Unrealized depreciation on open forward currency contracts (Note 2)     2,988,025    
Payable for variation margin on open futures contracts (Note 2)     4,154    
Accrued expenses     652,283    
Total liabilities     16,274,158    
Net assets   $ 3,425,971,340    

 

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, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 3,589,952,369    
Accumulated undistributed net investment income     35,484,755    
Accumulated net realized loss     (53,385,919 )  
Net unrealized depreciation     (146,079,865 )  
    $ 3,425,971,340    
Net assets attributable to:  
Class III shares   $ 934,023,605    
Class IV shares   $ 2,491,947,735    
Shares outstanding:  
Class III     38,840,239    
Class IV     103,528,814    
Net asset value per share:  
Class III   $ 24.05    
Class IV   $ 24.07    

 

See accompanying notes to the financial statements.


19



GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $5,868,418)   $ 58,673,448    
Securities lending income     1,958,249    
Interest     1,275,095    
Total investment income     61,906,792    
Expenses:  
Management fee (Note 3)     9,171,172    
Shareholder service fee – Class III (Note 3)     729,902    
Shareholder service fee – Class IV (Note 3)     1,169,831    
Custodian and fund accounting agent fees     951,280    
Transfer agent fees     22,724    
Audit and tax fees     39,928    
Legal fees     41,308    
Trustees fees and related expenses (Note 3)     18,882    
Registration fees     1,472    
Miscellaneous     29,624    
Total expenses     12,176,123    
Fees and expenses reimbursed by Manager (Note 3)     (1,075,973 )  
Expense reductions (Note 2)     (3,463 )  
Net expenses     11,096,687    
Net investment income (loss)     50,810,105    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (20,331,604 )  
Closed futures contracts     (27,483,207 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,920,204 )  
Net realized gain (loss)     (49,735,015 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (295,467,965 )  
Open futures contracts     15,884,754    
Foreign currency, forward contracts and foreign currency related transactions     (3,440,981 )  
Net unrealized gain (loss)     (283,024,192 )  
Net realized and unrealized gain (loss)     (332,759,207 )  
Net increase (decrease) in net assets resulting from operations   $ (281,949,102 )  

 

See accompanying notes to the financial statements.


20



GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 50,810,105     $ 88,762,173    
Net realized gain (loss)     (49,735,015 )     588,918,771    
Change in net unrealized appreciation (depreciation)     (283,024,192 )     (429,914,938 )  
Net increase (decrease) in net assets from operations     (281,949,102 )     247,766,006    
Distributions to shareholders from:  
Net investment income  
Class III     (19,442,503 )     (12,574,532 )  
Class IV     (51,296,613 )     (33,113,153 )  
Total distributions from net investment income     (70,739,116 )     (45,687,685 )  
Net realized gains  
Class III     (33,779,254 )     (165,474,422 )  
Class IV     (88,650,878 )     (436,843,880 )  
Total distributions from net realized gains     (122,430,132 )     (602,318,302 )  
      (193,169,248 )     (648,005,987 )  
Net share transactions (Note 7):  
Class III     46,596,559       195,928,030    
Class IV     319,800,100       (76,118,558 )  
Increase (decrease) in net assets resulting from net share
transactions
    366,396,659       119,809,472    
Total increase (decrease) in net assets     (108,721,691 )     (280,430,509 )  
Net assets:  
Beginning of period     3,534,693,031       3,815,123,540    
End of period (including accumulated undistributed net investment
income of $35,484,755 and $55,413,766, respectively)
  $ 3,425,971,340     $ 3,534,693,031    

 

See accompanying notes to the financial statements.


21




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 27.68     $ 31.37     $ 29.90     $ 27.22     $ 23.67     $ 16.83    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.38       0.69       0.77       0.53       0.40       0.29    
Net realized and unrealized
gain (loss)
    (2.51 )     1.28       4.80       3.57       3.94       6.81    
Total from investment
operations
    (2.13 )     1.97       5.57       4.10       4.34       7.10    
Less distributions to shareholders:  
From net investment income     (0.55 )     (0.40 )     (0.49 )     (0.10 )     (0.33 )     (0.26 )  
From net realized gains     (0.95 )     (5.26 )     (3.61 )     (1.32 )     (0.46 )        
Total distributions     (1.50 )     (5.66 )     (4.10 )     (1.42 )     (0.79 )     (0.26 )  
Net asset value, end of period   $ 24.05     $ 27.68     $ 31.37     $ 29.90     $ 27.22     $ 23.67    
Total Return(a)      (7.89 )%**      5.04 %     19.21 %     15.54 %     18.66 %     42.33 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 934,024     $ 1,018,040     $ 950,332     $ 3,119,919     $ 1,653,053     $ 565,104    
Net expenses to average daily
net assets
    0.67 %(b)*      0.67 %(b)      0.67 %     0.68 %     0.69 %     0.69 %  
Net investment income to
average daily net assets
    2.80 %*      2.13 %     2.46 %     1.89 %     1.64 %     1.38 %  
Portfolio turnover rate     34 %**      92 %     74 %     57 %     52 %     63 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.06 %*      0.05 %     0.05 %     0.08 %     0.09 %     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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


22



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 27.70     $ 31.38     $ 29.92    
Income (loss) from investment operations:  
Net investment income (loss)      0.39       0.73       0.20    
Net realized and unrealized gain (loss)     (2.52 )     1.26       4.48    
Total from investment operations     (2.13 )     1.99       4.68    
Less distributions to shareholders:  
From net investment income     (0.55 )     (0.41 )     (0.50 )  
From net realized gains     (0.95 )     (5.26 )     (2.72 )  
Total distributions     (1.50 )     (5.67 )     (3.22 )  
Net asset value, end of period   $ 24.07     $ 27.70     $ 31.38    
Total Return(b)      (7.88 )%**      5.11 %     15.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,491,948     $ 2,516,653     $ 2,864,791    
Net expenses to average daily net assets     0.60 %(c)*      0.61 %(c)      0.61 %*   
Net investment income to average daily net assets     2.86 %*      2.24 %     1.01 %*   
Portfolio turnover rate     34 %**      92 %     74 %††   
Fees and expenses reimbursed by the Manager to average
daily net assets:
    0.06 %*      0.05 %     0.05 %*   

 

(a)  Period from July 12, 2006 (commencement of operations) through February 28, 2007.

(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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

†  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.


23




GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, 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/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.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. Because many foreign equity securities markets and exchanges close prior to the close of the New York Stock Exchange


24



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 337,416,707     $ 4,434,581    
Level 2 - Other Significant Observable Inputs     3,035,211,556       12,438,318    
Level 3 - Significant Unobservable Inputs              
Total   $ 3,372,628,263     $ 16,872,899    

 

*  Other financial instruments include foreign currency, forward currency contracts and futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (5,425,307 )  
Level 2 - Other Significant Observable Inputs           (2,988,025 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (8,413,332 )  

 

**  Other financial instruments include forward currency contracts and futures contracts.


25



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities.


26



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.


27



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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


28



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, the Fund had loaned securities valued by the Fund at $10,314,257, collateralized by cash in the amount of $10,868,000, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


29



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 3,528,497,903     $ 198,250,157     $ (354,119,797 )   $ (155,869,640 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances


30



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

Effective June 30, 2008, GMO receives a management fee for investment management services provided to the Fund that is paid monthly at the annual rate of 0.50% of average daily net assets. For the period from March 1, 2008 through June 29, 2008, the management fee rate was 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Expenses include 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


31



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 fee paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $17,410 and $10,028, 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, 2008 aggregated $1,355,114,540 and $1,146,970,224, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 41.76% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 96.37% of the Fund's shares were held by accounts for which the Manager has investment discretion.


32



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     5,055,920     $ 134,432,270       6,367,909     $ 201,027,055    
Shares issued to shareholders
in reinvestment of distributions
    1,990,138       49,435,033       5,685,508       173,931,678    
Shares repurchased     (4,984,026 )     (137,270,744 )     (5,568,633 )     (179,030,703 )  
Net increase (decrease)     2,062,032     $ 46,596,559       6,484,784     $ 195,928,030    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     17,769,634     $ 466,519,706       20,701,601     $ 636,413,259    
Shares issued to shareholders
in reinvestment of distributions
    5,602,881       139,287,622       15,300,242       469,510,148    
Shares repurchased     (10,699,574 )     (286,007,228 )     (36,433,738 )     (1,182,041,965 )  
Net increase (decrease)     12,672,941     $ 319,800,100       (431,895 )   $ (76,118,558 )  

 


33




GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 ove rall competence of the Manager.

The Trustees also gave substantial consideration to the fees payable under the Fund's investment management agreement, including the fact that the fees payable under the agreement were being reduced in connection with the renewal of the agreement. The Trustees considered information prepared by


34



GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

third-party data services concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 th e 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


35



GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


36



GMO International Growth Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 921.10     $ 3.24    
2) Hypothetical     0.67 %   $ 1,000.00     $ 1,021.83     $ 3.41    
Class IV      
1) Actual     0.60 %   $ 1,000.00     $ 921.20     $ 2.91    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.18     $ 3.06    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


37




GMO International Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     93.7 %  
Short-Term Investments     4.7    
Preferred Stocks     0.4    
Futures     0.1    
Forward Currency Contracts     0.0    
Rights and Warrants     0.0    
Other     1.1    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     29.1 %  
United Kingdom     18.2    
Germany     8.0    
Canada     7.4    
Australia     6.3    
France     5.4    
Sweden     4.6    
Netherlands     3.7    
Singapore     3.2    
Switzerland     2.7    
Italy     2.6    
Belgium     2.1    
Ireland     1.4    
Finland     1.1    
Hong Kong     1.1    
Greece     1.0    
Norway     0.7    
Austria     0.5    
New Zealand     0.4    
Portugal     0.4    
Spain     0.1    
India     0.0    
      100.0 %  

 


1



GMO International Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments  
Industrials     22.0 %  
Consumer Discretionary     17.4    
Financials     13.2    
Materials     11.3    
Energy     9.8    
Information Technology     9.3    
Health Care     7.4    
Consumer Staples     6.7    
Utilities     2.2    
Telecommunication Services     0.7    
      100.0 %  

 


2




GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 93.7%        
        Australia — 5.9%        
  105,109     Aquarius Platinum Ltd     958,784    
  251,627     Boral Ltd     1,382,473    
  98,399     Cabcharge Australia Ltd     581,200    
  335,554     Centennial Coal Co Ltd     1,634,389    
  31,614     Cochlear Ltd     1,483,252    
  1,687,677     Commonwealth Property Office Fund     2,006,574    
  939,440     CSR Ltd     2,131,859    
  464,953     Downer Edi Ltd     2,941,552    
  70,552     Flight Centre Ltd     1,148,587    
  349,915     Gunns Ltd     503,291    
  27,052     Incitec Pivot Ltd     3,680,237    
  839,394     ING Industrial Fund Unit     1,142,448    
  863,144     ING Office Fund     1,061,595    
  89,779     MacArthur Coal Ltd     1,025,656    
  527,939     Macmahon Holdings Ltd     789,856    
  857,701     Macquarie CountryWide Trust     760,371    
  2,079,135     Macquarie DDR Trust     618,803    
  3,045,429     Macquarie Office Trust     2,698,009    
  333,680     MFS Ltd     283,666    
  727,762     Mount Gibson Iron Ltd *      1,489,519    
  1,105,714     Pan Australian Resources Ltd *      817,404    
  881,996     PaperlinX Ltd     1,466,268    
  293,109     Queensland Gas Co Ltd *      1,060,507    
  48,922     Sims Group Ltd     1,434,102    
  564,516     Tishman Speyer Office Fund     538,072    
  164,194     West Australian Newspapers Holdings Ltd     1,275,567    
    Total Australia     34,914,041    
        Austria — 0.5%        
  16,762     Flughafen Wien AG     1,359,573    
  19,232     Mayr-Melnhof Karton AG (Bearer)     1,514,761    
    Total Austria     2,874,334    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Belgium — 2.0%        
  12,157     Bekaert NV     2,119,973    
  6,886     Cofinimmo SA     1,246,968    
  81,888     Euronav SA     3,464,154    
  14,703     EVS Broadcast Equipment SA     1,270,620    
  30,361     GIMV NV     1,845,137    
  30,081     Tessenderlo Chemie     1,663,325    
    Total Belgium     11,610,177    
        Canada — 7.0%        
  100,100     Ace Aviation Holdings Inc Class A *      1,038,898    
  98,900     Advantage Energy Income Fund     1,129,833    
  73,300     Baytex Trust     2,243,596    
  105,300     Biovail Corp     1,150,386    
  200,500     CGI Group Inc *      2,188,543    
  69,400     Crescent Point Energy Trust     2,564,754    
  130,900     Daylight Resources Trust     1,602,656    
  30,800     Dorel Industries Inc Class B     980,158    
  96,500     Fairborne Energy Ltd     1,234,197    
  99,600     Gerdau Ameristeel Corp     1,407,045    
  110,800     Hudbay Minerals Inc *      1,120,731    
  92,100     Kingsway Financial Services Inc     815,351    
  50,200     Laurentian Bank of Canada     1,900,584    
  55,000     Linamar Corp     611,744    
  103,400     Methanex Corp     2,627,361    
  229,400     Northgate Minerals Corp *      356,480    
  38,200     Open Text Corp *      1,358,118    
  46,100     Petrobank Energy and Resources Ltd *      2,036,250    
  30,671     Quebecor Inc Class B     818,336    
  157,200     RONA Inc *      1,998,681    
  81,900     Rothmans Inc     2,298,568    
  77,700     Russel Metals Inc     2,247,285    
  69,700     Torstar Corp Class B     1,004,342    
  102,900     Transcontinental Inc     1,599,030    
  49,100     Trican Well Service Ltd     991,433    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued        
  114,500     Trinidad Drilling Ltd     1,380,298    
  109,200     TriStar Oil & Gas Ltd *      2,189,554    
    Total Canada     40,894,212    
        Finland — 1.0%        
  93,502     Amer Sports Oyj Class A     1,259,075    
  128,771     OKO Bank     2,078,219    
  45,400     Orion Oyj     854,530    
  93,233     Tietoenator Oyj     1,830,548    
    Total Finland     6,022,372    
        France — 5.1%        
  2,145     Areva     2,164,108    
  7,903     BIC SA     476,807    
  19,288     bioMerieux     2,098,217    
  5,947     Bollore     1,056,248    
  4,957     Casino Guichard-Perrachon SA     485,755    
  13,663     Ciments Francais     1,883,086    
  11,203     Fonciere des Regions     1,277,291    
  70,723     Gemalto NV *      3,022,805    
  22,275     Groupe Steria SCA     598,481    
  28,974     IMS International Metal Service     653,254    
  25,175     Ipsen SA     1,363,673    
  105,112     Maurel et Prom     2,172,742    
  18,671     Nexans SA     2,352,753    
  24,728     Rallye SA     1,123,241    
  44,131     Recyclex SA *      480,796    
  46,176     UbiSoft Entertainment SA *      4,307,285    
  32,128     Valeo SA     1,145,553    
  7,075     Vilmorin & Cie     1,077,667    
  9,490     Wendel Investissement     1,046,337    
  24,706     Zodiac SA     1,238,852    
    Total France     30,024,951    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Germany — 7.1%        
  169,465     Aixtron AG     1,771,447    
  129,703     Altana AG     2,067,191    
  104,029     Arques Industries AG *      1,400,051    
  18,981     Bechtle AG     567,656    
  37,362     ElringKlinger AG     859,424    
  69,377     Gildemeister AG     1,660,268    
  91,813     Hannover Rueckversicherungs AG (Registered)     3,894,590    
  55,694     Heidelberger Druckmaschinen     1,135,287    
  92,725     IKB Deutsche Industriebank AG *      319,635    
  9,236     K&S AG     1,107,267    
  33,832     Kloeckner & Co AG     1,335,432    
  15,021     Leonische Drahtwerke AG     667,300    
  61,030     Medion AG     1,055,813    
  132,109     Norddeutsche Affinerie AG     6,087,685    
  3,017     Puma AG Rudolf Dassler Sport     948,931    
  160,057     Qiagen NV *      3,385,138    
  81,803     Rhoen-Klinikum AG     2,732,247    
  66,631     SGL Carbon AG *      3,988,104    
  28,282     Stada Arzneimittel AG     1,546,411    
  186,560     Suedzucker AG     3,162,220    
  16,098     Vossloh AG     2,089,068    
    Total Germany     41,781,165    
        Greece — 0.9%        
  454,502     Alapis Holding Industrial & Commercial SA     1,133,921    
  28,671     Babis Vovos International *      826,237    
  74,742     Hellenic Exchanges SA     882,158    
  142,559     Hellenic Technodomiki Tev SA     1,398,192    
  64,743     Intralot SA     812,564    
  190,551     Technical Olympic SA *      167,729    
    Total Greece     5,220,801    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Hong Kong — 1.1%        
  88,000     Asia Satellite Telecommunications Holdings Ltd     124,752    
  201,600     Dah Sing Financial Services     1,235,302    
  1,199,200     HKR International Ltd     569,745    
  1,807,000     Pacific Basin Shipping Ltd     2,449,681    
  615,000     Sun Hung Kai & Co Ltd     464,769    
  242,000     VTech Holdings Ltd     1,443,963    
    Total Hong Kong     6,288,212    
        India — 0.0%        
  5,500     Bajaj Auto Ltd *      73,634    
  5,500     Bajaj Financial Service Ltd     67,262    
    Total India     140,896    
        Ireland — 1.3%        
  199,914     DCC Plc     4,835,810    
  809,872     Fyffes Plc     415,724    
  354,416     Grafton Group Plc *      1,986,090    
  752,380     Total Produce Ltd     605,423    
    Total Ireland     7,843,047    
        Italy — 2.5%        
  142,687     Benetton Group SPA     1,496,597    
  1,400,808     Beni Stabili SPA     1,517,864    
  177,554     Bulgari SPA     1,815,810    
  65,697     Buzzi Unicem SPA     1,300,688    
  305,053     Cementir SPA     1,805,283    
  64,019     ERG SPA     1,299,934    
  9,208     Italmobiliare SPA     663,915    
  40,172     Italmobiliare SPA-RNC     2,112,236    
  341,277     Milano Assicurazioni SPA     1,738,528    
  42,238     Pirelli & Co Real Estate SPA     823,122    
    Total Italy     14,573,977    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — 27.4%        
  136,200     Aderans Co Ltd     2,162,077    
  212,100     Alps Electric Co Ltd     1,916,962    
  247,800     AOC Holdings Inc     2,573,963    
  4,034     Asset Managers Holdings Co Ltd *      584,876    
  55,400     Autobacs Seven Co Ltd     1,539,527    
  63,900     Avex Group Holding Inc     657,434    
  317,000     Calsonic Kansei Corp     1,053,963    
  44,800     Capcom     1,369,502    
  724,000     Central Glass Co Ltd     2,821,900    
  64,400     Chiba Kogyo Bank Ltd *      774,262    
  188,000     COMSYS Holdings Corp     1,665,013    
  1,324     Creed Corp     1,241,416    
  1,723     CyberAgent Inc     1,646,330    
  432,150     Daiei Inc *      3,416,202    
  45,000     Daiichikosho Co Ltd     462,689    
  1,177,000     Daikyo Inc     1,662,158    
  202,000     Daio Paper Corp     1,742,047    
  52,800     Daiseki Co Ltd     1,708,770    
  376     DeNa Co Ltd     1,834,460    
  133,400     Don Quijote Co Ltd     2,341,460    
  274,600     Edion Corp     2,160,225    
  82,600     Foster Electric Co Ltd     1,624,201    
  172,800     Fuji Oil Co Ltd     1,851,929    
  42,800     Futaba Industrial Co Ltd     688,631    
  40,800     GLORY Ltd     870,418    
  278,100     GMO internet Inc *      1,230,235    
  718,000     Godo Steel     2,146,810    
  66,280     Goldcrest Co Ltd     1,085,605    
  396     Gourmet Navigator Inc     1,005,788    
  521,000     GS Yuasa Corp     2,664,121    
  36,780     Gulliver International Co Ltd     720,383    
  57,100     H.I.S. Co Ltd     703,661    
  756,000     Hanwa Co Ltd     3,380,871    
  428,400     Haseko Corp     434,819    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  80,400     Hisamitsu Pharmaceutical Co Inc     3,571,084    
  101,100     Hitachi Capital Corp     1,530,820    
  118,400     Hosiden Corp     1,969,952    
  705,000     Ishihara Sangyo Kaisha Ltd *      1,177,063    
  625,000     Iwatani International Corp (a)      1,705,818    
  257,000     JACCS Co Ltd *      626,610    
  366,600     Joint Corp     641,646    
  87,400     Kaga Electronics Co Ltd     1,081,384    
  712     Kakaku.com Inc     2,068,058    
  150,000     Kamigumi Co Ltd     1,157,735    
  252,000     Kayaba Industry Co     920,457    
  2,205     Kenedix Inc     1,255,922    
  3,530     KK DaVinci Advisors *      1,143,260    
  24,000     Kobayashi Pharmaceutical Co Ltd     813,329    
  140,200     Kohnan Shoji Co Ltd     1,880,150    
  123,000     Koito Manufacturing Co Ltd     1,480,378    
  123,400     Kojima Co Ltd (a)      584,871    
  339,000     Kurabo Industries Ltd     574,453    
  358,000     Kyokuyo Co Ltd     652,280    
  149,000     Kyudenko Corp     967,216    
  1,587,525     Maruha Group Inc     2,914,108    
  156,000     Meiji Dairies Corp     890,824    
  111,500     Miraca Holdings Inc     2,486,838    
  410,000     Mizuho Investors Securities     427,254    
  192,000     Nagase & Co     1,818,201    
  128,000     Nidec Sankyo Corp     680,008    
  59,500     Nihon Kohden Corp     1,297,323    
  115,000     Nihon Nohyaku Co Ltd     1,043,264    
  87,800     Nihon Unisys Ltd     1,371,737    
  111,000     Nikkiso Co Ltd     681,749    
  191,000     Nippon Corp     1,013,701    
  222,000     Nippon Denko Co Ltd     1,910,532    
  292,000     Nippon Flour Mills Co Ltd     1,395,890    
  722,000     Nippon Light Metal     1,089,341    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  158,000     Nippon Synthetic Chemical Industry Co Ltd     614,765    
  109,400     Nippon System Development Co Ltd     1,209,661    
  118,500     Nippon Yakin Koguo Co Ltd     583,436    
  84,000     Nipro Corp     1,533,074    
  471,000     Nissan Shatai Co Ltd     3,506,798    
  42,800     Nissha Printing Co Ltd     2,311,520    
  82,400     Nissin Kogyo Co Ltd     1,471,625    
  233,000     Ogaki Kyoritsu Bank Ltd     1,196,165    
  260,000     Okasan Securities Co Ltd     1,288,672    
  33,000     Okinawa Electric Power Co     1,753,511    
  320     Osaka Securities Exchange Co Ltd     1,136,641    
  4,152     Pacific Holdings Co *      492,346    
  263,000     Pacific Metals Co Ltd     1,683,086    
  55,240     Point Inc     1,847,025    
  124,900     Q.P. Corp     1,182,308    
  1,916     Round One Corp     1,571,101    
  266,000     Ryobi Ltd     878,024    
  53,700     Ryohin Keikaku Co Ltd     2,881,467    
  79,300     Ryosan Co     1,703,726    
  428,000     Sanken Electric Co Ltd     2,203,639    
  106,000     Sanki Engineering     777,170    
  550,000     Sankyo-Tateyama Holdings Inc     610,434    
  184,000     Sankyu Inc     870,888    
  30,700     Sawai Pharmaceuticals Co Ltd     1,354,643    
  141,000     Seino Holdings Co Ltd     824,432    
  38,100     Shima Seiki Manufacturing Ltd     886,567    
  73,800     Shimachu Co     1,774,587    
  98,500     Shinko Plantech Co Ltd     1,000,419    
  281,500     Showa Corp     2,002,253    
  210     So-net Entertainment Corp     595,435    
  39,900     Sugi Pharmacy Co Ltd     1,149,462    
  910,000     Sumitomo Light Metal Industry     974,752    
  267,000     Taihei Kogyo Co Ltd     872,779    
  592,000     TOA Corp *      690,183    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  197,000     Toho Gas Co Ltd     1,108,562    
  117,800     Tokyo Steel Manufacturing Co     1,243,764    
  567,000     Topy Industries Ltd     1,607,744    
  79,000     Toshiba Plant Systems & Services Corp     716,732    
  137,000     Toyo Engineering Corp     714,131    
  51,000     Toyo Suisan Kaisha Ltd     1,271,846    
  463,000     Toyo Tire & Rubber Co Ltd     1,195,710    
  96,500     Tsumura & Co     2,689,887    
  114,000     Uchida Yoko Co Ltd     432,567    
  320,000     Uniden Corp     1,391,271    
  39,700     Union Tool Co     955,473    
  938,000     Unitika Ltd     853,455    
  932     Works Applications Co Ltd     1,053,582    
  58,200     Xebio Co Ltd     1,072,271    
  131,000     Yokohama Rubber Co     685,383    
    Total Japan     160,990,936    
        Netherlands — 3.4%        
  103,668     Boskalis Westminster     6,123,216    
  70,649     CSM     1,892,030    
  29,753     Koninklijke Vopak NV     1,751,836    
  114,136     OCE NV     1,108,223    
  64,476     OPG Groep NV     1,077,829    
  33,270     Smit International NV     2,563,529    
  76,817     SNS Reaal     1,276,489    
  26,205     Vastned NV     2,033,978    
  22,048     Wereldhave NV     2,458,916    
    Total Netherlands     20,286,046    
        New Zealand — 0.4%        
  941,323     Fisher & Paykel Healthcare Corp Ltd     2,069,868    
        Norway — 0.6%        
  62,780     Frontline Ltd     3,755,824    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Portugal — 0.4%        
  179,749     Jeronimo Martins SGPS SA     1,539,775    
  140,175     Redes Energeticas Nacionais SA     629,085    
    Total Portugal     2,168,860    
        Singapore — 3.0%        
  617,000     Ezra Holdings Ltd     781,172    
  818,000     Indofood Agri Resources Ltd *      630,767    
  648,000     Kim Eng Holdings Ltd     582,951    
  718,000     KS Energy Services Ltd     832,435    
  862,000     MobileOne Ltd     1,162,169    
  863,100     Pacific Century Region Developments Ltd     179,131    
  1,659,000     Raffles Education Corp Ltd     975,111    
  511,000     Singapore Airport Terminal Services Ltd     573,403    
  914,000     Singapore Petroleum Co     3,434,055    
  2,206,000     Singapore Post Ltd     1,581,663    
  1,477,000     SMRT Corp Ltd     1,909,713    
  1,080,000     Straits Asia Resources Ltd     1,921,677    
  610,000     Tat Hong Holdings Ltd     534,947    
  584,000     United Overseas Land     1,180,735    
  156,000     Venture Corp Ltd     1,095,682    
  505,000     Wheelock Properties Ltd     464,926    
    Total Singapore     17,840,537    
        Spain — 0.1%        
  13,640     Corp Financiera Alba     717,387    
        Sweden — 4.3%        
  79,200     Axfood AB     2,487,760    
  79,500     Boliden AB     500,833    
  63,100     D Carnegie AB     790,333    
  102,700     Electrolux AB Series B     1,317,675    
  72,200     Elekta AB Class B Shares     1,532,541    
  108,200     Fabege AB     778,026    
  69,755     Getinge AB     1,589,328    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Sweden — continued        
  170,217     Kinnevik Investment AB Class B     2,525,026    
  303,400     Kungsleden AB     2,341,166    
  125,700     NCC Class B     1,644,367    
  29,900     Oriflame Cosmetics SA SDR     1,728,456    
  56,900     Ratos AB Series B     1,552,645    
  107,000     Trelleborg AB Class B     1,854,751    
  86,675     Vostok Gas Ltd *      4,610,325    
    Total Sweden     25,253,232    
        Switzerland — 2.6%        
  30,349     Actelion Ltd *      1,742,071    
  20,232     Aryzta AG *      1,052,803    
  11,014     Bucher Industries AG     2,258,205    
  2,486     Burckhardt Compression Holding AG     638,018    
  107,239     Ciba Holding AG     2,641,392    
  136,688     Clariant AG *      1,227,616    
  6,679     Galenica AG     2,644,980    
  28,866     PSP Swiss Property AG (Registered) *      1,748,273    
  6,320     Swiss Steel AG (Registered)     351,772    
  4,223     Verwaltungs & Private Bank     820,723    
    Total Switzerland     15,125,853    
        United Kingdom — 17.1%        
  49,647     Admiral Group Plc     876,700    
  376,525     Aggreko Plc     4,933,405    
  440,543     Amlin Plc     2,323,768    
  718,309     Aricom Plc *      605,976    
  647,530     ARM Holdings Plc     1,307,946    
  85,357     Arriva Plc     1,231,347    
  78,192     Aveva Group Plc     2,086,388    
  520,645     BBA Aviation Plc     1,258,545    
  316,345     Brit Insurance Holdings Plc     1,113,914    
  45,222     British Energy Group Plc     603,904    
  32,872     Cairn Energy Plc *      1,778,477    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  301,039     Chloride Group Plc     1,370,281    
  146,485     Close Brothers Group Plc     1,678,569    
  162,134     Dairy Crest Group Plc     1,381,204    
  94,895     Dana Petroleum Plc (Ordinary Shares) *      2,597,942    
  179,152     De La Rue Plc     2,866,542    
  3,137,460     Dimension Data Holdings Plc     3,015,691    
  449,134     Drax Group Plc     6,091,976    
  2,730,117     DSG International Plc     2,452,963    
  728,643     Electrocomponents Plc     2,289,829    
  184,225     Ferrexpo Plc     857,200    
  462,729     Game Group Plc     2,270,832    
  112,527     Greene King Plc     1,095,873    
  1,353,403     HMV Group Plc     3,255,027    
  183,075     Inchcape Plc     859,458    
  294,848     Inmarsat Plc     2,744,558    
  848,530     Johnston Press Plc     723,721    
  792,098     Kesa Electricals Plc     2,326,228    
  108,357     Ladbrokes Plc     445,365    
  243,456     LG Group Holdings Plc     1,531,631    
  101,471     Luminar Group Holdings Plc     441,182    
  203,238     Melrose Plc     598,017    
  251,860     Misys Plc     767,207    
  62,090     National Express Group Plc     1,172,722    
  1,456,273     Northern Foods Plc     1,724,938    
  174,900     PartyGaming Plc *      663,298    
  184,346     Pennon Group Plc     2,055,762    
  260,968     Petrofac Ltd     3,095,321    
  58,281     Premier Oil Plc *      1,333,185    
  92,959     Provident Financial Plc     1,534,661    
  29,548     Randgold Resources Ltd     1,310,194    
  38,882     Rotork Plc     775,051    
  4,578,290     Signet Group Plc     5,226,809    
  253,216     Smith News Plc     370,645    
  115,509     SSL International Plc     994,917    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  302,193     Stagecoach Group Plc     1,754,300    
  275,359     Taylor Nelson Sofres Plc     1,373,002    
  194,994     TDG Plc     876,314    
  636,816     Tomkins Plc     1,720,219    
  259,992     Travis Perkins Plc     3,166,208    
  1,200,025     Trinity Mirror Plc     2,344,307    
  79,696     VT Group Plc     894,625    
  72,592     Weir Group Plc (The)     1,217,410    
  222,603     WH Smith Plc     1,555,648    
  172,621     William Hill Plc     888,008    
  299,138     Wood Group (John) Plc     2,593,860    
  3,073,669     Woolworths Group Plc     405,645    
  972,982     Yell Group Plc     1,906,975    
    Total United Kingdom     100,735,690    
    TOTAL COMMON STOCKS (COST $636,695,921)     551,132,418    
        PREFERRED STOCKS — 0.4%        
        Germany — 0.4%        
  14,778     Draegerwerk AG 1.22%     938,137    
  34,859     Hugo Boss AG 6.06%     1,220,612    
    Total Germany     2,158,749    
    TOTAL PREFERRED STOCKS (COST $2,084,634)     2,158,749    
        RIGHTS AND WARRANTS — 0.0%        
        Singapore — 0.0%        
  61,000     Tat Hong Holdings Ltd Warrants, Expires 08/02/13 *      6,242    
    TOTAL RIGHTS AND WARRANTS (COST $0)     6,242    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
    SHORT-TERM INVESTMENTS — 4.7%        
  508,191     Bank of New York Mellon Institutional Cash Reserves Fund (b)      508,191    
  27,500,000     ING Bank Time Deposit, 2.08%, due 09/02/08     27,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $28,008,191)     28,008,191    
    TOTAL INVESTMENTS — 98.8%
(Cost $666,788,746)
    581,305,600    
    Other Assets and Liabilities (net) — 1.2%     6,823,130    
    TOTAL NET ASSETS — 100.0%   $ 588,128,730    

 

See accompanying notes to the financial statements.


16



GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   AUD     1,579,925     $ 1,343,790     $ (47,021 )  
11/21/08   CHF     12,715,182       11,556,315       (26,655 )  
11/21/08   CHF     12,341,206       11,216,423       (22,472 )  
11/21/08   CHF     16,412,337       14,916,509       (160,064 )  
11/21/08   CHF     8,371,035       7,608,096       (246,641 )  
11/21/08   CHF     814,226       740,017       (14,807 )  
11/21/08   DKK     2,575,027       504,294       (24,839 )  
11/21/08   DKK     2,575,026       504,294       (21,764 )  
11/21/08   EUR     1,446,000       2,112,440       (4,823 )  
11/21/08   GBP     747,000       1,353,841       (5,101 )  
11/21/08   JPY     968,443,471       8,939,401       109,280    
11/21/08   JPY     997,790,243       9,210,292       113,504    
11/21/08   JPY     968,443,471       8,939,401       106,703    
11/21/08   JPY     313,718,000       2,895,834       17,819    
11/21/08   NOK     4,291,272       785,097       (9,385 )  
11/21/08   NZD     2,101,774       1,454,051       (25,262 )  
11/21/08   SEK     34,753,676       5,361,533       (80,243 )  
11/21/08   SEK     35,806,818       5,524,004       (73,698 )  
11/21/08   SEK     34,753,676       5,361,533       (72,635 )  
11/21/08   SGD     4,464,069       3,160,808       (11,160 )  
11/21/08   SGD     4,464,069       3,160,808       (8,829 )  
11/21/08   SGD     4,599,344       3,256,590       (10,222 )  
    $ 109,905,371     $ (518,315 )  

 

See accompanying notes to the financial statements.


17



GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
11/21/08   AUD     9,973,320     $ 8,482,711     $ 127,027    
11/21/08   AUD     9,679,987       8,233,219       119,932    
11/21/08   AUD     9,679,987       8,233,219       92,421    
11/21/08   CAD     7,268,323       6,839,391       13,380    
11/21/08   CAD     7,488,575       7,046,645       (2,148 )  
11/21/08   CAD     7,268,323       6,839,391       20,236    
11/21/08   DKK     2,575,027       504,294       633    
11/21/08   DKK     2,575,026       504,294       763    
11/21/08   EUR     2,204,769       3,220,915       9,872    
11/21/08   EUR     2,139,923       3,126,182       6,408    
11/21/08   EUR     2,139,923       3,126,182       3,184    
11/21/08   GBP     2,353,696       4,265,770       97,817    
11/21/08   GBP     2,353,696       4,265,770       96,064    
11/21/08   GBP     2,425,020       4,395,036       101,121    
11/21/08   HKD     17,250,222       2,213,590       (1,839 )  
11/21/08   HKD     17,772,956       2,280,669       (1,735 )  
11/21/08   HKD     17,250,222       2,213,590       (1,813 )  
11/21/08   JPY     374,081,278       3,453,028       (3,208 )  
11/21/08   NOK     7,409,584       1,355,598       2,688    
11/21/08   NOK     7,191,655       1,315,727       847    
11/21/08   NOK     7,191,655       1,315,727       1,052    
    $ 83,230,948     $ 682,702    

 

See accompanying notes to the financial statements.


18



GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  5     AEX   September 2008   $ 605,378     $ 629    
  165     CAC 40   September 2008     10,856,537       (47,059 )  
  68     DAX   September 2008     16,052,534       (922,512 )  
  68     FTSE 100   September 2008     7,001,530       (104,333 )  
  1     Hang Seng   September 2008     136,202       (167 )  
  9     MSCI Singapore   September 2008     431,248       2,229    
  40     OMXS 30   September 2008     539,631       (6,839 )  
  24     S&P/MIB   September 2008     5,075,934       (46,732 )  
  85     TOPIX   September 2008     9,806,340       (66,713 )  
                $ 50,505,334     $ (1,191,497 )  
Sales      
  2     IBEX 35   September 2008   $ 344,067     $ 5,526    
  90     S&P Toronto 60   September 2008     13,943,304       1,155,350    
  90     SPI 200   September 2008     9,938,594       420,010    
                $ 24,225,965     $ 1,580,886    

 

As of August 31, 2008, 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.


19



GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

SDR - Swedish Depository Receipt

*  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.

As of August 31, 2008, 86.92% 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.


20




GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments at value, including securities on loan of $474,242 (cost $666,788,746) (Note 2)   $ 581,305,600    
Cash     98,422    
Foreign currency, at value (cost $2,503,810) (Note 2)     2,480,523    
Dividends and interest receivable     1,234,882    
Foreign taxes receivable     74,494    
Unrealized appreciation on open forward currency contracts (Note 2)     1,040,751    
Receivable for collateral on open futures contracts (Note 2)     5,766,000    
Receivable for variation margin on open futures contracts (Note 2)     131,917    
Receivable for expenses reimbursed by Manager (Note 3)     70,949    
Total assets     592,203,538    
Liabilities:  
Collateral on securities loaned, at value (Note 2)     508,191    
Payable for Fund shares repurchased     2,000,000    
Payable to affiliate for (Note 3):  
Management fee     295,223    
Shareholder service fee     73,805    
Trustees and Chief Compliance Officer of GMO Trust fees     1,374    
Unrealized depreciation on open forward currency contracts (Note 2)     876,364    
Accrued expenses     319,851    
Total liabilities     4,074,808    
Net assets   $ 588,128,730    
Net assets consist of:  
Paid-in capital   $ 660,164,996    
Accumulated undistributed net investment income     6,741,809    
Accumulated net realized gain     6,196,841    
Net unrealized depreciation     (84,974,916 )  
    $ 588,128,730    
Net assets attributable to:  
Class III shares   $ 588,128,730    
Shares outstanding:  
Class III     74,760,735    
Net asset value per share:  
Class III   $ 7.87    

 

See accompanying notes to the financial statements.


21



GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,476,754)   $ 14,794,740    
Securities lending income     521,615    
Interest     227,550    
Total investment income     15,543,905    
Expenses:  
Management fee (Note 3)     1,979,808    
Shareholder service fee – Class III (Note 3)     494,952    
Custodian and fund accounting agent fees     423,016    
Transfer agent fees     13,892    
Audit and tax fees     38,824    
Legal fees     7,820    
Trustees fees and related expenses (Note 3)     3,547    
Registration fees     1,104    
Miscellaneous     5,706    
Total expenses     2,968,669    
Fees and expenses reimbursed by Manager (Note 3)     (479,376 )  
Expense reductions (Note 2)     (15,711 )  
Net expenses     2,473,582    
Net investment income (loss)     13,070,323    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     11,493,596    
Closed futures contracts     (5,241,290 )  
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $158) (Note 2)
    267,017    
Net realized gain (loss)     6,519,323    
Change in net unrealized appreciation (depreciation) on:  
Investments     (96,435,552 )  
Open futures contracts     2,731,569    
Foreign currency, forward contracts and foreign currency related transactions     (2,004,372 )  
Net unrealized gain (loss)     (95,708,355 )  
Net realized and unrealized gain (loss)     (89,189,032 )  
Net increase (decrease) in net assets resulting from operations   $ (76,118,709 )  

 

See accompanying notes to the financial statements.


22



GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 13,070,323     $ 15,669,967    
Net realized gain (loss)     6,519,323       176,668,989    
Change in net unrealized appreciation (depreciation)     (95,708,355 )     (202,960,184 )  
Net increase (decrease) in net assets from operations     (76,118,709 )     (10,621,228 )  
Distributions to shareholders from:  
Net investment income  
Class III     (537,959 )     (31,841,900 )  
Net realized gains  
Class III     (26,984,042 )     (142,937,240 )  
      (27,522,001 )     (174,779,140 )  
Net share transactions (Note 7):  
Class III     11,957,638       5,871,549    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     276,184       2,593,773    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    12,233,822       8,465,322    
Total increase (decrease) in net assets     (91,406,888 )     (176,935,046 )  
Net assets:  
Beginning of period     679,535,618       856,470,664    
End of period (including accumulated undistributed net investment
income of $6,741,809 and distributions in excess of
net investment income of $5,790,555, respectively)
  $ 588,128,730     $ 679,535,618    

 

See accompanying notes to the financial statements.


23




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 9.29     $ 12.22     $ 14.93     $ 17.84     $ 17.09     $ 9.50    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.18       0.24       0.25       0.34       0.30       0.20    
Net realized and unrealized
gain (loss)
    (1.21 )     (0.34 )     2.68       3.44       3.56       7.94    
Total from investment
operations
    (1.03 )     (0.10 )     2.93       3.78       3.86       8.14    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.51 )     (0.33 )     (0.44 )     (0.54 )     (0.20 )  
From net realized gains     (0.38 )     (2.32 )     (5.31 )     (6.25 )     (2.57 )     (0.35 )  
Total distributions     (0.39 )     (2.83 )     (5.64 )     (6.69 )     (3.11 )     (0.55 )  
Net asset value, end of period   $ 7.87     $ 9.29     $ 12.22     $ 14.93     $ 17.84     $ 17.09    
Total Return(a)      (11.26 )%**      (2.04 )%     23.35 %     25.77 %     24.45 %     86.62 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 588,129     $ 679,536     $ 856,471     $ 986,602     $ 1,517,223     $ 1,592,464    
Net expenses to average daily
net assets
    0.75 %(b)*      0.76 %(b)      0.75 %     0.75 %     0.75 %     0.75 %  
Net investment income to
average daily net assets
    2.00 %(c)**      1.98 %     1.79 %     2.01 %     1.75 %     1.60 %  
Portfolio turnover rate     34 %**      72 %     48 %     49 %     53 %     46 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.15 %*      0.13 %     0.09 %     0.11 %     0.11 %     0.13 %  
Purchase premiums and
redemption fees consisted
of the following
per share amounts: 
  $ 0.00 (d)    $ 0.04     $ 0.03     $ 0.07     $ 0.08     $ 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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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)  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.


24




GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, 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 (Europe, Australasia, and Far East) Small Cap Index. 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 currently limits subscriptions due to capacity considerations.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. Because many


25



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 69,453,257     $ 4,064,267    
Level 2 - Other Significant Observable Inputs     511,852,343       1,040,751    
Level 3 - Significant Unobservable Inputs              
Total   $ 581,305,600     $ 5,105,018    

 

*  Other financial instruments include foreign currency, forward currency contracts and futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (1,194,355 )  
Level 2 - Other Significant Observable Inputs           (876,364 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (2,070,719 )  

 

**  Other financial instruments include forward currency contracts and futures contracts.


26



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 296,806     $    
Realized gain (loss)     268,412          
Change in unrealized appreciation/depreciation     86,228          
Net purchases (sales)     (651,446 )        
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


27



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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


28



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility that the


29



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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, 2008, the Fund had loane d securities valued by the Fund at $474,242, collateralized by cash in the amount of $508,191, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some 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


30



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

period. For the period ended August 31, 2008, the Fund incurred $158 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 671,390,645     $ 44,373,169     $ (134,458,214 )   $ (90,085,045 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.


31



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasi ng 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The


32



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.60% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $3,271 and $1,934, 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, 2008 aggregated $215,323,268 and $225,566,421, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


33



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 44.05% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.14% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 1.69% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,433,082     $ 20,368,548       14,345,120     $ 167,353,499    
Shares issued to shareholders
in reinvestment of distributions
    3,403,811       27,502,790       16,860,674       173,069,697    
Shares repurchased     (4,214,274 )     (35,913,700 )     (28,165,322 )     (334,551,647 )  
Purchase premiums           99,447             803,005    
Redemption fees           176,737             1,790,768    
Net increase (decrease)     1,622,619     $ 12,233,822       3,040,472     $ 8,465,322    

 


34




GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those 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. The Trustees also reviewed information provided by the Manager regarding the profits it realized on the services (excluding distribution services) it provided


35



GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 th e 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


36



GMO International Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 887.40     $ 3.57    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.42     $ 3.82    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


37




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     94.8 %  
Short-Term Investments     6.5    
Forward Currency Contracts     0.4    
Futures     (0.0 )  
Swaps     (0.2 )  
Other     (1.5 )  
      100.0 %  
Industry Sector Summary   % of Debt Obligations  
Credit Cards     23.5 %  
Residential Asset-Backed Securities (United States)     16.6    
Auto Financing     10.7    
Insured Auto Financing     6.4    
Residential Mortgage-Backed Securities (European)     5.9    
Business Loans     5.7    
CMBS     5.5    
Student Loans     4.7    
Residential Mortgage-Backed Securities (Australian)     4.2    
Investment Grade Corporate Collateralized Debt Obligations     3.4    
Insured Other     2.0    
CMBS Collateralized Debt Obligations     1.4    
Equipment Leases     1.3    
Bank Loan Collateralized Debt Obligations     1.1    
Rate Reduction Bonds     1.1    
Trade Receivables     1.0    
U.S. Government Agency     1.0    
Insurance Premiums     0.8    
Insured High Yield Collateralized Debt Obligations     0.6    
Insured Residential Mortgage-Backed Securities (United States)     0.6    
Insured Time Share     0.6    
Insured Credit Cards     0.5    
Airlines     0.3    
Corporate Debt     0.3    
U.S. Government & Agencies     0.3    
Time Share     0.1    
Insured Residential Asset-Backed Securities (United States)     0.1    
Insured Transportation     0.1    
Residential Mortgage-Backed Securities (United States)     0.1    
Insured Business Loans     0.1    
Collateralized Loan Obligations     0.0    
ABS Collateralized Debt Obligations     0.0    
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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 94.8%  
        Asset-Backed Securities — 93.3%  
        ABS Collateralized Debt Obligations — 0.0%  
    15,000,000     Paragon CDO Ltd., Series 04-1A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 3.44%, due 10/20/44
    1,500,000    
        Airlines — 0.3%  
    23,000,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 2.95%, due 05/15/24
    12,075,000    
    11,174,486     Continental Airlines, Inc., Series 991A, 6.55%, due 02/02/19     10,057,037    
    Total Airlines     22,132,037    
        Auto Financing — 10.2%  
    49,000,000     BMW Vehicle Lease Trust, Series 07-1, Class A3B,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 08/15/13
    47,768,630    
    32,000,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
Variable Rate, 1 mo. LIBOR + .40%, 2.87%, due 02/18/14
    30,873,600    
    15,000,000     Capital Auto Receivables Asset Trust, Series 07-SN1, Class A4,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 02/15/11
    14,517,000    
    7,500,000     Capital Auto Receivables Asset Trust, Series 08-1, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.35%, 3.82%, due 07/15/14
    7,109,475    
    28,800,000     Carmax Auto Owner Trust, Series 08-2, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.65%, 4.12%, due 08/15/13
    27,811,840    
    29,000,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     28,280,800    
    22,000,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.85%, 4.32%, due 11/10/14
    21,615,000    
    32,000,000     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 11/15/11
    30,921,280    
    31,500,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 02/15/12
    30,384,585    
    17,000,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B,
Variable Rate, 1 mo. LIBOR + .38%, 2.85%, due 07/15/12
    15,599,116    
    39,000,000     Ford Credit Auto Owner Trust, Series 08-B, Class A4B,
Variable Rate, 1 mo. LIBOR + 2.00%, 4.47%, due 03/15/13
    37,542,570    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Auto Financing — continued  
    63,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-3, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 06/15/11
    61,141,145    
    14,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 06/15/13
    12,151,524    
    10,000,000     Franklin Auto Trust, Series 08-A, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.95%, 4.42%, due 05/20/16
    9,841,000    
    37,000,000     Nissan Auto Lease Trust, Series 08-A, Class A3B,
Variable Rate, 1 mo. LIBOR + 2.20%, 4.69%, due 07/15/11
    35,655,859    
    2,765,037     Nissan Auto Receivables Owner Trust, Series 04-C, Class A4,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 03/15/10
    2,763,323    
    40,000,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 2.47%, due 06/17/13
    38,682,800    
    37,000,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A,
Variable Rate, 1 mo. LIBOR, 2.47%, due 05/15/12
    35,335,000    
    74,845,000     Sovereign Dealer Floor Plan Master Trust, Series 06-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 2.54%, due 08/15/11
    71,748,662    
    42,000,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 06/15/12
    37,541,510    
    20,000,000     Swift Master Auto Receivables Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .65%, 3.12%, due 10/15/12
    18,588,000    
    42,350,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 12/15/16
    40,017,785    
    15,000,000     Wachovia Auto Owner Trust, Series 08-A, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.15%, 3.62%, due 03/20/14
    14,610,392    
    23,000,000     World Omni Auto Receivables Trust, Series 07-A, Class A4,
Variable Rate, 1 mo. LIBOR, 2.47%, due 11/15/12
    22,215,930    
    Total Auto Financing     692,716,826    
        Bank Loan Collateralized Debt Obligations — 1.1%  
    37,949,039     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
Variable Rate, 3 mo. LIBOR + .17%, 2.97%, due 06/20/25
    37,190,058    
    36,400,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .25%, 3.04%, due 07/05/11
    34,440,224    
    Total Bank Loan Collateralized Debt Obligations     71,630,282    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — 5.4%  
    29,678,349     ACAS Business Loan Trust, Series 07-1A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 2.95%, due 08/16/19
    27,811,580    
    4,531,097     Bayview Commercial Asset Trust, Series 04-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .36%, 2.83%, due 04/25/34
    3,741,337    
    3,917,395     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .37%, 2.84%, due 01/25/35
    3,623,590    
    16,212,631     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .39%, 2.86%, due 01/25/36
    14,220,098    
    12,269,162     Bayview Commercial Asset Trust, Series 07-3, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 07/25/37
    9,844,565    
    40,000,000     Bayview Commercial Asset Trust, Series 07-6A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + 1.30%, 3.77%, due 12/25/37
    37,028,000    
    8,233,140     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 08/22/16
    8,035,545    
    11,910,615     Capitalsource Commercial Loan Trust, Series 07-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 03/20/17
    11,315,084    
    18,000,000     CNH Equipment Trust, Series 08-A, Class A4B,
Variable Rate, 1 mo. LIBOR + 1.95%, 4.42%, due 08/15/14
    18,056,250    
    20,000,000     CNH Wholesale Master Note Trust, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 2.53%, due 07/15/12
    19,500,000    
    5,995,814     GE Business Loan Trust, Series 04-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 05/15/32
    5,281,352    
    8,486,948     GE Business Loan Trust, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 11/15/33
    7,000,355    
    2,084,408     GE Commercial Loan Trust, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 2.87%, due 04/19/17
    2,008,669    
    1,088,964     GE Commercial Loan Trust, Series 06-2, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 2.85%, due 04/19/15
    1,075,787    
    35,000,000     GE Dealer Floorplan Master Note Trust, Series 06-4, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 10/20/11
    33,542,250    
    52,000,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 07/20/12
    49,420,779    
    11,318,586     Lehman Brothers Small Balance Commercial, Series 05-1,
Class A, 144A, Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 02/25/30
    9,644,335    
    10,277,392     Lehman Brothers Small Balance Commercial, Series 05-2A,
Class 1A, 144A, Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 09/25/30
    8,556,727    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    12,817,942     Lehman Brothers Small Balance Commercial, Series 07-3A,
Class 1A1, 144A, Variable Rate, 1 mo. LIBOR + .65%, 3.12%, due 10/25/37
    12,333,216    
    34,269,000     Lehman Brothers Small Balance Commercial, Series 07-3A,
Class 1A2, 144A, Variable Rate, 1 mo. LIBOR + .85%, 3.32%, due 10/25/37
    29,463,254    
    33,400,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 02/25/13
    31,870,280    
    25,000,000     Textron Financial Floorplan Master Note, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .06%, 2.52%, due 03/13/12
    23,752,500    
    916,668     The Money Store Business Loan Backed Trust, Series 99-1, Class AN,
Variable Rate, 1 mo. LIBOR +.50%, 2.97%, due 09/15/17
    887,060    
    Total Business Loans     368,012,613    
        CMBS — 5.2%  
    14,500,000     Banc of America Commercial Mortgage, Inc., Series 06-3, Class A2,
5.81%, due 07/10/44
    14,355,000    
    9,137,771     Bear Stearns Commercial Mortgage Securities, Inc.,
Series 05-PW10, Class A1, 5.09%, due 12/11/40
    9,130,460    
    22,500,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 07/15/44
    21,555,000    
    43,000,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12,
Class AJ, 144A, Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 12/15/20
    39,087,000    
    32,000,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2,
5.30%, due 11/10/45
    31,765,000    
    19,850,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2,
Variable Rate, 5.52%, due 03/10/44
    19,701,125    
    7,084,360     Greenwich Capital Commercial Funding Corp., Series 06-FL4A,
Class A1, 144A, Variable Rate, 1 mo. LIBOR + .09%, 2.55%, due 11/05/21
    6,659,298    
    32,000,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, 5.51%, due 04/10/38     31,560,000    
    8,251,513     GS Mortgage Securities Corp., Series 07-EOP, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .09%, 2.55%, due 03/06/20
    8,014,282    
    9,000,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .13%, 2.59%, due 03/06/20
    8,564,062    
    9,931,511     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-FL1A,
Class A1B, 144A, Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 02/15/20
    8,938,360    
    57,000,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45
    56,626,080    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    4,854,141     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 09/15/21
    4,514,351    
    33,000,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, Variable Rate,
5.80%, due 05/12/39
    32,904,609    
    12,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A2, 5.69%, due 10/15/42     11,759,760    
    13,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, 5.91%, due 10/15/42     12,256,010    
    6,249,281     Morgan Stanley Dean Witter Capital I, Series 03-TOP9, Class A1,
3.98%, due 11/13/36
    6,152,480    
    32,935,773     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A,
Class A1, 144A, Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 09/15/21
    30,136,232    
    Total CMBS     353,679,109    
        CMBS Collateralized Debt Obligations — 1.3%  
    9,000,000     American Capital Strategies Ltd. Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, Variable Rate, 3 mo. LIBOR + .80%, 3.61%,
due 11/23/52
    1,530,000    
    16,733,521     Crest Exeter Street Solar, Series 04-1A, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .35%, 3.15%, due 06/28/19
    15,151,894    
    19,041,717     G-Force LLC, Series 05-RR2, Class A2, 144A, 5.16%, due 12/25/39     17,918,256    
    30,000,000     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .32%, 2.79%, due 08/26/30
    26,700,000    
    35,500,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 2.80%, due 05/25/46
    29,953,125    
    Total CMBS Collateralized Debt Obligations     91,253,275    
        Collateralized Loan Obligations — 0.0%  
    2,036,441     Archimedes Funding IV (Cayman) Ltd., Series 4A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 3.29%, due 02/25/13
    1,941,089    
        Credit Cards — 22.3%  
    20,000,000     Advanta Business Card Master Trust, Series 05-A2, Class A2,
Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 05/20/13
    18,462,500    
    7,000,000     Advanta Business Card Master Trust, Series 05-A5, Class A5,
Variable Rate, 1 mo. LIBOR + .06%, 2.53%, due 04/20/12
    6,525,260    
    30,000,000     Advanta Business Card Master Trust, Series 07-A4, Class A4,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 04/22/13
    27,318,750    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    17,000,000     American Express Credit Account Master Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 09/15/11
    16,947,980    
    25,000,000     American Express Credit Account Master Trust, Series 04-4, Class A,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 03/15/12
    24,831,775    
    64,000,000     American Express Credit Account Master Trust, Series 05-5, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 02/15/13
    62,880,000    
    25,000,000     American Express Credit Account Master Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 12/15/13
    24,176,750    
    12,000,000     American Express Issuance Trust, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 09/15/11
    11,753,280    
    25,000,000     Arran, Series 05-A, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 12/15/10
    24,750,000    
    26,175,000     Bank of America Credit Card Trust, Series 06-A10, Class A10,
Variable Rate, 1 mo. LIBOR - .02%, 2.45%, due 02/15/12
    25,941,533    
    5,000,000     Bank of America Credit Card Trust, Series 06-A12, Class A12,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 03/15/14
    4,780,273    
    14,000,000     Bank of America Credit Card Trust, Series 07-A13, Class A13,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 04/16/12
    13,877,500    
    11,670,000     Bank One Issuance Trust, Series 03-A10, Class A10,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 06/15/11
    11,645,493    
    30,000,000     Capital One Master Trust, Series 02-1A, Class A,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 11/15/11
    29,718,750    
    15,000,000     Capital One Multi-Asset Execution Trust, Series 04-A2, Class A2,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 01/17/12
    14,868,150    
    15,000,000     Capital One Multi-Asset Execution Trust, Series 04-A3, Class A3,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 02/15/12
    14,848,911    
    26,275,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .15%, 2.95%, due 06/16/14
    25,034,001    
    30,000,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 08/15/13
    29,163,000    
    341,000     Capital One Multi-Asset Execution Trust, Series 06-A7, Class A7,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 03/17/14
    325,457    
    9,000,000     Capital One Multi-Asset Execution Trust, Series 07-A4, Class A4,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 03/16/15
    8,532,900    
    20,000,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .07%, 2.54%, due 05/15/13
    19,317,000    
    21,000,000     Capital One Multi-Asset Execution Trust, Series 08-A6, Class A6,
Variable Rate, 1 mo. LIBOR + 1.10%, 3.57%, due 03/17/14
    20,594,700    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    49,000,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + 1.25%, 3.72%, due 09/15/17
    45,701,810    
    14,000,000     Chase Credit Card Master Trust, Series 03-5, Class A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 01/17/11
    13,997,480    
    30,000,000     Chase Issuance Trust, Series 05-A3, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 10/17/11
    29,892,900    
    55,000,000     Chase Issuance Trust, Series 05-A6, Class A6,
Variable Rate, 1 mo. LIBOR + 0.07%, 2.54%, due 07/15/14
    52,800,000    
    14,000,000     Chase Issuance Trust, Series 05-A9, Class A9,
Variable Rate, 1 mo. LIBOR+ .02%, 2.49%, due 11/15/11
    13,881,000    
    29,000,000     Chase Issuance Trust, Series 06-A7, Class A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 02/15/13
    28,204,820    
    5,500,000     Chase Issuance Trust, Series 07-A1, Class A1,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 03/15/13
    5,350,813    
    17,500,000     Chase Issuance Trust, Series 07-A11, Class A11,
Variable Rate, 1 mo. LIBOR, 2.47%, due 07/16/12
    17,117,910    
    16,000,000     Citibank Credit Card Issuance Trust, Series 01-A7, Class A7,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 08/15/13
    15,576,000    
EUR     40,000,000     Citibank Credit Card Issuance Trust, Series 04-A2, Class A,
Variable Rate, 3 mo. EUR LIBOR + 0.10%, 5.06%, due 05/24/13
    56,615,220    
    20,000,000     Citibank Credit Card Issuance Trust, Series 04-A3, Class A3,
Variable Rate, 3 mo. LIBOR + .07%, 2.87%, due 07/25/11
    19,879,600    
    10,000,000     Citibank Credit Card Issuance Trust, Series 05-A3, Class A3,
Variable Rate, 1 mo. LIBOR + .07%, 2.54%, due 04/24/14
    9,526,900    
    27,000,000     Citibank Credit Card Issuance Trust, Series 06-A6, Class A6,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 05/24/12
    26,568,000    
    16,000,000     Citibank Credit Card Issuance Trust, Series 07-A1, Class A1,
Variable Rate, 3 mo. LIBOR - .01%, 2.79%, due 03/22/12
    15,752,000    
    32,000,000     Citibank Credit Card Issuance Trust, Series 07-A2, Class A2,
Variable Rate, 3 mo. LIBOR - .01%, 2.80%, due 05/21/12
    31,491,200    
    50,000,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
Variable Rate, 1 mo. LIBOR + 1.10%, 3.57%, due 12/23/13
    49,625,000    
    12,000,000     Discover Card Master Trust I, Series 03-4, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 05/15/11
    11,958,720    
    46,700,000     Discover Card Master Trust I, Series 05-3, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 2.51%, due 05/15/11
    46,510,865    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    13,000,000     Discover Card Master Trust I, Series 05-4, Class A1,
Variable Rate, 1 mo. LIBOR + .06%, 2.55%, due 06/18/13
    12,455,560    
    66,000,000     Discover Card Master Trust I, Series 06-2, Class A2,
Variable Rate, 1 mo. LIBOR + .03%, 2.52%, due 01/16/14
    62,644,560    
    4,800,000     Discover Card Master Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR, 2.48%, due 08/15/12
    4,674,000    
    15,000,000     Discover Card Master Trust I, Series 96-4, Class A,
Variable Rate, 1 mo. LIBOR + .38%, 2.84%, due 10/16/13
    14,391,797    
    58,000,000     First National Master Note Trust, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .75%, 3.22%, due 11/15/12
    56,477,500    
    25,000,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 03/15/13
    23,724,724    
    45,000,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 06/15/13
    43,530,469    
    48,000,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 04/15/13
    46,500,000    
    24,000,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
Variable Rate, 1 mo. LIBOR + .55%, 3.02%, due 07/15/13
    23,370,000    
    3,000,000     MBNA Credit Card Master Note Trust, Series 01-A5, Class A5,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 03/15/11
    2,998,590    
    14,000,000     MBNA Credit Card Master Note Trust, Series 04-A7, Class A7,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 12/15/11
    13,868,750    
    15,000,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 01/15/14
    14,513,700    
    75,675,000     MBNA Credit Card Master Note Trust, Series 06-A4, Class A4,
Variable Rate, 1 mo. LIBOR - .01%, 2.46%, due 09/15/11
    75,225,680    
    50,000,000     National City Credit Card Master Trust, Series 08-3, Class A,
Variable Rate, 1 mo. LIBOR + 1.80%, 4.27%, due 05/15/13
    48,875,000    
    25,000,000     Pillar Funding Plc, Series 04-2, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 2.92%, due 09/15/11
    24,034,250    
    60,500,000     Turquoise Card Backed Securities Plc, Series 06-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 05/16/11
    59,441,250    
    54,100,000     World Financial Network Credit Card Master Trust, Series 04-A, Class A,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 03/15/13
    52,683,662    
    15,000,000     World Financial Network Credit Card Master Trust, Series 06-A,
Class A, 144A, Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 02/15/17
    12,942,000    
    Total Credit Cards     1,519,095,693    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Equipment Leases — 1.2%  
    13,029,896     CNH Equipment Trust, Series 05-A, Class A4A,
Variable Rate, 1 mo. LIBOR + .04%, 2.51%, due 06/15/12
    12,906,763    
    24,500,000     CNH Equipment Trust, Series 07-B, Class A3B,
Variable Rate, 1 mo. LIBOR + .60%, 3.07%, due 10/17/11
    24,009,265    
    45,000,000     GE Equipment Midticket LLC, Series 07-1, Class A3B,
Variable Rate, 1 mo. LIBOR + .25%, 2.71%, due 06/14/11
    44,212,500    
    Total Equipment Leases     81,128,528    
        High Yield Collateralized Debt Obligations — 0.0%  
    47,714     SHYPPCO Finance Co., LLC, Series 1I, Class A2B, 6.64%, due 06/15/10     46,283    
        Insurance Premiums — 0.8%  
    16,000,000     AICCO Premium Finance Master Trust, Series 05-1, Class A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 04/15/10
    15,857,600    
    40,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 12/15/11
    36,962,500    
    Total Insurance Premiums     52,820,100    
        Insured Auto Financing — 6.1%  
    11,666,667     Aesop Funding II LLC, Series 03-5A, Class A2, 144A, XL,
Variable Rate, 1 mo. LIBOR +.38%, 2.58%, due 12/20/09
    11,571,247    
    10,000,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 04/20/11
    9,368,800    
    17,213,203     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .08%, 2.54%, due 05/06/12
    16,044,466    
    31,000,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
Variable Rate, 1 mo. LIBOR + .04%, 2.50%, due 10/06/13
    27,318,750    
    20,000,000     AmeriCredit Automobile Receivables Trust, Series 07-BF, Class A4, FSA,
Variable Rate, 1 mo. LIBOR + .05%, 2.51%, due 12/06/13
    17,800,000    
    12,000,000     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B, MBIA,
Variable Rate, 1 mo. LIBOR + .03%, 2.49%, due 05/07/12
    11,325,636    
    17,000,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
Variable Rate, 1 mo. LIBOR + .80%, 3.26%, due 06/06/14
    13,791,864    
    31,000,000     AmeriCredit Prime Automobile Receivables Trust, Series 07-2M, Class A4B,
MBIA, Variable Rate, 1 mo. LIBOR + .50%, 2.96%, due 03/08/16
    25,778,360    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    30,000,000     ARG Funding Corp., Series 05-2A, Class A3, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .14%, 2.62%, due 05/20/10
    28,983,236    
    3,804,114     Capital One Auto Finance Trust, Series 04-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 08/15/11
    3,672,981    
    37,000,000     Capital One Auto Finance Trust, Series 06-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .01%, 2.48%, due 12/15/12
    34,040,000    
    29,000,000     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
Variable Rate, 1 mo. LIBOR + .02%, 2.48%, due 07/15/13
    27,060,770    
    8,000,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 11/15/13
    7,056,160    
    28,000,000     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
Variable Rate, 1 mo. LIBOR + .51%, 2.98%, due 04/16/12
    25,953,760    
    9,000,000     Hertz Vehicle Financing LLC, Series 05-1A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 02/25/10
    8,847,357    
    2,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A3, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 02/25/11
    1,876,840    
    10,000,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 11/25/11
    8,750,575    
    50,000,000     Santander Drive Auto Receivables Trust, Series 07-1, Class A4, FGIC,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 09/15/14
    42,240,476    
    29,500,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
Variable Rate, 1 mo. LIBOR + .65%, 3.12%, due 10/15/14
    24,951,100    
    65,000,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
Variable Rate, 1 mo. LIBOR + 1.20%, 3.66%, due 07/14/14
    61,750,000    
    7,992,772     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC,
5.01%, due 08/15/12
    7,773,291    
    Total Insured Auto Financing     415,955,669    
        Insured Business Loans — 0.0%  
    4,032,885     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .44%, 2.91%, due 10/25/30
    3,038,604    
        Insured Credit Cards — 0.5%  
    35,000,000     Cabela's Master Credit Card Trust, Series 04-2A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 03/15/11
    34,481,601    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured High Yield Collateralized Debt Obligations — 0.6%  
    24,230,769     Augusta Funding Ltd., Series 10A, Class F-1, 144A, CapMAC,
Variable Rate, 3 mo. LIBOR +.25%, 3.05%, due 06/30/17
    23,503,846    
    887,554     Cigna CBO Ltd, Series 96-1, Class A2, 144A, CapMAC,
Step Up, 6.46%, due 11/15/08
    621,288    
    10,000,000     GSC Partners CDO Fund Ltd., Series 03-4A, Class A3, 144A, AMBAC,
Variable Rate, 3 mo. LIBOR + .46%, 3.25%, due 12/16/15
    9,640,000    
    7,416,167     GSC Partners CDO Fund Ltd., Series 2A, Class A, 144A, FSA,
Variable Rate, 6 mo. LIBOR + .52%, 3.32%, due 05/22/13
    6,798,252    
    Total Insured High Yield Collateralized Debt Obligations     40,563,386    
        Insured Other — 1.9%  
    30,000,000     DB Master Finance LLC, Series 06-1, Class A2, 144A,
AMBAC, 5.78%, due 06/20/31
    24,811,180    
    60,000,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A,
MBIA, 5.26%, due 04/25/37
    45,154,586    
    17,761,311     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 2.69%, due 09/15/41
    15,102,087    
    17,101,191     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .20%, 2.69%, due 12/15/41
    14,751,146    
    25,541,394     TIB Card Receivables Fund, 144A, FGIC,
Variable Rate, 3 mo. LIBOR + .25%, 3.04%, due 01/05/14
    21,661,656    
    3,488,000     Toll Road Investment Part II, Series B, 144A, MBIA,
Zero Coupon, due 02/15/30
    747,513    
    35,000,000     Toll Road Investment Part II, Series C, 144A, MBIA,
Zero Coupon, due 02/15/37
    4,515,000    
    Total Insured Other     126,743,168    
        Insured Residential Asset-Backed Securities (United States) — 0.1%  
    4,233,954     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1, XL,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 07/25/34
    3,281,738    
    4,855,915     Citigroup Mortgage Loan Trust, Inc., Series 03-HE3, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .38%, 2.85%, due 12/25/33
    3,788,100    
    36,291     Quest Trust, Series 03-X4A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 2.90%, due 12/25/33
    35,565    
    1,282,066     Quest Trust, Series 04-X1, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .33%, 2.80%, due 03/25/34
    961,677    
    Total Insured Residential Asset-Backed Securities (United States)     8,067,080    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Residential Mortgage-Backed Securities (United States) — 0.6%  
    795,514     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .34%, 2.81%, due 10/25/34
    540,949    
    1,780,154     Chevy Chase Mortgage Funding Corp., Series 04-1A, Class A2, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .33%, 2.80%, due 01/25/35
    1,157,100    
    27,431,499     Countrywide Home Equity Loan Trust, Series 07-E, Class A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/15/37
    13,852,907    
    10,000,000     GMAC Mortgage Corp. Loan Trust, Series 04-HE3, Class A3, FSA,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 10/25/34
    9,169,000    
    860,460     GreenPoint Home Equity Loan Trust, Series 04-1, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .23%, 2.93%, due 07/25/29
    648,526    
    877,944     GreenPoint Home Equity Loan Trust, Series 04-4, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .28%, 3.03%, due 08/15/30
    652,347    
    1,940,130     Lehman ABS Corp., Series 04-2, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .22%, 2.91%, due 06/25/34
    1,261,084    
    589,788     Residential Funding Mortgage Securities II, Series 03-HS1, Class AII, FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 12/25/32
    353,873    
    6,259,149     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 11/25/35
    5,231,396    
    3,123,294     Wachovia Asset Securitization, Inc., Series 02-HE1, Class A, AMBAC,
Variable Rate, 1 mo. LIBOR + .37%, 2.84%, due 09/27/32
    2,661,376    
    3,034,301     Wachovia Asset Securitization, Inc., Series 04-HE1, Class A, MBIA,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 06/25/34
    2,430,000    
    Total Insured Residential Mortgage-Backed Securities (United States)     37,958,558    
        Insured Time Share — 0.6%  
    2,006,808     Cendant Timeshare Receivables Funding LLC, Series 04-1A, Class A2, 144A,
MBIA, Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 05/20/16
    1,806,017    
    4,466,840     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2, 144A,
FGIC, Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 05/20/17
    3,840,784    
    7,554,131     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 05/20/18
    6,388,212    
    7,153,986     Sierra Receivables Funding Co., Series 07-1A, Class A2, 144A, FGIC,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 03/20/19
    5,937,809    
    23,875,817     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
Variable Rate, 1 mo. LIBOR + 1.00%, 3.47%, due 09/20/19
    20,332,478    
    Total Insured Time Share     38,305,300    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Transportation — 0.1%  
    8,500,000     GE Seaco Finance SRL, Series 04-1A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .30%, 2.77%, due 04/17/19
    7,288,750    
        Investment Grade Corporate Collateralized Debt Obligations — 3.2%  
    20,000,000     Counts Trust, Series 04-2, 144A,
Variable Rate, 3 mo. LIBOR + .95%, 3.75%, due 09/20/09
    19,964,000    
    10,000,000     Morgan Stanley ACES SPC, Series 04-12, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .60%, 3.39%, due 08/05/09
    9,500,000    
    7,000,000     Morgan Stanley ACES SPC, Series 04-12, Class I, 144A,
Variable Rate, 3 mo. LIBOR + 0.80%, 3.39%, due 08/05/09
    6,499,500    
    6,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 3.25%, due 12/20/09
    5,742,000    
    11,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
Variable Rate, 3 mo. LIBOR + .65%, 3.45%, due 12/20/09
    10,235,500    
    3,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
Variable Rate, 3 mo. LIBOR + .75%, 3.55%, due 12/20/09
    2,715,000    
    16,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .52%, 3.32%, due 03/20/10
    14,496,000    
    30,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .40%, 3.20%, due 12/20/10
    27,480,000    
    16,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 3.25%, due 03/20/10
    14,752,000    
    46,000,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
Variable Rate, 3 mo. LIBOR + .29%, 3.09%, due 06/20/13
    31,165,000    
    15,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
Variable Rate, 3 mo. LIBOR + .70%, 3.50%, due 08/01/11
    13,924,500    
    49,000,000     Reve SPC, 144A, Variable Rate, 3 mo. LIBOR + .22%, 3.02%, due 03/20/14     37,546,250    
    30,000,000     Salisbury International Investments Ltd.,
Variable Rate, 3 mo. LIBOR + .42%, 3.22%, due 06/22/10
    24,795,000    
    Total Investment Grade Corporate Collateralized Debt Obligations     218,814,750    
        Rate Reduction Bonds — 1.0%  
    1,055,172     Connecticut RRB Special Purpose Trust CL&P-1, Series 01-1, Class A4,
Variable Rate, 3 mo. LIBOR + .31%, 3.11%, due 12/30/10
    1,053,749    
    23,000,000     Massachusetts RRB Special Purpose Trust, Series 05-1, Class A3, 4.13%,
due 09/15/13
    22,920,190    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Rate Reduction Bonds — continued  
    30,000,000     PG&E Energy Recovery Funding LLC, Series 05-1, Class A4, 4.37%,
due 06/25/14
    29,587,500    
    11,895,056     PG&E Energy Recovery Funding LLC, Series 05-2, Class A1, 4.85%,
due 06/25/11
    11,940,257    
    4,359,573     PSE&G Transition Funding LLC, Series 01-1, Class A4,
Variable Rate, 3 mo. LIBOR + .30%, 3.08%, due 06/15/11
    4,351,203    
    Total Rate Reduction Bonds     69,852,899    
        Residential Asset-Backed Securities (United States) — 15.7%  
    1,119,337     Accredited Mortgage Loan Trust, Series 04-4, Class A1B,
Variable Rate, 1 mo. LIBOR + .39%, 2.86%, due 01/25/35
    938,144    
    3,980,817     Accredited Mortgage Loan Trust, Series 07-1, Class A1,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 02/25/37
    3,840,903    
    238,188     ACE Securities Corp., Series 05-AG1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 08/25/35
    232,233    
    2,730,757     ACE Securities Corp., Series 05-ASP1, Class A2B,
Variable Rate, 1 mo. LIBOR + .21%, 2.68%, due 09/25/35
    2,662,488    
    7,000,000     ACE Securities Corp., Series 05-ASP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 09/25/35
    5,600,000    
    4,397,448     ACE Securities Corp., Series 06-ASL1, Class A,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 02/25/36
    1,539,107    
    23,662,168     ACE Securities Corp., Series 06-ASP1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 12/25/35
    21,769,195    
    23,207,894     ACE Securities Corp., Series 06-ASP2, Class A2B,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 03/25/36
    22,279,578    
    10,000,000     ACE Securities Corp., Series 06-ASP2, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 03/25/36
    7,200,000    
    17,000,000     ACE Securities Corp., Series 06-ASP4, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 08/25/36
    15,300,000    
    24,000,000     ACE Securities Corp., Series 06-ASP5, Class A2C,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 10/25/36
    13,909,680    
    2,027,021     ACE Securities Corp., Series 06-CW1, Class A2A,
Variable Rate, 1 mo. LIBOR + .05%, 2.52%, due 07/25/36
    1,949,771    
    22,000,000     ACE Securities Corp., Series 06-CW1, Class A2B,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 07/25/36
    20,130,000    
    7,000,000     ACE Securities Corp., Series 06-HE2, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 05/25/36
    5,309,293    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    17,500,000     ACE Securities Corp., Series 06-HE3, Class A2B,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 06/25/36
    16,340,625    
    13,000,000     ACE Securities Corp., Series 06-OP1, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 04/25/36
    9,590,880    
    5,716,139     ACE Securities Corp., Series 06-SL1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 09/25/35
    1,429,035    
    12,791,057     ACE Securities Corp., Series 06-SL3, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 06/25/36
    2,865,197    
    14,036,000     ACE Securities Corp., Series 06-SL3, Class A2,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 06/25/36
    2,035,220    
    25,587,618     ACE Securities Corp., Series 07-HE1, Class A2A,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 01/25/37
    22,788,332    
    14,159,263     ACE Securities Corp., Series 07-WM1, Class A2A,
Variable Rate, 1 mo. LIBOR + .07%, 2.54%, due 11/25/36
    11,245,287    
    15,343,902     Alliance Bancorp Trust, Series 07-S1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 05/25/37
    3,222,220    
    4,100,651     Argent Securities, Inc., Series 04-W8, Class A5,
Variable Rate, 1 mo. LIBOR + .52%, 2.99%, due 05/25/34
    2,842,264    
    75,067,000     Argent Securities, Inc., Series 06-M1, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 07/25/36
    48,113,255    
    18,000,000     Argent Securities, Inc., Series 06-M2, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 09/25/36
    16,114,320    
    25,032,159     Argent Securities, Inc., Series 06-W2, Class A2B,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 03/25/36
    22,304,905    
    4,065,960     Argent Securities, Inc., Series 06-W4, Class A2B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 05/25/36
    3,960,977    
    13,000,000     Argent Securities, Inc., Series 06-W5, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/36
    9,305,156    
    19,000,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 10/25/36
    17,117,812    
    13,500,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 10/25/36
    8,966,953    
    3,685,211     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
Variable Rate, 1 mo. LIBOR + .06%, 2.53%, due 11/25/36
    3,500,950    
    50,404,815     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 05/25/37
    44,939,043    
    8,993,415     Bayview Financial Acquisition Trust, Series 04-B, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 3.47%, due 05/28/39
    7,374,601    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    9,353,152     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .65%, 3.77%, due 05/28/39
    7,576,053    
    15,000,000     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .50%, 2.97%, due 02/28/40
    12,826,758    
    6,866,374     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 11/25/36
    6,155,017    
    10,000,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 11/25/36
    6,477,000    
    11,653,653     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 02/25/37
    2,634,891    
    27,616,486     Carrington Mortgage Loan Trust, Series 06-NC1, Class A2,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 01/25/36
    26,992,354    
    8,198,535     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 02/25/37
    7,458,207    
    47,000,000     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A2,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 02/25/37
    37,379,100    
    16,500,000     Centex Home Equity, Series 06-A, Class AV3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 06/25/36
    13,929,300    
    486,206     Chase Funding Mortgage Loan Trust, Series 03-3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .27%, 3.01%, due 04/25/33
    426,549    
    202,624     Citigroup Mortgage Loan Trust, Inc., Series 04-OPT1, Class A1B,
Variable Rate, 1 mo. LIBOR + .41%, 2.88%, due 10/25/34
    128,605    
    14,500,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 12/25/36
    7,686,450    
    1,862,215     Citigroup Mortgage Loan Trust, Inc., Series 06-WMC1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 12/25/35
    1,852,904    
    46,500,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 02/25/37
    37,170,937    
    16,589,699     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 03/25/37
    15,565,804    
    9,685,159     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 04/25/36
    9,421,844    
    639,658     Equity One ABS, Inc., Series 04-1, Class AV2,
Variable Rate, 1 mo. LIBOR + .30%, 2.77%, due 04/25/34
    402,585    
    9,523,019     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF18,
Class A2A, Variable Rate, 1 mo. LIBOR + .07%, 2.54%, due 12/25/37
    9,281,991    
    18,500,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 04/25/36
    14,990,781    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    7,483,378     Fremont Home Loan Trust, Series 06-A, Class 1A2,
Variable Rate, 1 mo. LIBOR + .19%, 2.67%, due 05/25/36
    5,537,700    
    8,872,779     Fremont Home Loan Trust, Series 06-B, Class 2A2,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 08/25/36
    8,581,641    
    23,625,000     Fremont Home Loan Trust, Series 06-B, Class 2A3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 08/25/36
    13,643,437    
    12,646,804     GE-WMC Mortgage Securities, Series 05-2, Class A2B,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 12/25/35
    12,204,166    
    19,000,000     GE-WMC Mortgage Securities, Series 06-1, Class A2B,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 08/25/36
    13,176,500    
    452,187     Home Equity Asset Trust, Series 05-4, Class 2A2,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 10/25/35
    450,469    
    4,652,864     Household Home Equity Loan Trust, Series 05-2, Class A2,
Variable Rate, 1 mo. LIBOR + .31%, 2.78%, due 01/20/35
    3,771,728    
    5,324,836     Household Home Equity Loan Trust, Series 05-3, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 01/20/35
    4,349,726    
    16,536,024     Household Home Equity Loan Trust, Series 06-1, Class A1,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 01/20/36
    14,189,976    
    38,000,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 12/25/36
    17,100,000    
    5,924,673     Long Beach Mortgage Loan Trust, Series 05-WL2, Class 3A1,
Variable Rate, 1 mo. LIBOR + .18%, 2.65%, due 08/25/35
    5,331,080    
    9,499,408     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 10/25/35
    8,556,117    
    14,375,261     Master Asset-Backed Securities Trust, Series 06-AM3, Class A2,
Variable Rate, 1 mo. LIBOR + .13%, 2.60%, due 10/25/36
    13,624,873    
    25,910,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 03/25/36
    16,315,527    
    14,300,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/36
    7,722,000    
    30,390,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 08/25/36
    14,757,384    
    17,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 10/25/36
    9,693,400    
    29,416,664     Master Asset-Backed Securities Trust, Series 06-WMC1, Class A2,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 02/25/36
    28,431,206    
    9,197,544     Master Second Lien Trust, Series 06-1, Class A,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 03/25/36
    2,059,330    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    23,833,123     Merrill Lynch Mortgage Investors, Series 07-HE2, Class A2A,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 02/25/37
    22,688,947    
    4,864,933     Morgan Stanley ABS Capital I, Series 04-SD1, Class A,
Variable Rate, 1 mo. LIBOR + .40%, 2.87%, due 08/25/34
    3,891,946    
    40,000,000     Morgan Stanley ABS Capital I, Series 07-HE4, Class A2C,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 02/25/37
    18,500,000    
    27,500,000     Morgan Stanley Home Equity Loans, Series 06-3, Class A3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 04/25/36
    16,500,000    
    19,363,367     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 04/25/37
    17,717,480    
    11,500,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 11/25/36
    6,900,000    
    16,016,000     Nomura Home Equity Loan, Inc., Series 06-FM1, Class 2A2,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 11/25/35
    14,794,780    
    163,051     Option One Mortgage Loan Trust, Series 05-3, Class A4,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 08/25/35
    142,925    
    1,118,045     People's Choice Home Loan Securities Trust, Series 05-3, Class 1A2,
Variable Rate, 1 mo. LIBOR + .27%, 2.74%, due 08/25/35
    982,079    
    14,750,285     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
Variable Rate, 1 mo. LIBOR + .26%, 2.73%, due 12/25/35
    12,756,046    
    20,151,469     RAAC Series Trust, Series 06-SP1, Class A2,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 09/25/45
    19,306,839    
    4,530,347     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 04/25/35
    4,295,335    
    5,830,477     Residential Asset Mortgage Products, Inc., Series 05-RS8, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 10/25/33
    4,674,294    
    47,742,660     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class Al3, FGIC,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 11/25/35
    17,674,333    
    8,415,640     Residential Asset Mortgage Products, Inc., Series 06-RZ4, Class A1,
Variable Rate, 1 mo. LIBOR + .09%, 2.56%, due 10/25/36
    8,226,288    
    17,217,934     Residential Asset Securities Corp., Series 05-KS12, Class A2,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 01/25/36
    16,460,345    
    14,779,928     Residential Asset Securities Corp., Series 07-KS3, Class AI1,
Variable Rate, 1 mo. LIBOR + .11%, 2.58%, due 04/25/37
    13,893,132    
    279,557     Saxon Asset Securities Trust, Series 04-1, Class A,
Variable Rate, 1 mo. LIBOR + .27%, 3.01%, due 03/25/35
    170,136    
    9,000,000     Securitized Asset Backed Receivables LLC, Series 06-NC1, Class A2,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 03/25/36
    7,964,086    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    6,038,387     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 10/25/36
    5,676,084    
    4,109,692     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
Variable Rate, 1 mo. LIBOR + .26%, 2.73%, due 10/25/35
    2,965,554    
    5,800,671     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 01/25/37
    5,502,480    
    20,000,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 06/25/37
    16,242,969    
    13,000,000     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 01/25/36
    11,013,638    
    10,297,341     Structured Asset Securities Corp., Series 05-S6, Class A2,
Variable Rate, 1 mo. LIBOR + .29%, 2.76%, due 11/25/35
    5,148,671    
    26,023,613     Yale Mortgage Loan Trust, Series 07-1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .40%, 2.87%, due 06/25/37
    19,517,710    
    Total Residential Asset-Backed Securities (United States)     1,068,176,911    
        Residential Mortgage-Backed Securities (Australian) — 3.9%  
    7,708,613     Australian Mortgage Securities II, Series G3, Class A1A,
Variable Rate, 3 mo. LIBOR + .21%, 3.00%, due 01/10/35
    7,372,749    
    8,656,575     Crusade Global Trust, Series 04-2, Class A1,
Variable Rate, 3 mo. LIBOR + .13%, 2.94%, due 11/19/37
    8,107,783    
    4,123,699     Crusade Global Trust, Series 05-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 2.87%, due 06/17/37
    3,830,545    
    13,897,745     Crusade Global Trust, Series 06-1, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 2.85%, due 07/20/38
    12,796,738    
    23,407,012     Crusade Global Trust, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 2.85%, due 04/19/38
    21,786,053    
    6,557,507     Interstar Millennium Trust, Series 03-3G, Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 3.06%, due 09/27/35
    6,126,154    
    6,693,337     Interstar Millennium Trust, Series 03-5G, Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 3.04%, due 01/20/36
    6,246,624    
    41,611,835     Interstar Millennium Trust, Series 04-2G, Class A,
Variable Rate, 3 mo. LIBOR + .20%, 2.98%, due 03/14/36
    38,876,273    
    3,192,064     Interstar Millennium Trust, Series 05-1G, Class A,
Variable Rate, 3 mo. LIBOR + .12%, 2.82%, due 12/08/36
    3,020,651    
    4,320,158     Interstar Millennium Trust, Series 06-2GA, Class A2, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 2.89%, due 05/27/38
    4,013,513    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (Australian) — continued  
    4,683,286     Medallion Trust, Series 03-1G, Class A, Variable Rate,
3 mo. LIBOR + .19%, 2.99%, due 12/21/33
    4,379,762    
    6,359,970     Medallion Trust, Series 04-1G, Class A1, Variable Rate,
3 mo. LIBOR + .13%, 2.94%, due 05/25/35
    5,982,824    
    3,403,561     Medallion Trust, Series 05-1G, Class A1, Variable Rate,
3 mo. LIBOR + .08%, 2.88%, due 05/10/36
    3,219,016    
    15,730,194     Medallion Trust, Series 06-1G, Class A1, Variable Rate,
3 mo. LIBOR + .05%, 2.83%, due 06/14/37
    14,794,531    
    10,354,243     Medallion Trust, Series 07-1G, Class A1, Variable Rate,
3 mo. LIBOR + .04%, 2.85%, due 02/27/39
    9,949,185    
    9,437,949     National RMBS Trust, Series 04-1, Class A1, Variable Rate,
3 mo. LIBOR + .11%, 2.91%, due 03/20/34
    8,908,480    
    21,822,208     National RMBS Trust, Series 06-3, Class A1, 144A, Variable Rate,
3 mo. LIBOR + .07%, 2.86%, due 10/20/37
    20,551,719    
    25,250,000     Puma Finance Ltd., Series G5, Class A1, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.88%, due 02/21/38
    23,323,425    
    28,623,092     Superannuation Members Home Loans Global Fund, Series 07-1, Class A1,
Variable Rate, 3 mo. LIBOR + .06%, 2.85%, due 06/12/40
    26,071,487    
    2,768,491     Superannuation Members Home Loans Global Fund, Series 4A, Class A,
Variable Rate, 3 mo. LIBOR + .22%, 3.01%, due 10/09/29
    2,645,415    
    1,553,093     Superannuation Members Home Loans Global Fund, Series 6, Class A,
Variable Rate, 3 mo. LIBOR + .16%, 2.96%, due 11/09/35
    1,466,586    
    3,321,261     Superannuation Members Home Loans Global Fund, Series 7, Class A1,
Variable Rate, 3 mo. LIBOR + .14%, 2.82%, due 03/09/36
    3,129,614    
    2,991,411     Superannuation Members Home Loans Global Fund, Series 8, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 01/12/37
    2,788,235    
    9,025,597     Westpac Securitization Trust, Series 05-1G, Class A1,
Variable Rate, 3 mo. LIBOR + .07%, 2.87%, due 03/23/36
    8,478,104    
    21,346,392     Westpac Securitization Trust, Series 07-1G, Class A2A,
Variable Rate, 3 mo. LIBOR + .05%, 2.86%, due 05/21/38
    19,990,255    
    Total Residential Mortgage-Backed Securities (Australian)     267,855,721    
        Residential Mortgage-Backed Securities (European) — 5.6%  
    16,600,000     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 2.91%, due 09/20/66
    16,060,500    
    20,000,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 2.89%, due 03/20/30
    19,120,000    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    16,000,000     Arkle Master Issuer Plc, Series 06-1A, Class 3A, 144A,
Variable Rate, 3 mo. LIBOR + .05%, 2.86%, due 08/17/11
    15,633,600    
    16,000,000     Arkle Master Issuer Plc, Series 06-1A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .09%, 2.90%, due 02/17/52
    14,880,000    
    40,000,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 2.89%, due 01/13/39
    36,880,000    
    5,196,293     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 10/11/41
    5,032,194    
    11,848,656     Granite Master Issuer Plc, Series 06-2, Class A4,
Variable Rate, 3 mo. LIBOR + .04%, 2.83%, due 12/20/54
    11,019,250    
    820,982     Granite Master Issuer Plc, Series 07-1, Class 1A1,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 12/20/30
    788,142    
    7,006,447     Granite Mortgages Plc, Series 04-3, Class 2A1,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 09/20/44
    6,859,592    
    49,000,000     Holmes Financing Plc, Series 10A, Class 4A1, 144A,
Variable Rate, 3 mo. LIBOR + .08%, 2.87%, due 07/15/40
    46,996,880    
    12,000,000     Holmes Master Issuer Plc, Series 07-2A, Class 3A1,
Variable Rate, 1 mo. LIBOR + .08%, 2.87%, due 07/15/21
    11,486,250    
    28,480,065     Kildare Securities Ltd., Series 07-1A, Class A2, 144A,
Variable Rate, 3 mo. LIBOR + .06%, 2.76%, due 12/10/43
    27,694,869    
    1,778,400     Leek Finance Plc, Series 14A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .18%, 2.98%, due 09/21/36
    1,738,386    
    4,855,000     Leek Finance Plc, Series 15A, Class AB, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 03/21/37
    4,636,525    
    6,293,160     Leek Finance Plc, Series 17A, Class A2B, 144A,
Variable Rate, 3 mo. LIBOR + .14%, 2.94%, due 12/21/37
    5,755,095    
    14,000,000     Mound Financing Plc, Series 5A, Class 2A, 144A,
Variable Rate, 3 mo. LIBOR + .04%, 2.84%, due 05/08/16
    13,623,680    
    14,469,022     Paragon Mortgages Plc, Series 12A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR + .11%, 2.91%, due 11/15/38
    12,637,823    
    9,688,417     Paragon Mortgages Plc, Series 14A, Class A2C, 144A,
Variable Rate, 3 mo. LIBOR + .1%, 2.88%, due 09/15/39
    9,006,643    
    8,779,260     Paragon Mortgages Plc, Series 7A, Class A1A, 144A,
Variable Rate, 3 mo. LIBOR, 3.01%, due 05/15/34
    8,478,746    
    46,000,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
Variable Rate, 3 mo. LIBOR + .10%, 2.90%, due 02/12/16
    44,394,600    
    8,640,000     Permanent Financing Plc, Series 4, Class 3A,
Variable Rate, 3 mo. LIBOR + .14%, 2.84%, due 03/10/24
    8,569,083    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    33,000,000     Permanent Master Issuer Plc, Series 06-1, Class 5A, Variable Rate,
3 mo. LIBOR + 0.11%, 2.90%, due 07/15/33
    31,201,500    
    8,000,000     Permanent Master Issuer Plc, Series 07-1, Class 4A, Variable Rate,
3 mo. LIBOR + .08%, 2.87%, due 10/15/33
    7,511,680    
    21,130,910     RMAC Securities Plc, Series 06-NS4A, Class A1B, 144A,
Variable Rate, 3 mo. LIBOR + .07%, 2.86%, due 06/12/25
    20,873,113    
    Total Residential Mortgage-Backed Securities (European)     380,878,151    
        Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,066,058     Chevy Chase Mortgage Funding Corp., Series 04-3A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + .30%, 2.77%, due 08/25/35
    692,937    
    2,019,887     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 07/25/30
    1,996,848    
    4,586,126     Mellon Residential Funding Corp., Series 04-TBC1, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .25%, 2.72%, due 02/26/34
    3,760,624    
    Total Residential Mortgage-Backed Securities (United States)     6,450,409    
        Student Loans — 4.4%  
    22,000,000     College Loan Corp. Trust, Series 04-1, Class A2, Variable Rate,
3 mo. LIBOR + .11%, 2.91%, due 04/25/16
    21,756,966    
    15,500,000     College Loan Corp. Trust, Series 06-1, Class A2, Variable Rate,
3 mo. LIBOR + .02%, 2.82%, due 04/25/22
    15,293,850    
    7,160,000     College Loan Corp. Trust, Series 07-1, Class A1, Variable Rate,
3 mo. LIBOR + .01%, 2.81%, due 01/25/23
    7,041,860    
    26,000,000     College Loan Corp. Trust, Series 07-2, Class A1, Variable Rate,
3 mo. LIBOR + .25%, 3.05%, due 01/25/24
    25,722,814    
    8,696,185     Goal Capital Funding Trust, Series 06-1, Class A1, Variable Rate,
3 mo. LIBOR, 2.81%, due 08/25/20
    8,646,530    
    6,890,307     Goal Capital Funding Trust, Series 07-1, Class A1, Variable Rate,
3 mo. LIBOR + .02%, 2.82%, due 06/25/21
    6,735,275    
    5,608,664     Keycorp Student Loan Trust, Series 05-A, Class 2A1, Variable Rate,
3 mo. LIBOR + .05%, 2.86%, due 09/27/21
    5,492,620    
    5,358,600     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
Variable Rate, 3 mo. LIBOR + .04%, 2.84%, due 06/20/15
    5,271,255    
    17,348,483     National Collegiate Student Loan Trust, Series 06-1, Class A2,
Variable Rate, 1 mo. LIBOR + .14%, 2.61%, due 08/25/23
    16,547,798    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Student Loans — continued  
    17,564,698     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .08%, 2.55%, due 08/26/19
    15,983,875    
    12,000,000     Nelnet Student Loan Trust, Series 05-2, Class A4,
Variable Rate, 3 mo. LIBOR + .08%, 2.88%, due 12/23/19
    11,349,360    
    23,747,270     SLM Student Loan Trust, Series 05-1, Class A2,
Variable Rate, 3 mo. LIBOR + .08%, 2.88%, due 04/27/20
    23,155,369    
    17,000,000     SLM Student Loan Trust, Series 05-3, Class A3,
Variable Rate, 3 mo. LIBOR + .03%, 2.83%, due 07/25/16
    16,787,500    
    30,000,000     SLM Student Loan Trust, Series 05-3, Class A4,
Variable Rate, 3 mo. LIBOR + .07%, 2.87%, due 04/27/20
    28,650,000    
    22,122,709     SLM Student Loan Trust, Series 06-A, Class A2,
Variable Rate, 3 mo. LIBOR + .03%, 3.09%, due 10/15/15
    21,797,782    
    31,000,000     SLM Student Loan Trust, Series 07-2, Class A2,
Variable Rate, 3 mo. LIBOR, 2.80%, due 07/25/17
    29,856,720    
    1,272,400     SLM Student Loan Trust, Series 07-5, Class A1,
Variable Rate, 3 mo. LIBOR - .01%, 2.79%, due 07/25/13
    1,266,833    
    7,500,000     SLM Student Loan Trust, Series 07-6, Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 3.05%, due 01/25/19
    7,211,250    
    19,051,763     SLM Student Loan Trust, Series 07-A, Class A1,
Variable Rate, 3 mo. LIBOR + 0.03%, 2.81%, due 09/15/22
    17,337,104    
    15,000,000     SLM Student Loan Trust, Series 08-6, Class A3,
Variable Rate, 1 mo. LIBOR + .75%, 3.71%, due 01/25/19
    14,817,187    
    Total Student Loans     300,721,948    
        Time Share — 0.1%  
    8,954,733     Sierra Receivables Funding Co., Series 08-1A, Class A2, 144A,
Variable Rate, 1 mo. LIBOR + 4.00%, 6.47%, due 02/20/20
    8,691,688    
        Trade Receivables — 1.0%  
    55,000,000     ABS Global Finance Plc, Series 06-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .10%, 2.57%, due 12/17/10
    54,147,500    
    13,000,000     SSCE Funding LLC, Series 04-1A, Class A, 144A,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 11/15/10
    12,756,250    
    Total Trade Receivables     66,903,750    
    Total Asset-Backed Securities     6,356,704,178    

 

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, 2008 (Unaudited)

Par Value ($)   Description   Value ($)  
        Corporate Debt — 0.3%  
    22,000,000     TIAA Global Markets, 144A, Variable Rate,
3 mo. LIBOR + .10%, 2.89%, due 01/12/11
    21,678,583    
        U.S. Government — 0.3%  
    5,000,000     U.S. Treasury Note, 3.13%, due 09/15/08 (a)      5,002,344    
    12,000,000     U.S. Treasury Note, 2.38%, due 08/31/10     12,003,750    
    Total U.S. Government     17,006,094    
        U.S. Government Agency — 0.9%  
    550,000     Agency for International Development Floater (Support of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 2.47%, due 01/01/14
    550,005    
    1,879,375     Agency for International Development Floater (Support of C.A.B.E.I),
Variable Rate, 6 mo. LIBOR + .40%, 2.37%, due 10/01/12
    1,874,695    
    704,554     Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 1.93%, due 10/01/11
    700,592    
    13,875,000     Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 2.90%, due 02/01/27
    13,788,420    
    3,458,770     Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 2.72%, due 03/30/19
    3,473,954    
    16,500,000     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR - .02%, 3.08%, due 02/01/25
    16,304,079    
    13,875,000     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR + .15%, 3.24%, due 10/29/26
    13,857,795    
    728,519     Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 2.42%, due 11/15/14
    725,794    
    341,448     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 2.32%, due 05/01/14
    339,744    
    969,126     Agency for International Development Floater (Support of Peru), Series A,
Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 2.32%, due 05/01/14
    964,290    
    10,574,975     Agency for International Development Floater (Support of Tunisia),
Variable Rate, 6 mo. LIBOR, 3.09%, due 07/01/23
    10,508,987    
    583,334     Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 1.89%, due 01/01/12
    577,137    
    Total U.S. Government Agency     63,665,492    
    TOTAL DEBT OBLIGATIONS (COST $7,175,100,304)     6,459,054,347    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        SHORT-TERM INVESTMENTS — 6.5%  
        Money Market Funds — 3.9%  
    262,390,575     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     262,390,575    
        Other Short-Term Investments — 2.6%  
    25,000,000     Amsterdam Funding Corp. Commercial Paper, 2.72%, due 10/14/2008     24,918,778    
    45,000,000     Antalis U.S. Funding Corp. Commercial Paper, 2.55%, due 09/09/2008     44,974,500    
    20,000,000     Antalis U.S. Funding Corp. Commercial Paper, 2.58%, due 09/25/2008     19,965,600    
    20,000,000     Nieuw Amsterdam Receivables Commercial Paper, 2.50% due 09/02/2008     19,998,611    
    50,000,000     Nieuw Amsterdam Receivables Commercial Paper, 2.55%, due 09/08/2008     49,975,208    
    15,000,000     Old Line Funding LLC Commercial Paper, 2.45%, due 09/02/2008     14,998,976    
    5,000,000     U.S. Treasury Bill, 1.69%, due 09/25/08 (a) (b)      4,994,233    
    Total Other Short-Term Investments     179,825,906    
    TOTAL SHORT-TERM INVESTMENTS (COST $442,216,481)     442,216,481    
          TOTAL INVESTMENTS — 101.3%
(Cost $7,617,316,785)
    6,901,270,828    
          Other Assets and Liabilities (net) — (1.3%)     (86,544,668 )  
    TOTAL NET ASSETS — 100.0%   $ 6,814,726,160    

 

See accompanying notes to the financial statements.


26



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales      
10/21/08     EUR       40,000,000     $ 58,531,900     $ 2,938,900    

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Sales      
501   U.S. Treasury Note 5 Yr. (CBT)   December 2008   $ 56,080,688     $ (1,503 )  

 

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    
   
                                Creek CDO   $ (3,512,403 )  
  31,000,000     USD   3/20/2013   Morgan Stanley   Receive     0.25 %   MS Synthetic 2006-1     (4,241,970 )  
  28,000,000     USD   3/20/2015   Lehman Brothers   Receive     0.88 %   Credit Swap
AAA CDO
    (8,004,889 )  
    Premiums to (Pay) Receive   $     $ (15,759,262 )  

 

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  40,000,000     USD   1/24/2011   Goldman Sachs   (Pay)     6.07 %   3 month LIBOR   $ 2,392,604 *  
  30,000,000     USD   2/7/2012   Deutsche Bank AG   (Pay)     4.33 %   3 month LIBOR     (588,631 )  
  38,100,000     USD   2/24/2013   JP Morgan Chase Bank   (Pay)     4.54 %   3 month LIBOR     (520,586 )**  
    Premiums to (Pay) Receive   $     $ 1,283,387    

 

See accompanying notes to the financial statements.


27



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

*  Excludes unrealized losses of $4,887,149 incurred by GMO Alpha LIBOR Fund prior to transfer to the Fund on November 27, 2002.

**  Excludes unrealized losses of $404,936 incurred by GMO Alpha LIBOR Fund prior to transfer to the Fund on March 31, 2004.

As of August 31, 2008, for the futures and/ or swap 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:

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

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.

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, 2008, 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).

(b)  Rate shown represents yield-to-maturity.

Currency Abbreviations:

EUR - Euro

USD - United States Dollar

See accompanying notes to the financial statements.


28




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $7,617,316,785) (Note 2)   $ 6,901,270,828    
Receivable for investments sold     11,877,544    
Receivable for Fund shares sold     200,000    
Dividends and interest receivable     15,614,508    
Unrealized appreciation on open forward currency contracts (Note 2)     2,938,900    
Receivable for variation margin on open futures contracts (Note 2)     168    
Receivable for expenses reimbursed by Manager (Note 3)     95,264    
Total assets     6,931,997,212    
Liabilities:  
Payable for investments purchased     91,667,367    
Payable for Fund shares repurchased     5,400,000    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     14,946    
Interest payable for open swap contracts     4,014    
Payable for open swap contracts (Note 2)     19,767,960    
Accrued expenses     416,765    
Total liabilities     117,271,052    
Net assets   $ 6,814,726,160    
Net assets consist of:  
Paid-in capital   $ 7,456,274,754    
Accumulated undistributed net investment income     121,297,114    
Accumulated net realized loss     (35,266,239 )  
Net unrealized depreciation     (727,579,469 )  
    $ 6,814,726,160    
Net assets   $ 6,814,726,160    
Shares outstanding:     289,767,126    
Net asset value per share:   $ 23.52    

 

See accompanying notes to the financial statements.


29



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Interest   $ 121,779,321    
Dividends     2,291,070    
Total investment income     124,070,391    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     418,048    
Audit and tax fees     39,652    
Legal fees     105,064    
Trustees fees and related expenses (Note 3)     40,193    
Miscellaneous     44,804    
Total expenses     647,761    
Fees and expenses reimbursed by Manager (Note 3)     (566,352 )  
Expense reductions (Note 2)     (282 )  
Net expenses     81,127    
Net investment income (loss)     123,989,264    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     1,447,857    
Closed futures contracts     (272,689 )  
Closed swap contracts     (632,493 )  
Foreign currency, forward contracts and foreign currency related transactions     1,377,559    
Net realized gain (loss)     1,920,234    
Change in net unrealized appreciation (depreciation) on:  
Investments     (237,701,950 )  
Open futures contracts     890,934    
Open swap contracts     2,929,108    
Foreign currency, forward contracts and foreign currency related transactions     4,204,907    
Net unrealized gain (loss)     (229,677,001 )  
Net realized and unrealized gain (loss)     (227,756,767 )  
Net increase (decrease) in net assets resulting from operations   $ (103,767,503 )  

 

See accompanying notes to the financial statements.


30



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 123,989,264     $ 413,372,282    
Net realized gain (loss)     1,920,234       (2,015,394 )  
Change in net unrealized appreciation (depreciation)     (229,677,001 )     (512,996,708 )  
Net increase (decrease) in net assets from operations     (103,767,503 )     (101,639,820 )  
Distributions to shareholders from:  
Net investment income  
      (46,964,224 )     (418,731,518 )  
Net share transactions (Note 7):  
      (705,956,876 )     1,588,185,799    
Total increase (decrease) in net assets     (856,688,603 )     1,067,814,461    
Net assets:  
Beginning of period     7,671,414,763       6,603,600,302    
End of period (including accumulated undistributed net investment
income of $121,297,114 and $44,272,074, respectively)
  $ 6,814,726,160     $ 7,671,414,763    

 

See accompanying notes to the financial statements.


31




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout each period)

    Six Months
Ended
August 31, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value,
beginning of period
  $ 24.03     $ 25.66     $ 25.60     $ 25.33     $ 25.18     $ 25.01    
Income (loss) from
investment operations:
 
Net investment
income (loss) 
    0.41       1.38       1.43       1.01       0.59       0.56    
Net realized and
unrealized gain (loss)
    (0.76 )     (1.64 )     0.00 (a)      (0.03 )     (0.09 )     0.06 (b)   
Total from investment
operations
    (0.35 )     (0.26 )     1.43       0.98       0.50       0.62    
Less distributions to
shareholders:
 
From net investment income     (0.16 )     (1.37 )     (1.37 )     (0.71 )     (0.34 )     (0.45 )  
From net realized gains                             (0.01 )        
Total distributions     (0.16 )     (1.37 )     (1.37 )     (0.71 )     (0.35 )     (0.45 )  
Net asset value,
end of period
  $ 23.52     $ 24.03     $ 25.66     $ 25.60     $ 25.33     $ 25.18    
Total Return(c)      (1.46 )%**      (1.14 )%     5.68 %     3.89 %     2.01 %     2.48 %  
Ratios/Supplemental Data:  
Net assets,
end of period (000's)
  $ 6,814,726     $ 7,671,415     $ 6,603,600     $ 4,480,312     $ 3,483,889     $ 1,751,535    
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)(g)*      0.00 %(f)(g)      0.01 %     0.02 %     0.00 %(g)      0.00 %(g)   
Net investment income to
average daily net assets
    3.41 %*      5.41 %     5.50 %     3.96 %     2.31 %     2.51 %  
Portfolio turnover rate     11 %**      27 %     68 %     45 %     34 %     33 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:
    0.02 %*      0.01 %     0.02 %     0.02 %     0.02 %     0.02 %  

 

(a)  Net realized and unrealized gain (loss) was less than $0.01 per share.

(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)  The net expense ratio does not include the effect of expense reductions.

(g)  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.


32




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 comparable to 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 adjustable rate fixed income securities with low volatility (although market changes may indirectly result in volatility). 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 additio n, the Fund may invest in government securities, corporate debt securities, money market 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 adjustable interest rates (or may be hedged using derivatives to convert the fixed rate interest payments into adjustable rate interest payments), but may also include all types of interest rate, payment, and reset terms, including fixed rate, zero coupon, contingent, deferred, payment-in-kind, and auction rate features. The Fund may hold fixed income securities whose ratings after they were acquired were reduced 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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


33



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

in the financial statements. Actual results could differ from those estimates. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund values debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund are valued on the basis of a price provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold and the differences could be material. As of August 31, 2008, the total value of these securities represented 35.45% of net assets.

The Fund directly invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


34



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 17,006,094     $    
Level 2 - Other Significant Observable Inputs     5,841,989,371       5,331,504    
Level 3 - Significant Unobservable Inputs     1,042,275,363          
Total   $ 6,901,270,828     $ 5,331,504    

 

*  Other financial instruments include forward currency contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (1,503 )  
Level 2 - Other Significant Observable Inputs           (16,868,479 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (16,869,982 )  

 

**  Other financial instruments include futures contracts and swap agreements.


35



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 1,370,228,960     $    
Accrued discounts/premiums     (187 )        
Realized gain (loss)     31,527          
Change in unrealized appreciation/depreciation     (142,891,368 )        
Net purchases (sales)     (185,093,569 )        
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 1,042,275,363     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


36



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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


37



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

sell the underlying instrument at a set price to the writer of the option. The Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities 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 to 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


38



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

rate obligation, the party will receive a payment from or make a payment to the counterparty, respectively. Forward 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 issu er's default. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.


39



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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 repurchas e agreements is included in the Fund's expenses. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing


40



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $633,765.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

2/28/2011   $ (29,576,884 )  
2/29/2012     (142,552 )  
2/28/2014     (614,650 )  
2/28/2015     (5,952,458 )  
2/29/2016     (1,158,601 )  
Total   $ (37,445,145 )  

 

As of August 31, 2008, 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)
 
$ 7,617,664,049     $ 1,493,175     $ (717,886,396 )   $ (716,393,221 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


41



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncements

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

In September 2008, the FASB issued Statement of Financial Accounting Standards No. 133-1 ("SFAS 133-1"), Accounting for Derivative Instruments and Hedging Activities, and Interpretation of Financial Accounting Standards No. 45-4, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 ("IFAS 45-1"). SFAS 133-1 and IFAS 45-4 are effective for interim periods ending after November 15, 2008. SFAS 133-1 and IFAS 45-4 require enhanced disclosures surrounding the Fund's selling of credit derivatives . The Manager is currently evaluating the impact the adoption of SFAS 133-1 and IFAS 45-4 will have on the Fund's financial statement disclosures.


42



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2009 (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 19 40 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $35,777 and $20,424, 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, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 36,216,328     $ 36,209,999    
Investments (non-U.S. Government securities)     720,483,163       1,005,263,792    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


43



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 64.97% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Each of the shareholders are other funds of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Shares sold     68,743,870     $ 1,643,022,600       333,248,563     $ 8,426,752,200    
Shares issued to shareholders
in reinvestment of distributions
    1,976,609       46,964,224       16,958,629       418,731,518    
Shares repurchased     (100,255,407 )     (2,395,943,700 )     (288,235,189 )     (7,257,297,919 )  
Net increase (decrease)     (29,534,928 )   $ (705,956,876 )     61,972,003     $ 1,588,185,799    

 

8.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 1.00% of the amount redeemed. Effective October 20, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the private placement memorandum, which can be obtained by calling 1-617-346-7646 (collect).


44




GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 ove rall 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


45



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


46



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 985.40     $ 0.00    
2) Hypothetical     0.00 %   $ 1,000.00     $ 1,025.21     $ 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 for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


47




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.8 %  
Short-Term Investments     6.5    
Forward Currency Contracts     0.4    
Futures     (0.0 )  
Swaps     (0.2 )  
Other     (1.5 )  
      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, 2008 (Unaudited)

Industry Sector Summary**   % of Debt Obligations  
Credit Cards     23.5 %  
Residential Asset-Backed Securities (United States)     16.6    
Auto Financing     10.7    
Insured Auto Financing     6.4    
Residential Mortgage-Backed Securities (European)     5.9    
Business Loans     5.7    
CMBS     5.5    
Student Loans     4.7    
Residential Mortgage-Backed Securities (Australian)     4.2    
Investment Grade Corporate Collateralized Debt Obligations     3.4    
Insured Other     2.0    
CMBS Collateralized Debt Obligations     1.4    
Equipment Leases     1.3    
Bank Loan Collateralized Debt Obligations     1.1    
Rate Reduction Bonds     1.1    
Trade Receivables     1.0    
U.S. Government Agency     1.0    
Insurance Premiums     0.8    
Insured High Yield Collateralized Debt Obligations     0.6    
Insured Residential Mortgage-Backed Securities (United States)     0.6    
Insured Time Share     0.6    
Insured Credit Cards     0.5    
Airlines     0.3    
Corporate Debt     0.3    
U.S. Government & Agencies     0.3    
Time Share     0.1    
Insured Residential Asset-Backed Securities (United States)     0.1    
Insured Transportation     0.1    
Residential Mortgage-Backed Securities (United States)     0.1    
Insured Business Loans     0.1    
Collateralized Loan Obligations     0.0    
ABS Collateralized Debt Obligations     0.0    
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, 2008 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 100.1%  
        Affiliated Issuers — 100.1%  
    1,387,077     GMO Short-Duration Collateral Fund     32,624,062    
    TOTAL MUTUAL FUNDS (COST $33,421,107)     32,624,062    
      TOTAL INVESTMENTS — 100.1%
(Cost $33,421,107)
    32,624,062    
      Other Assets and Liabilities (net) — (0.1%)     (35,581 )  
    TOTAL NET ASSETS — 100.0%   $ 32,588,481    

 

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, 2008 (Unaudited)

Assets:  
Investments in affiliated issuers, at value (cost $33,421,107) (Notes 2 and 8)   $ 32,624,062    
Cash     10,351    
Interest receivable     10    
Receivable for expenses reimbursed by Manager (Note 3)     3,627    
Total assets     32,638,050    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     1,399    
Shareholder service fee     4,195    
Trustees and Chief Compliance Officer of GMO Trust fees     142    
Accrued expenses     43,833    
Total liabilities     49,569    
Net assets   $ 32,588,481    
Net assets consist of:  
Paid-in capital   $ 37,953,612    
Accumulated undistributed net investment income     193,870    
Accumulated net realized loss     (4,761,956 )  
Net unrealized depreciation     (797,045 )  
    $ 32,588,481    
Net assets attributable to:  
Class III shares   $ 32,588,481    
Shares outstanding:  
Class III     1,418,348    
Net asset value per share:  
Class III   $ 22.98    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 223,597    
Interest     86    
Total investment income     223,683    
Expenses:  
Management fee (Note 3)     6,187    
Shareholder service fee – Class III (Note 3)     18,562    
Custodian, fund accounting agent and transfer agent fees     5,888    
Audit and tax fees     15,272    
Legal fees     184    
Trustees fees and related expenses (Note 3)     22    
Registration fees     1,656    
Miscellaneous     368    
Total expenses     48,139    
Fees and expenses reimbursed by Manager (Note 3)     (23,368 )  
Net expenses     24,771    
Net investment income (loss)     198,912    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (346,197 )  
Net realized gain (loss)     (346,197 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (140,233 )  
Net realized and unrealized gain (loss)     (486,430 )  
Net increase (decrease) in net assets resulting from operations   $ (287,518 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 198,912     $ 1,554,865    
Net realized gain (loss)     (346,197 )     (422,578 )  
Change in net unrealized appreciation (depreciation)     (140,233 )     (877,706 )  
Net increase (decrease) in net assets from operations     (287,518 )     254,581    
Distributions to shareholders from:  
Net investment income  
Class III     (66,364 )     (1,493,543 )  
Net share transactions (Note 7):  
Class III     22,305,163       (28,686,720 )  
Total increase (decrease) in net assets     21,951,281       (29,925,682 )  
Net assets:  
Beginning of period     10,637,200       40,562,882    
End of period (including accumulated undistributed net investment
income of $193,870 and $61,322, respectively)
  $ 32,588,481     $ 10,637,200    

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
  Period from
December 28, 2006
(commencement
of operations) through
February 28, 2007
 
Net asset value, beginning of period   $ 23.39     $ 25.05     $ 24.82    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.19       1.07       (0.01 )  
Net realized and unrealized gain (loss)     (0.55 )     (1.38 )     0.24    
Total from investment operations     (0.36 )     (0.31 )     0.23    
Less distributions to shareholders:  
From net investment income     (0.05 )     (1.35 )        
Total distributions     (0.05 )     (1.35 )        
Net asset value, end of period   $ 22.98     $ 23.39     $ 25.05    
Total Return(b)      (1.56 )%**      (1.33 )%     0.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 32,588     $ 10,637     $ 40,563    
Net expenses to average daily net assets     0.20 %*      0.20 %     0.21 %*   
Net investment income to average daily net assets(a)      1.61 %*      4.25 %     (0.21 )%*   
Portfolio turnover rate     17 %**      127 %     125 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.19 %*      0.15 %     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, 2008 (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 comparable to that of the JPMorgan U.S. 3 Month Cash Index. The Fund invests substantially all of its assets in GMO Short-Duration Collateral Fund ("SDCF") (an arrangement often referred to as a "master-feeder" structure) 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 adjustable rate fixed income securities with low volatility. SDCF may invest a substantial portion of its assets in asset-backed securities.

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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

Shares of SDCF are valued at their net asset value.

Investments held by SDCF are valued as follows. 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. Debt instruments with a remaining maturity of sixty days or less are generally


8



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 35.49% of net assets.

The Fund indirectly (through SDCF) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.


9



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs     32,624,062          
Level 3 - Significant Unobservable Inputs              
Total   $ 32,624,062     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments


10



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $858,383.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

 2/29/2016   $ (3,417,986 )  
 Total   $ (3,417,986 )  

 

As of August 31, 2008, 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)
 
$ 33,886,702     $     $ (1,262,640 )   $ (1,262,640 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


11



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs certain fees and expenses indirectly as a shareholder in SDCF (See Note 3).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.05% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, expenses indirectly incurred by investment in SDCF, 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


12



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 SDCF. For the period ended August 31, 2008, 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 Trust's independent Trustees and CCO during the period ended August 31, 2008 was $22 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 and class exchanges, for the period ended August 31, 2008 aggregated $26,560,197 and $4,127,600, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


13



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 84.70% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 89.82% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,144,226     $ 26,500,354       1,953,067     $ 49,066,088    
Shares issued to shareholders
in reinvestment of distributions
    2,852       66,233       62,533       1,492,040    
Shares repurchased     (183,589 )     (4,261,424 )     (3,180,036 )     (79,244,848 )  
Net increase (decrease)     963,489     $ 22,305,163       (1,164,436 )   $ (28,686,720 )  

 

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, 2008 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
  $ 10,677,894     $ 26,560,197     $ 4,127,600     $ 223,597     $     $ 32,624,062    
Totals   $ 10,677,894     $ 26,560,197     $ 4,127,600     $ 223,597     $     $ 32,624,062    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 1.00% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


14




GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

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 Manager'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 Trustee s 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 over various periods, including a one-year period and for the life of the Fund and SDCF's performance over various periods, including one- and five-year periods 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 responsi ble 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.


15



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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 those 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 ris ks 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, for example, by attracting new clients, entering into sub-adviso ry relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management


16



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


17



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 984.40     $ 1.00    
2) Hypothetical     0.20 %   $ 1,000.00     $ 1,024.20     $ 1.02    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


18




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Emerging Markets Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Emerging Markets Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     81.5 %  
Preferred Stocks     13.7    
Short-Term Investments     5.3    
Private Equity Securities     0.8    
Investment Funds     0.4    
Debt Obligations     0.2    
Rights and Warrants     0.1    
Convertible Securities     0.0    
Mutual Funds     0.0    
Other     (2.0 )  
      100.0 %  
Country Summary   % of Equity Investments*  
Brazil     20.0 %  
South Korea     18.0    
Taiwan     11.2    
Russia     10.1    
Turkey     7.3    
China     6.6    
Thailand     5.7    
South Africa     5.1    
Hungary     2.8    
Malaysia     2.3    
India     2.0    
Israel     1.5    
Mexico     1.3    
Poland     1.1    
Philippines     0.9    
Egypt     0.8    
Indonesia     0.7    
Pakistan     0.7    
Argentina     0.6    
Czech Republic     0.6    
Chile     0.2    
Morocco     0.2    
United States     0.2    
Peru     0.1    
Lebanon     0.0    
Sri Lanka     0.0    
Ukraine     0.0    
      100.0 %  

 


1



GMO Emerging Markets Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Industry Sector Summary   % of Equity Investments*  
Financials     25.6 %  
Energy     20.9    
Materials     13.8    
Information Technology     11.5    
Telecommunication Services     7.1    
Industrials     6.3    
Consumer Discretionary     5.9    
Consumer Staples     3.3    
Utilities     2.9    
Miscellaneous     1.4    
Health Care     1.3    
      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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 81.5%  
        Argentina — 0.6%  
    810,256     Petrobras Energia Participaciones SA Sponsored ADR (a)      9,188,303    
    890,190     Tenaris SA ADR     48,684,491    
    Total Argentina     57,872,794    
        Brazil — 7.2%  
    839,188     Aes Tiete SA     8,366,138    
      271,400     B2W Companhia Global do Varejo     9,682,154    
      1,615,502     Companhia Saneamento Basico Sao Paulo     36,561,883    
      2,046,716     Companhia Siderurgica Nacional SA     70,944,450    
      2,537,200     Companhia Vale do Rio Doce     67,663,855    
      372,280     Companhia Vale do Rio Doce ADR     9,884,034    
      1,747,230     Companhia Vale do Rio Doce Sponsored ADR     41,531,657    
      713,100     Cyrela Brazil Realty SA     8,964,061    
      260,300     EDP-Energias Do Brasil SA     4,548,064    
      1,203,492     Electrobras (Centro)     21,780,990    
      948,500     Empresa Brasileira de Aeronautica SA     8,047,703    
      373,900     Gerdau SA     5,840,180    
      281,900     Iguatemi Empresa de Shopping     3,285,951    
      639,600     Natura Cosmeticos SA     7,447,612    
      300,200     Perdigao SA     7,516,050    
      2,767,700     Petroleo Brasileiro SA (Petrobras)     72,435,633    
      3,375,420     Petroleo Brasileiro SA (Petrobras) ADR     178,019,651    
      633,304     Souza Cruz SA     16,563,037    
      641,400     Tele Norte Leste Participacoes SA     15,751,682    
      626,850     Unibanco-Uniao de Bancos Brasileiros SA GDR     74,946,186    
      921,950     Usinas Siderurgicas de Minas Gerais SA     31,730,917    
    Total Brazil     701,511,888    
        Chile — 0.2%  
      90,980     AFP Provida SA Sponsored ADR (a)      2,576,554    
      168,710     Banco Santander Chile SA ADR     7,424,927    
      37,200     Compania Cervecerias Unidas ADR     1,286,748    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Chile — continued        
  106,080     Embotelladora Andina SA ADR A Shares     1,746,077    
  116,370     Embotelladora Andina SA ADR B Shares     2,121,425    
  98,280     Sociedad Quimica y Minera de Chile SA Sponsored ADR     3,766,089    
    Total Chile     18,921,820    
        China — 6.3%        
  13,759,990     Advanced Semiconductor Manufacturing Co Class H *      361,428    
  2,862,000     Ajisen China Holdings Ltd     2,397,272    
  9,190,000     Aluminum Corp of China Ltd     8,103,982    
  2,666,000     Angang Steel Co Ltd Class H     3,608,627    
  12,184,000     China Communication Services Corp Ltd Class H     9,879,927    
  26,800,000     China Construction Bank Class H     21,720,959    
  13,319,000     China Merchants Bank Co Ltd Class H     44,410,945    
  3,728,894     China Merchants Holdings International Co Ltd     13,746,827    
  5,718,442     China Mobile Ltd     64,915,740    
  375,649     China Mobile Ltd Sponsored ADR     21,306,811    
  27,305,351     China Petroleum & Chemical Corp Class H     26,295,649    
  1,116,000     China Shenhua Energy Co Ltd Class H     3,810,881    
  19,008,000     China Ting Group Holding Ltd     2,788,632    
  17,164,000     CNOOC Ltd     26,686,605    
  16,876,000     CNPC Hong Kong Ltd     6,469,429    
  2,025,000     Dongfang Electrical Machinery Co Ltd     6,273,826    
  331,670     Focus Media Holding Ltd ADR * (a)      10,852,242    
  9,861,136     GOME Electrical Appliances Holdings Ltd (a)      4,049,148    
  24,158,000     Huaneng Power International Inc Class H     17,968,840    
  56,486,000     Industrial and Commercial Bank of China Ltd Class H     38,676,618    
  38,781,000     Maoye International Holdings     8,844,807    
  521,390     New Oriental Education & Technology Group Inc Sponsored ADR *      38,634,999    
  6,396,000     Nine Dragons Paper Holdings Ltd     3,916,142    
  7,494,500     Parkson Retail Group Ltd (a)      10,750,093    
  6,356,172     Peace Mark Holdings Ltd (a)      1,221,620    
  790,590     Perfect World Co Ltd ADR * (a)      19,843,809    
  97,207,101     PetroChina Co Ltd Class H     124,620,784    
  33,832,789     Pico Far East Holdings Ltd     3,903,650    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        China — continued        
  111,590     Shanda Interactive Entertainment Ltd ADR *      2,956,019    
  6,975,500     Shandong Chenming Paper Holdings Ltd Class H *      5,335,794    
  7,431,000     Shandong Weigao Group Medical Polymer Co Ltd Class H     11,326,834    
  4,734,344     Shanghai Industrial Holdings Ltd     12,778,167    
  3,512,000     Tencent Holdings Ltd     29,803,986    
  6,260,000     Tianjin Development Holdings Ltd     3,463,590    
  6,600,000     Zhuzhou CSR Times Electric Co Ltd Class H     5,451,939    
    Total China     617,176,621    
        Czech Republic — 0.6%        
  390,860     CEZ AS     29,398,506    
  102,530     ECM Real Estate Investments AG *      2,748,227    
  54,090     Komercni Banka AS     11,909,054    
  311,870     Telefonica 02 Czech Republic AS     9,631,263    
  481,270     Unipetrol (a)      5,846,809    
    Total Czech Republic     59,533,859    
        Egypt — 0.7%        
  215,959     Alexandria Mineral Oils Co     3,010,734    
  1,519,735     Commercial International Bank     13,127,033    
  205,670     Egyptian Co for Mobile Services     4,785,901    
  728,550     Egyptian Financial Group-Hermes Holding     6,387,777    
  14,220     El Ezz Aldekhela Steel Alexa Co     3,761,764    
  663,570     El Ezz Steel Rebars SAE     3,156,741    
  226,553     ElSwedy Cables Holding Co *      5,732,899    
  598,900     Orascom Telecom Holding SAE     6,116,134    
  2,541,794     Sidi Kerir Petrochemicals Co     7,808,486    
  1,156,112     South Valley Cement *      3,076,699    
  5,102,230     Telecom Egypt     15,709,837    
    Total Egypt     72,674,005    
        Hungary — 2.7%        
  5,759,410     Magyar Telekom Nyrt (a)      29,525,605    
  619,690     MOL Magyar Olaj es Gazipari Nyrt (New Shares) (a)      66,570,075    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Hungary — continued        
  3,056,070     OTP Bank Nyrt * (a)      137,059,535    
  164,000     Richter Gedeon Nyrt (a)      32,500,255    
    Total Hungary     265,655,470    
        India — 1.8%        
  51,800     BF Utilities Ltd *       2,581,872    
  527,711     Bombay Dyeing & Manufacturing Co Ltd     6,448,507    
  11,896,352     CBAY Systems Holdings Ltd * (b)      16,806,081    
  5,948,177     CBAY Systems Ltd * (c) (d)      59,482    
  913,308     Emco Ltd     2,277,327    
  810,679     Gammon India Ltd     4,015,299    
  321,462     Gitanjali Gems Ltd     1,739,783    
  239,769     HDFC Bank Ltd     6,925,676    
  607,200     Indiabulls Real Estate Ltd     3,945,781    
  7,051,100     Industrial Development Bank of India Ltd.     13,291,247    
  186,400     Infosys Technologies Ltd     7,375,331    
  1,106,547     Jindal Steel & Power Ltd     47,567,671    
  982,323     KSK Energy Ventures Ltd *      4,024,539    
  2,205,903     PTC India Ltd     3,889,961    
  206,000     Reliance Energy Ltd     4,594,344    
  416,976     Rural Electrification Corp Ltd     819,891    
  2,524,865     Satyam Computer Services Ltd     23,880,706    
  1,339,136     Sintex Industries Ltd     9,358,919    
  709,424     Tata Consultancy Services Ltd     13,024,786    
    Total India     172,627,203    
        Indonesia — 0.7%        
  184,360,000     Bakrie & Brothers Tbk PT *      6,914,872    
  93,288,500     Bumi Resources Tbk PT     55,457,388    
  42,237,600     Matahari Putra Prima Tbk PT     2,568,486    
  75,674,500     Truba Alam Manunggal Engineering Tbk PT *      3,914,705    
    Total Indonesia     68,855,451    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Israel — 1.4%        
  10,062,260     Bank Hapoalim BM     39,139,825    
  10,010,100     Bank Leumi Le     41,285,499    
  71,398     IDB Development Corp Ltd     1,558,000    
  1,675,760     Israel Chemicals Ltd     27,816,938    
  2,900     Teva Pharmaceutical Industries Ltd     137,358    
  498,020     Teva Pharmaceutical Industries Ltd Sponsored ADR     23,576,267    
  5,430     The Israel Corp Ltd     5,508,570    
    Total Israel     139,022,457    
        Lebanon — 0.0%        
  8,700     Banque Libanaise pour le Commerce Sal * (d)      35,695    
        Malaysia — 2.2%        
  9,268,200     Berjaya Sports Toto Berhad     12,423,239    
  13,089,000     Genting Berhad     22,440,490    
  56,100,240     KNM Group Berhad     24,519,781    
  35,360,700     Resorts World Berhad     28,088,494    
  46,970,429     RHB Capital Berhad     57,593,622    
  8,819,900     Shangri-La Hotels Berhad     4,517,161    
  14,890,400     Sunway City Berhad     10,708,275    
  3,596,368     Tanjong Plc     13,948,312    
  9,321,900     UMW Holdings Berhad     16,842,875    
  21,518,620     WCT Engineering Berhad     19,590,917    
    Total Malaysia     210,673,166    
        Mexico — 1.3%        
  1,610,800     Alfa SA de CV Class A (a)      8,396,478    
  380,930     America Movil SAB de CV Class L ADR     19,572,183    
  15,984,789     Cemex SA de CV CPO *      32,038,754    
  663,140     Cemex SA de CV Sponsored CPO ADR * (a)      13,295,957    
  450,980     Fomento Economico Mexicano Sponsored ADR     20,032,532    
  2,346,011     Grupo Cementos de Chihuahua SA de CV     10,198,312    
  7,090,457     Grupo Mexico SA Class B     11,811,969    
  362,200     Telefonos de Mexico SA de CV Class L Sponsored ADR (a)      8,899,254    
    Total Mexico     124,245,439    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Morocco — 0.2%        
  7,310     Lafarge Ciments     2,012,358    
  809,044     Maroc Telecom     19,123,876    
    Total Morocco     21,136,234    
        Pakistan — 0.6%        
  2,558,110     Arif Habib Securities Ltd * (d)      2,834,017    
  442,540     Bank of Punjab * (d)      129,436    
  12,437,350     Hub Power Co Ltd (d)      3,165,041    
  2,923,090     MCB Bank Ltd (d)      8,418,499    
  5,843,920     National Bank of Pakistan (d)      6,416,279    
  14,548,070     Oil & Gas Development Co Ltd (d)      16,816,043    
  1,369,460     Pakistan Oilfields Ltd (d)      3,935,963    
  3,421,290     Pakistan Petroleum Ltd (d)      8,561,077    
  1,829,880     Pakistan State Oil Co Ltd (d)      6,047,387    
  7,710,690     United Bank Ltd (d)      6,211,530    
    Total Pakistan     62,535,272    
        Peru — 0.1%        
  64,380     Compania de Minas Buenaventura SA ADR     1,493,616    
  123,190     Southern Copper Corp     3,145,041    
    Total Peru     4,638,657    
        Philippines — 0.9%        
  707,472,942     Filinvest Land Inc     12,052,387    
  4,914,000     First Gen Corp     2,654,630    
  6,238,223     First Philippine Holdings     3,709,294    
  827,704,087     Megaworld Corp     25,946,085    
  345,346     Philippine Long Distance Telephone Co     20,296,517    
  11,567,600     PNOC Energy Development Corp     1,138,570    
  132,173,510     Robinsons Land Corp     21,704,206    
    Total Philippines     87,501,689    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Poland — 0.3%        
  145,000     KGHM Polska Miedz SA     4,881,824    
  1,139,970     Polski Koncern Naftowy Orlen SA     16,471,543    
  537,260     Powszechna Kasa Oszczednosci Bank Polski SA     11,549,197    
    Total Poland     32,902,564    
        Russia — 9.3%        
  923,600     Cherepovets MK Severstal GDR (Registered Shares)     15,608,840    
  638,390     CTC Media Inc *      12,384,766    
  172,200     Evraz Group SA GDR     13,001,100    
  5,281,873     Gazprom Neft     24,817,116    
  98,400     Gazprom Neft Sponsored ADR     2,268,120    
  933,800     JSC Mining & Smelting Co ADR     18,448,526    
  685     Lukoil GDR     203,582    
  1,999,550     Lukoil Sponsored ADR     148,566,565    
  212,880     Mobile Telesystems Sponsored ADR     14,475,840    
  10,005,800     OAO Gazprom Sponsored GDR     390,226,200    
  412,889     OAO Mechel ADR (a)      11,288,385    
  6,313,900     OAO Rosneft Oil Co GDR     53,857,567    
  261,900     OAO Tatneft Sponsored GDR (Registered Shares)     27,106,650    
  767,900     PIK Group GDR (Registered Shares) *      15,311,926    
  135,000     Russia Petroleum *      1,485,000    
  51,398,870     Sberbank RF     120,514,931    
  325,500     Vimpel-Communications Sponsored ADR     7,821,765    
  174,610     Wimm-Bill-Dann Foods ADR * (a)      12,138,887    
  599,988     X5 Retail Group NV GDR (Registered Shares) *      16,349,673    
    Total Russia     905,875,439    
        South Africa — 4.9%        
  2,137,675     Absa Group Ltd     30,179,083    
  993,848     Adcock Ingram Holdings Ltd *      4,841,741    
  81,400     Anglo American Platinum Ltd     10,253,536    
  770,900     ArcelorMittal South Africa Ltd     18,159,750    
  917,293     Aveng Ltd     7,881,272    
  1,440,126     Bidvest Group Ltd     21,276,185    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Africa — continued        
  18,108     Eqstra Holdings Ltd *      33,522    
  24,502,900     FirstRand Ltd     52,178,842    
  638,100     Impala Platinum Holdings Ltd     18,004,343    
  1,793,300     Imperial Holdings Ltd     12,552,657    
  850,000     Investec Ltd     6,332,746    
  2,232,528     JD Group Ltd     8,711,021    
  2,284,700     MTN Group Ltd     35,126,175    
  4,306,380     Murray & Roberts Holdings Ltd     58,120,326    
  695,600     Nedbank Group Ltd     9,396,271    
  1,091,900     Reunert Ltd     8,229,968    
  13,400,571     Sanlam Ltd     30,913,494    
  943,100     Sasol Ltd     51,913,247    
  4,493,426     Standard Bank Group Ltd     52,424,082    
  11,819,600     Steinhoff International Holdings Ltd     28,262,165    
  993,848     Tiger Brands Ltd     17,480,376    
    Total South Africa     482,270,802    
        South Korea — 16.1%        
  4,403,499     Biomass Korea Co Ltd * (b)      2,724,646    
  172,755     Boryung Pharmaceutical Co Ltd (b)      4,187,410    
  577,880     Daehan Pulp Co Ltd * (b)      1,990,726    
  174,930     Daelim Industrial Co Ltd     10,781,859    
  11,275     Daesun Shipbuilding     2,040,286    
  145,206     DC Chemical Co Ltd (a)      39,235,196    
  501,263     Dongbu Insurance Co Ltd     14,033,999    
  399,080     Dongkuk Steel Mill Co Ltd     14,220,934    
  1,413,948     EnE System Inc * (a) (b)      5,513,906    
  268,700     GS Holdings Corp     6,768,944    
  1,645,239     Hana Financial Group Inc     58,283,375    
  103,868     Hanjin Heavy Industries & Construction Co Ltd     2,848,640    
  441,644     Hanjin Heavy Industries & Construction Holdings Co Ltd *      6,823,057    
  483,410     Hanjin Shipping (a)      12,281,273    
  1,330,332     Hanwha Corp     45,127,341    
  204,304     Honam Petrochemical Corp     12,080,729    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued        
  530,156     Hyundai Engineering & Construction (a)      27,170,822    
  1,004,360     Hyundai Marine & Fire Insurance Co Ltd     16,548,783    
  134,001     Hyundai Mipo Dockyard     19,168,872    
  329,250     Hyundai Mobis     27,339,999    
  978,250     Hyundai Motor Co (a)      63,914,025    
  352,190     Hyundai Steel Co (a)      16,300,032    
  255,460     Hyunjin Materials Co Ltd (a)      9,661,954    
  4,484,160     In the F Co Ltd * (b)      7,278,316    
  1,609,940     Industrial Bank of Korea     22,866,395    
  88,666     JVM Co Ltd     2,351,287    
  31,190     KCC Corp     10,230,960    
  1,902,660     Kookmin Bank (a)      104,091,137    
  40,200     Kookmin Bank ADR (a)      2,202,960    
  2,822,330     Korea Exchange Bank     35,346,738    
  268,433     Korea Gas Corp     19,325,738    
  98,790     Korea Line Corp (a)      15,823,322    
  4,623,926     Korea Real Estate *      5,096,709    
  124,799     Korea Zinc Co Ltd (a)      14,426,419    
  264,444     Korean Air Lines Co Ltd     9,302,323    
  727,680     KT Corp     29,838,483    
  313,740     KT Corp ADR     6,387,746    
  1,733,688     KT&G Corp     145,717,139    
  566,000     KT&G Corp GDR 144A     23,885,200    
  553,820     LG Corp     31,610,214    
  1,604,310     LG Display Co Ltd (a)      39,532,544    
  449,180     LG Electronics Inc (a)      41,381,517    
  851,780     LG Telecom Ltd     7,443,215    
  392,239     Maeil Dairy Industry (a)      3,835,141    
  142,680     MegaStudy Co Ltd     29,868,005    
  203,150     NHN Corp *      27,654,086    
  137,909     POSCO     59,319,840    
  7,650     POSCO ADR     819,315    
  794,190     Pumyang Construction Co Ltd (b)      12,632,415    
  163,370     S-Oil Corp (a)      9,687,951    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued        
  510,461     Samsung Electronics Co Ltd     239,442,844    
  280,046     Samsung Fire & Marine Insurance Co Ltd     50,859,248    
  1,344,825     Shinhan Financial Group Co Ltd     61,014,237    
  149,330     SK Corp     14,873,959    
  400     SK Telecom Co Ltd     73,698    
  616,500     SK Telecom Co Ltd ADR     12,576,600    
  347,217     Taewoong Co Ltd     30,089,636    
  2,152,380     Woori Finance Holdings Co Ltd     28,332,066    
    Total South Korea     1,574,264,211    
        Sri Lanka — 0.0%        
  191,860     Lanka Walltile Ltd     154,578    
        Taiwan — 10.8%        
  18,302,547     Asustek Computer Inc     42,077,171    
  16,280,560     AU Optronics Corp     19,329,410    
  25,687,250     Chi Mei Optoelectronics Corp     21,574,179    
  51,193,000     China Bills Finance Corp *      10,189,417    
  42,493,261     China Development Financial Holding Corp     13,392,828    
  47,856,851     China Steel Corp     58,576,009    
  395,291     China Steel Corp Sponsored GDR     9,803,217    
  38,160,387     Chinatrust Financial Holding Co Ltd     24,553,059    
  14,754,610     Chunghwa Telecom Co Ltd     36,577,379    
  847,231     Chunghwa Telecom Co Ltd ADR *      20,960,495    
  19,295,545     Compal Electronics Inc     17,309,030    
  13,395     D-Link Corp     16,141    
  3,109,612     Delta Electronics Inc     8,328,895    
  2,512,471     DFI Inc     5,466,070    
  12,075,218     Dimerco Express Taiwan Corp (b)      11,716,997    
  5,563,942     Far Eastern Department Stores Ltd     4,078,201    
  9,551,445     Far Eastern Textile Co Ltd     8,761,599    
  8,792,500     Far Eastone Telecommunications Co Ltd     12,786,399    
  32,256,488     First Financial Holding Co Ltd     24,352,227    
  10,381,208     Formosa Chemicals & Fibre Co     17,826,395    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued        
  11,710,107     Formosa Plastics Corp     22,818,928    
  19,796,000     Fubon Financial Holding Co Ltd     16,672,879    
  1,738,600     High Tech Computer Corp     32,214,238    
  19,868,526     Hon Hai Precision Industry Co Ltd     99,671,168    
  19,686,120     KGI Securities Co Ltd     9,806,357    
  12,659,455     Les Enphants Co Ltd (b)      9,126,906    
  17,594,927     Lite-On Technology Corp     17,286,076    
  5,329,618     MediaTek Inc     61,197,983    
  52,863,000     Mega Financial Holdings Co Ltd     33,240,264    
  12,466,405     Nan Ya Plastics Corp     19,502,979    
  3,355,785     Novatek Microelectronics Corp Ltd     7,206,660    
  2,333,000     Powertech Technology Inc     7,232,907    
  2,208,635     Richtek Technology Corp     18,195,579    
  18,004,652     Siliconware Precision Industries Co     24,620,040    
  26,867,663     Taiwan Cement Corp     26,260,078    
  5,457,000     Taiwan Fertilizer Co Ltd     16,787,291    
  8,560,288     Taiwan Mobile Co Ltd     15,304,372    
  98,986,908     Taiwan Semiconductor Manufacturing Co Ltd     182,317,262    
  4,114     Taiwan Semiconductor Manufacturing Co Ltd Sponsored ADR     39,947    
  3,284,000     U-Ming Marine Transport Corp     8,656,523    
  6,898,845     Unimicron Technology Corp     7,661,463    
  71,993     Wan Hai Lines Ltd     38,989    
  36,705,020     Waterland Financial Holdings     10,546,787    
  9,852,000     Wintek Corp     6,133,868    
  65,262,000     Yuanta Financial Holding Co Ltd     37,293,577    
    Total Taiwan     1,057,508,239    
        Thailand — 5.5%        
  8,529,590     Advanced Info Service Pcl (Foreign Registered)     22,020,890    
  14,195,520     Bangkok Bank Pcl NVDR     48,145,284    
  29,855,800     Bangkok Dusit Medical Service Pcl (Foreign Registered)     31,745,766    
  22,635,830     Bank of Ayudhya Pcl (Foreign Registered) * (d)      13,446,106    
  24,673,710     Bank of Ayudhya Pcl NVDR *      14,656,645    
  210,000     Banpu Pcl (Foreign Registered) (d)      2,388,309    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Thailand — continued        
  875,000     Banpu Pcl NVDR     9,900,515    
  41,673,020     BEC World Pcl (Foreign Registered)     27,138,702    
  14,577,580     Home Product Center Pcl (Foreign Registered)     2,005,098    
  120,245,800     IRPC Pcl (Foreign Registered)     14,317,819    
  63,197,650     Italian Thai Development Pcl (Foreign Registered)     8,358,000    
  32,344,560     Kasikornbank Pcl (Foreign Registered) (d)      67,459,095    
  65,026,000     Krung Thai Bank Pcl (Foreign Registered)     14,345,222    
  57,489,680     Land & Houses Pcl NVDR     11,058,872    
  5,380,500     Major Cineplex Group (Foreign Registered)     1,990,518    
  12,482,000     PTT Exploration & Production Pcl (Foreign Registered)     54,033,900    
  10,992,270     PTT Pcl (Foreign Registered)     84,855,445    
  8,938,690     Robinson Department Store Pcl (Foreign Registered)     2,664,325    
  3,499,793     Robinson Department Store Pcl NVDR     1,043,171    
  13,231,400     Saha Pathana International Holding Pcl (Foreign Registered)     7,286,854    
  615,985     Siam Cement Pcl (Foreign Registered) (d)      3,027,649    
  2,669,853     Siam Cement Pcl NVDR     12,812,090    
  25,380,900     Siam Commercial Bank Pcl (Foreign Registered)     57,728,650    
  3,108,050     Star Block Co Ltd (Foreign Registered) * (b) (d) (e)      908    
  6,509,320     Thai Oil Pcl (Foreign Registered)     9,386,690    
  10,883,760     Thoresen Thai Agencies Pcl (Foreign Registered)     11,873,502    
    Total Thailand     533,690,025    
        Turkey — 7.1%        
  10,454,200     Akbank TAS     53,639,771    
  17,568,040     Dogan Sirketler Grubu Holdings AS *      25,537,873    
  4,710,556     Enka Insaat ve Sanayi AS     41,757,174    
  6,741,796     Eregli Demir ve Celik Fabrikalari TAS     45,286,020    
  7,716,430     Haci Omer Sabanci Holding AS     32,281,854    
  9,450,816     KOC Holding AS *      32,693,313    
  42,150     Medya Holding AS * (d) (e)      356    
  371,500     Migros Turk TAS     6,733,884    
  2,370,420     Tupras-Turkiye Petrol Rafineriler AS     55,522,776    
  2,889,930     Turk Hava Yollari Anonim Ortakligi *      15,745,556    
  9,050,025     Turk Sise ve Cam Fabrikalari AS *      12,209,818    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Turkey — continued        
  13,146,510     Turkcell Iletisim Hizmet AS     86,970,501    
  35,402,690     Turkiye Garanti Bankasi *      104,809,416    
  5,954,060     Turkiye Halk Bankasi AS     32,800,608    
  19,587,130     Turkiye IS Bankasi Class C     93,056,229    
  12,196,162     Turkiye Sinai Kalkinma Bankasi AS *      11,339,569    
  15,227,120     Turkiye Vakiflar Bankasi TAO Class D     28,780,619    
  5,190,063     Yapi ve Kredi Bankasi AS *      11,536,346    
    Total Turkey     690,701,683    
    TOTAL COMMON STOCKS (COST $8,759,581,230)     7,961,985,261    
        PREFERRED STOCKS — 13.7%        
        Brazil — 12.1%        
  822,300     Aracruz SA Class B (Registered) 2.24%     4,525,172    
  6,171,201     Banco Bradesco SA 0.52%     113,391,086    
  4,779,575     Banco Itau Holding Financeira SA 0.46%     90,166,829    
  2,550,064     Companhia Energetica de Minas Gerais 2.51%     55,053,222    
  1,400,800     Companhia Paranaense de Energia Class B 0.93%     24,062,822    
  3,596,208     Companhia Vale do Rio Doce Class A 0.54%     83,837,978    
  957,900     Electrobras (Centro) SA Class B 6.44%     14,715,225    
  2,153,400     Gerdau Metalurgica SA 5.90%     54,825,828    
  4,808,062     Gerdau SA 4.82%     90,556,751    
  16,776,250     Itausa-Investimentos Itau SA 0.15%     98,084,456    
  2,438,452     Net Servicos de Comunicacoa SA *      28,124,477    
  11,940,604     Petroleo Brasileiro SA (Petrobras) 0.08%     255,660,785    
  1,068,560     Petroleo Brasileiro SA Sponsored ADR 0.08%     45,916,023    
  4,073,323     Sadia SA 0.36%     26,913,920    
  3,250,080     Tele Norte Leste Participacoes ADR 0.56% (a)      75,466,858    
  525,700     Telecomunicacoes de Sao Paulo SA 4.31%     14,996,963    
  530,500     Telemar Norte Leste SA Class A 20.07%     27,664,110    
  2,231,700     Usinas Siderrurgicas de Minas Gerais SA Class A 0.55%     78,314,871    
    Total Brazil     1,182,277,376    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Russia — 0.3%        
  29,470     Transneft 1.04%     29,997,548    
        South Korea — 1.3%        
  647,980     Hyundai Motor Co 4.20%     15,939,198    
  375,190     Hyundai Motor Co 4.41%     8,529,013    
  302,542     Samsung Electronics Co Ltd (Non Voting) 2.21%     100,491,151    
    Total South Korea     124,959,362    
    TOTAL PREFERRED STOCKS (COST $816,112,844)     1,337,234,286    
        PRIVATE EQUITY SECURITIES — 0.8%        
        Poland — 0.8%        
        CHP Investors (Multimedia) * (c) (d)      25,154,296    
        MHP Investors (Tri Media Holdings Ltd) * (c) (d)      49,128,101    
    Total Poland     74,282,397    
        Russia — 0.0%        
  46,624     Divot Holdings NV, Convertible Securities-Class F * (c) (d)      466    
  90,000     Divot Holdings NV, Private Equity Securities-Class D * (c) (d)      900    
  124,330     Divot Holdings NV, Private Equity Securities-Class E * (c) (d)      1,244    
    Total Russia     2,610    
        Sri Lanka — 0.0%        
  2,545,869     Millenium Information Technology * (b) (c) (d)      787,469    
    TOTAL PRIVATE EQUITY SECURITIES (COST $3,925,627)     75,072,476    
        INVESTMENT FUNDS — 0.4%        
        China — 0.1%        
  250,446     Martin Currie China A Share Fund Ltd * (c) (d)      9,009,287    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        India — 0.1%        
  10,303     Fire Capital Mauritius Private Fund * (c) (d) (f)      9,021,539    
  170     SPG Infinity Technology Fund I * (c) (d)      5,583    
  1,371,900     TDA India Technology Fund II LP * (c) (d)      2,455,262    
    Total India     11,482,384    
        Poland — 0.0%        
  1,749,150     The Emerging European Fund II LP * (c) (d)      790,406    
        Russia — 0.2%        
  9,500,000     NCH Eagle Fund LP * (c) (d)      20,505,750    
  2,000     Steep Rock Russia Fund LP * (c) (d)      1,550,411    
    Total Russia     22,056,161    
        Ukraine — 0.0%        
  16,667     Societe Generale Thalmann Ukraine Fund * (c) (d)      4,000    
    TOTAL INVESTMENT FUNDS (COST $26,727,183)     43,342,238    
        DEBT OBLIGATIONS — 0.2%        
        United States — 0.2%        
  16,409,984     U.S. Treasury Inflation Indexed Note, 3.88%, due 01/15/09 (g)      16,542,035    
    TOTAL DEBT OBLIGATIONS (COST $17,173,433)     16,542,035    
        RIGHTS AND WARRANTS — 0.1%        
        Egypt — 0.1%        
  663,570     El Ezz Steel Rights, Expires 09/25/08 *      5,078,934    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        Malaysia — 0.0%        
  4,963,466     Sunway City Warrants, Expires 10/04/17 *      577,742    
  3,826,400     WCT Engineering Warrants, Expires 04/22/13 *      806,211    
    Total Malaysia     1,383,953    
    TOTAL RIGHTS AND WARRANTS (COST $7,112,837)     6,462,887    
        MUTUAL FUNDS — 0.0%        
        United States — 0.0%        
        Affiliated Issuers        
  8,064     GMO Special Purpose Holding Fund (d) (h)      5,887    
    TOTAL MUTUAL FUNDS (COST $0)     5,887    
        CONVERTIBLE SECURITIES — 0.0%        
        India — 0.0%        
  3,380,000     Adani Enterprise, 6.00%, due 01/27/12     3,481,400    
    TOTAL CONVERTIBLE SECURITIES (COST $4,148,950)     3,481,400    
        SHORT-TERM INVESTMENTS — 5.3%        
  238,415,817     Bank of New York Mellon Institutional Cash Reserves Fund (i)      238,415,817    
  279,500,000     Royal Bank of Canada Time Deposit, 2.04%, due 09/02/08     279,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $517,915,817)     517,915,817    
        TOTAL INVESTMENTS — 102.0%
(Cost $10,152,697,921)
    9,962,042,287    
        Other Assets and Liabilities (net) — (2.0)%     (191,027,039 )  
    TOTAL NET ASSETS — 100.0%   $ 9,771,015,248    

 

See accompanying notes to the financial statements.


18



GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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, 2008
 
CBAY Systems Ltd   5/06/03-11/10/05   $       0.00 %   $ 59,482    
CHP Investors (Multimedia)   3/05/01     18,178,923       0.26 %     25,154,296    
Divot Holdings NV, Convertible
Securities-Class F
  3/27/02     46,624       0.00 %     466    
Divot Holdings NV, Private Equity
Securities-Class D
  6/2/00     1,502,100       0.00 %     900    
Divot Holdings NV, Private Equity
Securities-Class E
  9/21/01     124,330       0.00 %     1,244    
Fire Capital Mauritius Private Fund   9/06/06-1/18/08     10,341,817       0.09 %     9,021,539    
MHP Investors (Tri Media
Holdings Ltd)
  5/01/05     27,983,521       0.50 %     49,128,101    
Martin Currie China A Share
Fund Ltd
  1/20/06     2,710,928       0.09 %     9,009,287    
Millenium Information Technology   10/21/99     2,252,570       0.01 %     787,469    
NCH Eagle Fund LP   1/08/03     9,500,000       0.21 %     20,505,750    
SPG Infinity Technology Fund I   12/23/99     62,449       0.00 %     5,583    
Societe Generale Thalmann
Ukraine Fund
  7/15/97     199,943       0.00 %     4,000    
Steep Rock Russia Fund LP   12/22/06     2,000,000       0.02 %     1,550,411    
TDA India Technology Fund II LP   2/23/00-3/23/04     787,800       0.03 %     2,455,262    
The Emerging European Fund II LP   12/05/97-6/24/02     1,124,248       0.01 %     790,406    
    $ 118,474,196    

 

See accompanying notes to the financial statements.


19



GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (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

NVDR - Non-Voting Depository Receipt

*  Non income-producing security.

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

(b)  Affiliated Company (Note 8).

(c)  Direct placement securities are restricted as to resale.

(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).

(e)  Bankrupt issuer.

(f)  The Fund is committed to additional capital contributions in the amount of $9,696,527 to this investment.

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

(h)  Underlying investment represents interests in defaulted securities.

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

As of August 31, 2008, 59.52% 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value, including securities on loan of $230,706,775
(cost $10,077,246,141) (Note 2)
  $ 9,889,270,620    
Investments in affiliated issuers, at value (cost $75,451,780) (Notes 2 and 8)     72,771,667    
Foreign currency, at value (cost $40,297,453) (Note 2)     39,905,771    
Receivable for investments sold     22,034,883    
Dividends and interest receivable     32,487,343    
Foreign taxes receivable     5,789,891    
Receivable for expenses reimbursed by Manager (Note 3)     55,056    
Total assets     10,062,315,231    
Liabilities:  
Due to custodian     27,477    
Collateral on securities loaned, at value (Note 2)     238,415,817    
Payable for investments purchased     21,967,152    
Payable for Fund shares repurchased     16,416,442    
Payable to affiliate for (Note 3):  
Management fee     7,000,864    
Shareholder service fee     810,780    
Trustees and Chief Compliance Officer of GMO Trust fees     26,676    
Accrued expenses     6,634,775    
Total liabilities     291,299,983    
Net assets   $ 9,771,015,248    

 

See accompanying notes to the financial statements.


21



GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 8,987,497,249    
Accumulated undistributed net investment income     37,199,745    
Accumulated net realized gain     937,886,881    
Net unrealized depreciation     (191,568,627 )  
    $ 9,771,015,248    
Net assets attributable to:  
Class III shares   $ 2,659,414,452    
Class IV shares   $ 2,034,733,084    
Class V shares   $ 918,785,167    
Class VI shares   $ 4,158,082,545    
Shares outstanding:  
Class III     186,283,433    
Class IV     143,137,368    
Class V     64,672,186    
Class VI     292,162,054    
Net asset value per share:  
Class III   $ 14.28    
Class IV   $ 14.22    
Class V   $ 14.21    
Class VI   $ 14.23    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $27,056,210)   $ 184,415,885    
Interest     4,681,606    
Securities lending income     737,889    
Dividends from affiliated issuers (net of withholding taxes of $54,163)     216,654    
Total investment income     190,052,034    
Expenses:  
Management fee (Note 3)     49,603,520    
Shareholder service fee – Class III (Note 3)     2,368,096    
Shareholder service fee – Class IV (Note 3)     1,377,182    
Shareholder service fee – Class V (Note 3)     475,645    
Shareholder service fee – Class VI (Note 3)     1,470,687    
Custodian and fund accounting agent fees     8,222,040    
Transfer agent fees     30,268    
Audit and tax fees     81,236    
Legal fees     190,992    
Trustees fees and related expenses (Note 3)     74,205    
Registration fees     9,752    
Miscellaneous     106,904    
Total expenses     64,010,527    
Fees and expenses reimbursed by Manager (Note 3)     (331,200 )  
Expense reductions (Note 2)     (49,103 )  
Net expenses     63,630,224    
Net investment income (loss)     126,421,810    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers (net of foreign captial gains tax of $3,868,096) (Note 2)     1,005,877,527    
Investments in affiliated issuers     (3,318,495 )  
Realized gains distributions from affiliated issuers (Note 8)     18,263    
Foreign currency, forward contracts and foreign currency related transactions
(net of CPMF tax of $21,092) (Note 2)
    (17,451,067 )  
Net realized gain (loss)     985,126,228    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (3,253,715,462 )  
Investments in affliliated issuers     (33,129,227 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,221,425 )  
Net unrealized gain (loss)     (3,288,066,114 )  
Net realized and unrealized gain (loss)     (2,302,939,886 )  
Net increase (decrease) in net assets resulting from operations   $ (2,176,518,076 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 126,421,810     $ 145,969,612    
Net realized gain (loss)     985,126,228       4,146,502,911    
Change in net unrealized appreciation (depreciation)     (3,288,066,114 )     (788,242,294 )  
Net increase (decrease) in net assets from operations     (2,176,518,076 )     3,504,230,229    
Distributions to shareholders from:  
Net investment income  
Class III           (48,626,770 )  
Class IV           (42,295,439 )  
Class V           (15,014,450 )  
Class VI           (80,326,387 )  
Total distributions from net investment income           (186,263,046 )  
Net realized gains  
Class III     (445,601,696 )     (949,235,421 )  
Class IV     (351,660,692 )     (772,927,597 )  
Class V     (162,441,714 )     (267,663,344 )  
Class VI     (763,204,208 )     (1,418,555,036 )  
Total distributions from net realized gains     (1,722,908,310 )     (3,408,381,398 )  
      (1,722,908,310 )     (3,594,644,444 )  
Net share transactions (Note 7):  
Class III     269,710,590       (1,040,843,043 )  
Class IV     (184,711,075 )     486,322,877    
Class V     92,917,099       616,982,566    
Class VI     (39,491,333 )     853,624,667    
Increase (decrease) in net assets resulting from net share
transactions
    138,425,281       916,087,067    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     3,205,319       6,256,642    
Class IV     3,701,930       3,200,572    
Class V     629,237       2,262,707    
Class VI     7,524,534       7,226,204    
Increase in net assets resulting from purchase premiums
and redemption fees
    15,061,020       18,946,125    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    153,486,301       935,033,192    
Total increase (decrease) in net assets     (3,745,940,085 )     844,618,977    
Net assets:  
Beginning of period     13,516,955,333       12,672,336,356    
End of period (including accumulated undistributed net investment
income of $37,199,745 and distributions in excess of
net investment income of $89,222,065, respectively)
  $ 9,771,015,248     $ 13,516,955,333    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 20.48     $ 20.67     $ 22.49     $ 19.05     $ 15.78     $ 8.82    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.19       0.25       0.41       0.37       0.34       0.23    
Net realized and unrealized
gain (loss)
    (3.59 )     5.94       3.00       6.24       4.40       6.97    
Total from investment
operations
    (3.40 )     6.19       3.41       6.61       4.74       7.20    
Less distributions to shareholders:  
From net investment income           (0.31 )     (0.54 )     (0.43 )     (0.32 )     (0.24 )  
From net realized gains     (2.80 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )        
Total distributions     (2.80 )     (6.38 )     (5.23 )     (3.17 )     (1.47 )     (0.24 )  
Net asset value, end
of period
  $ 14.28     $ 20.48     $ 20.67     $ 22.49     $ 19.05     $ 15.78    
Total Return(a)      (17.41 )%**      28.38 %     17.05 %     37.99 %     31.45 %     82.10 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)
  $ 2,659,414     $ 3,402,343     $ 4,276,782     $ 4,788,395     $ 4,433,098     $ 4,079,172    
Net expenses to average daily
net assets
    1.10 %(b)*      1.09 %(b)      1.07 %     1.10 %     1.11 %     1.12 %  
Net investment income to
average daily net assets
    1.01 %(c)**      1.04 %     1.87 %     1.88 %     2.17 %     1.85 %  
Portfolio turnover rate     34 %**      60 %     44 %     41 %     57 %     46 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.00 %(d)      0.01 %     0.01 %     0.01 %     0.02 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.02     $ 0.04     $ 0.02     $ 0.01     $ 0.01     $ 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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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)  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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 20.40     $ 20.62     $ 22.45     $ 19.02     $ 15.75     $ 8.81    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.19       0.23       0.42       0.40       0.34       0.24    
Net realized and unrealized
gain (loss)
    (3.57 )     5.95       2.99       6.20       4.41       6.94    
Total from investment
operations
    (3.38 )     6.18       3.41       6.60       4.75       7.18    
Less distributions to shareholders:  
From net investment income           (0.33 )     (0.55 )     (0.43 )     (0.33 )     (0.24 )  
From net realized gains     (2.80 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )        
Total distributions     (2.80 )     (6.40 )     (5.24 )     (3.17 )     (1.48 )     (0.24 )  
Net asset value, end
of period
  $ 14.22     $ 20.40     $ 20.62     $ 22.45     $ 19.02     $ 15.75    
Total Return(a)      (17.38 )%**      28.38 %     17.10 %     38.05 %     31.59 %     81.97 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)
  $ 2,034,733     $ 3,021,319     $ 2,599,002     $ 3,081,021     $ 3,255,865     $ 1,799,736    
Net expenses to average
daily net assets
    1.05 %(b)*      1.05 %(b)      1.03 %     1.05 %     1.06 %     1.08 %  
Net investment income to
average daily net assets
    1.03 %(c)**      0.98 %     1.94 %     2.03 %     2.13 %     2.05 %  
Portfolio turnover rate     34 %**      60 %     44 %     41 %     57 %     46 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.00 %(d)      0.01 %     0.01 %     0.01 %     0.02 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.03     $ 0.02     $ 0.02     $ 0.01     $ 0.00 (e)    $ 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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(b)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(c)  The ratio for the six months ended August 31, 2008, 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)  Ratio is less than 0.01%.

(e)  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.


26



This page has been left blank intentionally.


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, 2008
 


Year Ended February 28/29,
 
    (Unaudited)   2008   2007   2006  
Net asset value, beginning of period   $ 20.39     $ 20.61     $ 22.44     $ 19.02    
Income (loss) from investment operations:  
Net investment income (loss)      0.20       0.23       0.43       0.22    
Net realized and unrealized gain (loss)     (3.58 )     5.96       2.98       6.39    
Total from investment operations     (3.38 )     6.19       3.41       6.61    
Less distributions to shareholders:  
From net investment income           (0.34 )     (0.55 )     (0.45 )  
From net realized gains     (2.80 )     (6.07 )     (4.69 )     (2.74 )  
Total distributions     (2.80 )     (6.41 )     (5.24 )     (3.19 )  
Net asset value, end of period   $ 14.21     $ 20.39     $ 20.61     $ 22.44    
Total Return(c)      (17.39 )%**      28.43 %     17.11 %     38.12 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 918,785     $ 1,190,887     $ 679,988     $ 1,447,059    
Net expenses to average daily net assets     1.03 %(d)*      1.03 %(d)      1.01 %     1.04 %  
Net investment income to average daily net assets     1.05 %(e)**      0.98 %     1.97 %     1.06 %  
Portfolio turnover rate     34 %**      60 %     44 %     41 %  
Fees and expenses reimbursed by the Manager to
average daily net assets:
    0.01 %*      0.00 %(g)      0.01 %     0.01 %  
Purchase premiums and redemption fees consisted
of the following per share amounts: 
  $ 0.01     $ 0.05     $ 0.03     $ 0.02    

 

(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 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 net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending
transactions (Note 2).

(e)  The ratio for the six months ended August 31, 2008, 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.

(f)  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.

(g)  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)

    Period from
February 11, 2005
(commencement of
operations) through
  Period from
March 1, 2004
through
  Period from
August 4, 2003
(commencement of
operations) through
 
    February 28, 2005(a)     October 26, 2004(a)    February 29, 2004  
Net asset value, beginning of period   $ 17.88     $ 15.77     $ 10.81    
Income (loss) from investment operations:  
Net investment income (loss)      (0.01 )     0.25       0.13    
Net realized and unrealized gain (loss)     1.15       (0.09 )     5.02    
Total from investment operations     1.14       0.16       5.15    
Less distributions to shareholders:  
From net investment income           (0.07 )     (0.19 )  
From net realized gains           (0.00 )(b)         
Total distributions           (0.07 )     (0.19 )  
Net asset value, end of period   $ 19.02     $ 15.86     $ 15.77    
Total Return(c)      6.38 %**      1.10 %**      47.82 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 38,564     $ 116,417     $ 382,193    
Net expenses to average daily net assets     1.03 %*      1.05 %*      1.07 %*   
Net investment income to average daily net assets     (0.05 )%(f)**      1.70 %(f)**      1.69 %*   
Portfolio turnover rate     57 %***      57 %***      46 %****   
Fees and expenses reimbursed by the Manager to
average daily net assets:
    0.02 %*      0.01 %*      0.02 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
              $ 0.03    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 20.42     $ 20.63     $ 22.45     $ 19.03     $ 15.76     $ 10.45    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.20       0.25       0.42       0.38       0.34       0.14    
Net realized and unrealized
gain (loss)
    (3.59 )     5.95       3.01       6.23       4.41       5.42    
Total from investment
operations
    (3.39 )     6.20       3.43       6.61       4.75       5.56    
Less distributions to shareholders:  
From net investment income           (0.34 )     (0.56 )     (0.45 )     (0.33 )     (0.25 )  
From net realized gains     (2.80 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )        
Total distributions     (2.80 )     (6.41 )     (5.25 )     (3.19 )     (1.48 )     (0.25 )  
Net asset value, end
of period
  $ 14.23     $ 20.42     $ 20.63     $ 22.45     $ 19.03     $ 15.76    
Total Return(b)      (17.42 )%**      28.49 %     17.20 %     38.07 %     31.63 %     53.62 %**   
Ratios/Supplemental Data:  
Net assets, end of
period (000's)
  $ 4,158,083     $ 5,902,406     $ 5,116,565     $ 3,203,435     $ 2,083,376     $ 879,837    
Net expenses to average
daily net assets
    1.00 %(c)*      1.00 %(c)      0.98 %     1.00 %     1.01 %     1.04 %*   
Net investment income to
average daily net assets
    1.06 %(d)**      1.05 %     1.93 %     1.94 %     2.15 %     1.54 %*   
Portfolio turnover rate     34 %**      60 %     44 %     41 %     57 %     46 %***   
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.00 %(e)      0.01 %     0.01 %     0.01 %     0.02 %*   
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.03     $ 0.03     $ 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 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)  The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions (Note 2).

(d)  The ratio for the six months ended August 31, 2008, 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 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, 2008 (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 ("emerging markets"), which excludes countries that are included in the MSCI EAFE Index.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a


31



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor 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, 2008. 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.

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, 2008, the Fund received $18,263 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.


32



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 3,367,027,506     $ 39,905,771    
Level 2 - Other Significant Observable Inputs     6,322,562,374          
Level 3 - Significant Unobservable Inputs     272,452,407          
Total   $ 9,962,042,287     $ 39,905,771    

 

*  Other financial instruments include foreign currency.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 285,092,634     $    
Realized gain (loss)     33,411,198          
Change in unrealized appreciation/depreciation     (151,226,471 )        
Net purchases (sales)     24,759,296          
Net transfers in and/or out of Level 3     80,415,750          
Balance as of August 31, 2008   $ 272,452,407     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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,


33



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. The Fund had 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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


34



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 that expire are treated as realized gains. Premiums received from writing options that 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 t hat the Fund does not own), it bears the risk of substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. 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.


35



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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,


36



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, the Fund had loaned securities valued by the Fund at $230,706,775, collateralized by cash in the amount of $238,415,817, which was invested in the Bank of New York Mellon 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 all of its net realized short-term and long-term capital gain, 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 gain, 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.

Foreign taxes paid by the Fund may be treated, to the extent permissible under the Code and, if the Fund so elects, as if paid by the shareholders of the Fund.

The Fund may be subject to capital gains and repatriation taxes imposed by some countries in which it invests. For the period ended August 31, 2008, the Fund incurred $3,868,096 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. The CPMF tax has been included in the net realized gain (loss) on investmets throughout the period. For the period ended August 31, 2008, the Fund incurred $21,092 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.

The Fund is currently subject to a Taiwanese security transaction tax of 0.30% of the transaction amount on equities and 0.10% of the transaction amount on mutual fund shares, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to that tax.

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are


37



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October currency losses of $12,836,574.

As of August 31, 2008, 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)
 
$ 10,271,601,233     $ 1,221,221,892     $ (1,530,780,838 )   $ (309,558,946 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.


38



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for estimated or known transaction costs (e.g. stamp dut ies 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Investment risks

Investments in securities of issuers in emerging countries present risks that are not inherent in many other investments. Many emerging countries are subject to 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


39



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

regulations or controls that impede the Fund's ability to repatriate amounts it receives. The Fund may acquire interests in securities in some countries based on the Manager's expectations that conditions in those countries will improve. These factors may result in significant volatility in the values of the Fund's 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 the values it has placed on its holdings.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.81% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, custodial 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).


40



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the GMO Special Purpose Holding Fund. For the period ended August 31, 2008, 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  
  0.000 %     0.000 %     0.000 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $66,569 and $36,340, 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, 2008 aggregated $4,048,413,617 and $5,258,280,766, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, the Fund had no shareholders individually holding more than 10% of the Fund's outstanding shares.

As of August 31, 2008, 0.23% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 20.96% of the Fund's shares were held by accounts for which the Manager has investment discretion.


41



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     16,150,785     $ 262,814,638       511,450     $ 11,067,541    
Shares issued to shareholders
in reinvestment of distributions
    28,205,569       427,878,473       41,256,239       944,580,044    
Shares repurchased     (24,221,872 )     (420,982,521 )     (82,489,753 )     (1,996,490,628 )  
Purchase premiums           495,625             34,924    
Redemption fees           2,709,694             6,221,718    
Net increase (decrease)     20,134,482     $ 272,915,909       (40,722,064 )   $ (1,034,586,401 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     2,061,139     $ 30,062,340       42,157,428     $ 1,040,161,863    
Shares issued to shareholders
in reinvestment of distributions
    23,256,061       351,166,527       35,738,546       808,409,341    
Shares repurchased     (30,277,085 )     (565,939,942 )     (55,851,088 )     (1,362,248,327 )  
Purchase premiums           217,180             4,000    
Redemption fees           3,484,750             3,196,572    
Net increase (decrease)     (4,959,885 )   $ (181,009,145 )     22,044,886     $ 489,523,449    

 


42



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class V:   Shares   Amount   Shares   Amount  
Shares sold     1,705,254     $ 32,236,806       36,562,016     $ 922,567,536    
Shares issued to shareholders
in reinvestment of distributions
    10,762,433       162,405,109       12,460,349       281,241,715    
Shares repurchased     (6,204,563 )     (101,724,816 )     (23,612,498 )     (586,826,685 )  
Purchase premiums           80,455                
Redemption fees           548,782             2,262,707    
Net increase (decrease)     6,263,124     $ 93,546,336       25,409,867     $ 619,245,273    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     15,970,102     $ 282,347,582       25,646,673     $ 584,700,516    
Shares issued to shareholders
in reinvestment of distributions
    49,969,837       755,543,934       64,927,161       1,472,096,525    
Shares repurchased     (62,895,653 )     (1,077,382,849 )     (49,478,255 )     (1,203,172,374 )  
Purchase premiums           699,958             953,166    
Redemption fees           6,824,576             6,273,038    
Net increase (decrease)     3,044,286     $ (31,966,799 )     41,095,579     $ 860,850,871    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 10,161     $     $     $     $ 18,263     $ 5,887    
Totals   $ 10,161     $     $     $     $ 18,263     $ 5,887    

 


43



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

An affiliated company is a company in which the Fund has or had ownership of at least 5% of the voting securities. A summary of the Fund's transactions with companies which are or were affiliates during the period ended August 31, 2008 is set forth below:

Affiliate   Value,
beginning of
period
  Purchases   Sales
Proceeds
  Dividend
Income
  Value, end
of period
 
Bakrie & Brothers Tbk PT*   $ 52,163,380     $     $ 30,662,144     $     $ 6,914,872    
Biomass Korea Co Ltd     4,806,682                         2,724,646    
Boryung Pharmaceutical Co Ltd     9,623,938             610,532             4,187,410    
CBAY Systems Holdings Ltd     18,319,951                         16,806,081    
Daehan Pulp Co Ltd     3,241,894                         1,990,726    
Dimerco Express Taiwan Corp     13,447,262                   154,271       11,716,997    
EnE System Inc     9,225,369                         5,513,906    
In The F Co Ltd     11,011,120                         7,278,316    
Les Enphants Co Ltd     8,606,563                   62,383       9,126,906    
Millenium Information Technology     787,470                         787,469    
Pumyang Construction Co Ltd     13,435,930                         12,632,415    
Star Block Co Ltd     987                         908    
(Foreign Registered)                                
Totals   $ 144,670,546     $     $ 31,272,676     $ 216,654     $ 79,680,652    

 

*  No longer an affiliate as of August 31, 2008.


44




GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In evaluating the Fund's advisory


45



GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


46



GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


47



GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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.


48



GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2008 (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     1.10 %   $ 1,000.00     $ 825.90     $ 5.06    
2) Hypothetical     1.10 %   $ 1,000.00     $ 1,019.66     $ 5.60    
Class IV      
1) Actual     1.05 %   $ 1,000.00     $ 826.20     $ 4.83    
2) Hypothetical     1.05 %   $ 1,000.00     $ 1,019.91     $ 5.35    
Class V      
1) Actual     1.03 %   $ 1,000.00     $ 826.10     $ 4.74    
2) Hypothetical     1.03 %   $ 1,000.00     $ 1,020.01     $ 5.24    
Class VI      
1) Actual     1.00 %   $ 1,000.00     $ 825.80     $ 4.60    
2) Hypothetical     1.00 %   $ 1,000.00     $ 1,020.16     $ 5.09    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


49




GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.4 %  
Short-Term Investments     3.3    
Futures     0.0    
Other     0.3    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Health Care     24.4 %  
Energy     19.9    
Consumer Staples     18.0    
Information Technology     16.0    
Financials     6.7    
Industrials     5.9    
Consumer Discretionary     5.9    
Materials     2.1    
Telecommunication Services     1.0    
Utilities     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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.4%  
        Consumer Discretionary — 5.6%  
    62,900     Abercrombie & Fitch Co.-Class A     3,299,105    
    8,100     Advance Auto Parts, Inc.     348,624    
    73,200     Amazon.com, Inc. *      5,915,292    
    21,900     American Eagle Outfitters, Inc.     329,595    
    80,600     Apollo Group, Inc.-Class A *      5,132,608    
    90,400     AutoNation, Inc. *      1,026,040    
    28,820     AutoZone, Inc. *      3,954,969    
    155,100     Bed Bath & Beyond, Inc. *      4,755,366    
    75,000     Best Buy Co., Inc.     3,357,750    
    25,100     BorgWarner, Inc.     1,037,885    
    114,600     Coach, Inc. *      3,322,254    
    22,800     DirecTV Group (The), Inc. *      643,188    
    40,900     Discovery Holding Co.-Class A *      827,407    
    35,900     Family Dollar Stores, Inc.     894,628    
    45,700     GameStop Corp.-Class A *      2,004,859    
    171,600     Gannett Co., Inc.     3,052,764    
    144,400     Gap (The), Inc.     2,808,580    
    81,900     General Motors Corp.     819,000    
    148,400     Harley-Davidson, Inc.     5,903,352    
    2,118,304     Home Depot, Inc.     57,448,404    
    21,300     ITT Educational Services, Inc. *      1,893,783    
    45,600     Johnson Controls, Inc.     1,409,952    
    124,600     Kohl's Corp. *      6,126,582    
    59,200     Liz Claiborne, Inc.     959,632    
    951,400     Lowe's Cos., Inc.     23,442,496    
    100,700     McDonald's Corp.     6,248,435    
    11,300     Mohawk Industries, Inc. *      780,265    
    30,900     Nike, Inc.-Class B     1,872,849    
    279,500     Office Depot, Inc. *      1,967,680    
    7,800     Ross Stores, Inc.     313,638    
    304,400     Staples, Inc.     7,366,480    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Discretionary — continued  
    232,200     Target Corp.     12,311,244    
    106,300     TJX Cos. (The), Inc.     3,852,312    
    18,200     Urban Outfitters, Inc. *      648,284    
    8,100     Yum! Brands, Inc.     289,008    
    Total Consumer Discretionary     176,364,310    
        Consumer Staples — 17.4%  
    1,166,800     Altria Group, Inc.     24,537,804    
    160,100     Archer-Daniels-Midland Co.     4,076,146    
    89,500     Avon Products, Inc.     3,833,285    
    1,848,900     Coca-Cola Co. (The)     96,272,223    
    48,500     Coca-Cola Enterprises, Inc.     827,895    
    308,700     Colgate-Palmolive Co.     23,470,461    
    123,500     Costco Wholesale Corp.     8,281,910    
    53,800     CVS Caremark Corp.     1,969,080    
    36,900     Energizer Holdings, Inc. *      3,134,286    
    59,600     Estee Lauder Cos. (The), Inc.-Class A     2,966,292    
    36,500     General Mills, Inc.     2,415,570    
    20,700     HJ Heinz Co.     1,041,624    
    8,100     Hormel Foods Corp.     288,846    
    37,600     Kellogg Co.     2,046,944    
    177,100     Kimberly-Clark Corp.     10,923,528    
    129,906     Kraft Foods, Inc.     4,093,338    
    8,100     McCormick & Co., Inc. (Non Voting)     327,645    
    10,000     Pepsi Bottling Group (The), Inc.     295,800    
    13,400     PepsiAmericas, Inc.     313,962    
    1,341,500     PepsiCo, Inc.     91,865,920    
    513,500     Philip Morris International, Inc.     27,574,950    
    1,118,800     Procter & Gamble Co. (The)     78,058,676    
    40,325     Supervalu, Inc.     935,137    
    18,400     Tyson Foods, Inc.-Class A     267,168    
    65,400     UST, Inc.     3,504,786    
    744,400     Walgreen Co.     27,118,492    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — continued  
    2,026,300     Wal-Mart Stores, Inc.     119,693,541    
    54,700     WM Wrigley Jr. Co.     4,347,556    
    Total Consumer Staples     544,482,865    
        Energy — 19.2%  
    189,400     Anadarko Petroleum Corp.     11,691,662    
    217,710     Apache Corp.     24,901,670    
    11,600     Arch Coal, Inc.     629,184    
    28,200     Baker Hughes, Inc.     2,256,282    
    67,600     BJ Services Co.     1,815,060    
    6,800     Cabot Oil & Gas Corp.     302,192    
    49,900     Cameron International Corp. *      2,324,841    
    176,400     Chesapeake Energy Corp.     8,537,760    
    1,468,800     Chevron Corp.     126,786,816    
    10,100     Cimarex Energy Co.     560,954    
    3,800     Comstock Resources, Inc. *      246,772    
    704,168     ConocoPhillips     58,100,902    
    66,300     Denbury Resources, Inc. *      1,650,207    
    230,100     Devon Energy Corp.     23,481,705    
    30,140     Diamond Offshore Drilling, Inc.     3,312,687    
    4,300     Encore Acquisition Co. *      221,708    
    4,300     ENSCO International, Inc.     291,454    
    85,990     EOG Resources, Inc.     8,979,076    
    2,244,900     Exxon Mobil Corp.     179,614,449    
    51,900     FMC Technologies, Inc. *      2,779,764    
    4,900     Forest Oil Corp. *      278,908    
    3,900     Foundation Coal Holdings, Inc.     230,685    
    105,900     Halliburton Co.     4,653,246    
    4,800     Helmerich & Payne, Inc.     274,176    
    121,090     Hess Corp.     12,679,334    
    84,000     Murphy Oil Corp.     6,596,520    
    75,300     Nabors Industries Ltd. *      2,682,939    
    3,800     National Oilwell Varco, Inc. *      280,174    
    10,800     Newfield Exploration Co. *      488,376    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    46,200     Noble Corp.     2,323,398    
    33,300     Noble Energy, Inc.     2,388,609    
    691,000     Occidental Petroleum Corp.     54,837,760    
    18,700     Patterson-UTI Energy, Inc.     531,454    
    11,900     Peabody Energy Corp.     749,105    
    4,900     Pioneer Natural Resources Co.     309,533    
    9,400     Plains Exploration & Production Co. *      506,660    
    28,800     Quicksilver Resources, Inc. *      696,672    
    15,500     Range Resources Corp.     719,510    
    121,900     Schlumberger Ltd.     11,485,418    
    32,900     Smith International, Inc.     2,293,130    
    109,300     Southwestern Energy Co. *      4,193,841    
    32,800     Sunoco, Inc.     1,455,664    
    95,019     Transocean, Inc. *      12,086,417    
    253,100     Valero Energy Corp.     8,797,756    
    5,600     W&T Offshore, Inc.     196,896    
    164,200     Weatherford International Ltd. *      6,334,836    
    6,000     Whiting Petroleum Corp. *      577,440    
    65,100     XTO Energy, Inc.     3,281,691    
    Total Energy     600,415,293    
        Financials — 6.5%  
    14,900     ACE Ltd.     783,889    
    213,100     Aflac, Inc.     12,082,770    
    477,400     Allstate Corp. (The)     21,545,062    
    714,600     American International Group, Inc.     15,356,754    
    35,200     AON Corp.     1,671,648    
    31,300     Assurant, Inc.     1,828,859    
    972,977     Bank of America Corp.     30,298,504    
    170,100     BB&T Corp.     5,103,000    
    28,160     BlackRock, Inc.     6,117,760    
    57,500     Charles Schwab Corp. (The)     1,379,425    
    369,200     Chubb Corp.     17,725,292    
    1,637,100     Citigroup, Inc.     31,088,529    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    48,200     Comerica, Inc.     1,353,938    
    16,000     Fifth Third Bancorp     252,480    
    30,400     First American Corp.     768,208    
    44,300     Freddie Mac     199,793    
    3,290     Goldman Sachs Group, Inc.     539,461    
    72,600     Hartford Financial Services Group (The), Inc.     4,579,608    
    225,500     Hudson City Bancorp, Inc.     4,158,220    
    82,600     Leucadia National Corp.     3,823,554    
    20,400     Marshall & Ilsley Corp.     314,160    
    15,700     Morgan Stanley     641,031    
    10,800     Nasdaq OMX Group (The), Inc. *      353,052    
    3,900     Northern Trust Corp.     313,521    
    23,700     Old Republic International Corp.     259,041    
    228,000     Progressive Corp. (The)     4,211,160    
    21,800     Safeco Corp.     1,473,680    
    31,200     SEI Investment Co.     736,944    
    37,100     State Street Corp.     2,510,557    
    12,400     T. Rowe Price Group, Inc.     736,064    
    33,200     Torchmark Corp.     1,983,368    
    386,700     Travelers Cos. (The), Inc.     17,076,672    
    14,700     UnionBanCal Corp.     1,083,096    
    26,900     Unum Group     683,529    
    226,500     US Bancorp     7,216,290    
    65,250     W.R. Berkley Corp.     1,537,290    
    27,200     Wachovia Corp.     432,208    
    Total Financials     202,218,417    
        Health Care — 23.5%  
    335,700     Abbott Laboratories     19,279,251    
    29,000     Aetna, Inc.     1,251,060    
    139,300     AmerisourceBergen Corp.     5,712,693    
    254,600     Amgen, Inc. *      16,001,610    
    10,500     Amylin Pharmaceuticals, Inc. *      230,790    
    9,500     Applied Biosystems, Inc.     346,655    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    14,000     Bard (C.R.), Inc.     1,308,300    
    15,900     Becton, Dickinson & Co.     1,389,342    
    155,500     Biogen Idec, Inc. *      7,919,615    
    9,000     BioMarin Pharmaceutical, Inc. *      271,260    
    170,800     Cardinal Health, Inc.     9,390,584    
    21,700     Covance, Inc. *      2,047,178    
    258,200     Coventry Health Care, Inc. *      9,042,164    
    17,000     DENTSPLY International, Inc.     666,230    
    588,200     Eli Lilly & Co.     27,439,530    
    326,000     Express Scripts, Inc. *      23,931,660    
    332,200     Forest Laboratories, Inc. *      11,856,218    
    43,000     Genentech, Inc. *      4,246,250    
    27,300     Genzyme Corp. *      2,137,590    
    449,900     Gilead Sciences, Inc. *      23,700,732    
    7,300     Illumina, Inc. *      628,749    
    15,730     Intuitive Surgical, Inc. *      4,644,597    
    31,500     Invitrogen Corp. *      1,337,490    
    2,027,700     Johnson & Johnson     142,810,911    
    61,000     King Pharmaceuticals, Inc. *      697,840    
    372,000     McKesson Corp.     21,494,160    
    135,100     Medco Health Solutions, Inc. *      6,329,435    
    330,700     Medtronic, Inc.     18,056,220    
    1,158,900     Merck & Co., Inc.     41,337,963    
    28,700     Patterson Cos., Inc. *      933,898    
    402,300     PDL BioPharma, Inc.     4,855,761    
    8,600     Perrigo Co.     300,914    
    6,260,480     Pfizer, Inc.     119,637,773    
    33,200     Quest Diagnostics, Inc.     1,794,460    
    205,200     Stryker Corp.     13,787,388    
    3,391,072     UnitedHealth Group, Inc.     103,258,142    
    31,700     Varian Medical Systems, Inc. *      2,002,172    
    9,200     Waters Corp. *      627,900    
    542,000     WellPoint, Inc. *      28,612,180    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    409,700     Wyeth     17,731,816    
    524,200     Zimmer Holdings, Inc. *      37,946,838    
    Total Health Care     736,995,319    
        Industrials — 5.7%  
    254,100     3M Co.     18,193,560    
    42,910     Burlington Northern Santa Fe Corp.     4,608,534    
    16,500     Caterpillar, Inc.     1,167,045    
    121,500     CH Robinson Worldwide, Inc.     6,331,365    
    29,500     Copart, Inc. *      1,298,295    
    92,300     CSX Corp.     5,969,964    
    176,100     Danaher Corp.     14,364,477    
    206,000     Deere & Co.     14,537,420    
    87,000     Emerson Electric Co.     4,071,600    
    6,100     Fastenal Co.     316,773    
    19,790     Flowserve Corp.     2,614,655    
    74,000     Fluor Corp.     5,929,620    
    4,300     FTI Consulting, Inc. *      315,620    
    286,700     General Dynamics Corp.     26,462,410    
    24,400     Goodrich Corp.     1,250,500    
    5,200     Harsco Corp.     273,728    
    14,500     Honeywell International, Inc.     727,465    
    48,000     Jacobs Engineering Group, Inc. *      3,543,360    
    10,300     Joy Global, Inc.     731,712    
    96,500     L-3 Communications Holdings, Inc.     10,030,210    
    2,830     Lockheed Martin Corp.     329,525    
    10,800     Manitowoc Co. (The), Inc.     271,944    
    12,300     Manpower, Inc.     591,138    
    46,000     Masco Corp.     876,760    
    23,700     Norfolk Southern Corp.     1,742,661    
    8,900     Northrop Grumman Corp.     612,765    
    74,400     Paccar, Inc.     3,203,664    
    67,800     Parker-Hannifin Corp.     4,343,946    
    40,200     Raytheon Co.     2,411,598    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    22,100     Rockwell Collins, Inc.     1,162,239    
    9,200     Ryder Systems, Inc.     593,584    
    10,730     SPX Corp.     1,279,552    
    12,700     Stericycle, Inc. *      753,110    
    83,100     Textron, Inc.     3,415,410    
    112,200     Tyco International Ltd.     4,811,136    
    29,800     Union Pacific Corp.     2,500,220    
    110,900     United Parcel Service, Inc.-Class B     7,110,908    
    275,700     United Technologies Corp.     18,083,163    
    3,800     W.W. Grainger, Inc.     342,114    
    Total Industrials     177,173,750    
        Information Technology — 15.4%  
    18,900     Activision Blizzard, Inc. *      620,298    
    98,000     Affiliated Computer Services, Inc.-Class A *      5,217,520    
    6,400     Amphenol Corp.-Class A     304,128    
    221,250     Apple, Inc. *      37,508,512    
    17,000     BMC Software, Inc. *      553,520    
    2,001,200     Cisco Systems, Inc. *      48,128,860    
    86,700     Citrix Systems, Inc. *      2,624,409    
    15,900     Cypress Semiconductor Corp. *      515,478    
    475,500     Dell, Inc. *      10,332,615    
    896,300     eBay, Inc. *      22,344,759    
    166,500     EMC Corp. *      2,544,120    
    148,200     Fiserv, Inc. *      7,685,652    
    33,900     FLIR Systems, Inc. *      1,210,230    
    72,810     Google, Inc.-Class A *      33,732,145    
    8,100     Hewitt Associates, Inc.-Class A *      325,701    
    101,700     Hewlett-Packard Co.     4,771,764    
    504,400     Intel Corp.     11,535,628    
    165,840     International Business Machines Corp.     20,187,703    
    11,500     Intuit, Inc. *      345,805    
    97,400     Juniper Networks, Inc. *      2,503,180    
    14,000     Lexmark International, Inc. *      503,580    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    30,400     MasterCard, Inc.-Class A     7,373,520    
    5,106,300     Microsoft Corp.     139,350,927    
    2,376,800     Oracle Corp. *      52,123,224    
    1,151,500     Qualcomm, Inc.     60,626,475    
    8,800     Salesforce.com, Inc. *      492,976    
    29,200     Texas Instruments, Inc.     715,692    
    53,500     Total System Services, Inc.     1,065,720    
    36,700     VeriSign, Inc. *      1,173,299    
    124,200     Western Digital Corp. *      3,385,692    
    128,900     Western Union Co. (The)     3,560,218    
    Total Information Technology     483,363,350    
        Materials — 2.1%  
    25,500     Air Products & Chemicals, Inc.     2,342,175    
    246,700     Barrick Gold Corp.     8,567,891    
    17,300     Dow Chemical Co. (The)     590,449    
    6,900     Ecolab, Inc.     315,606    
    13,600     FMC Corp.     1,000,144    
    3,300     Freeport-McMoRan Copper & Gold, Inc.     294,756    
    295,570     Monsanto Co.     33,768,873    
    113,600     Nucor Corp.     5,964,000    
    55,400     Owens-IIlinois, Inc. *      2,470,840    
    77,300     Praxair, Inc.     6,944,632    
    7,900     Reliance Steel & Aluminum Co.     450,379    
    34,900     Sigma-Aldrich Corp.     1,980,924    
    Total Materials     64,690,669    
        Telecommunication Services — 0.9%  
    390,267     AT&T, Inc.     12,484,641    
    7,800     Crown Castle International Corp. *      291,720    
    468,322     Verizon Communications, Inc.     16,447,469    
    Total Telecommunication Services     29,223,830    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        Utilities — 0.1%  
    13,900     Exelon Corp.     1,055,844    
    24,700     FirstEnergy Corp.     1,794,208    
    8,500     Southern Co. (The)     318,835    
    16,700     TECO Energy, Inc.     297,928    
    Total Utilities     3,466,815    
    TOTAL COMMON STOCKS (COST $3,244,604,934)     3,018,394,618    
        SHORT-TERM INVESTMENTS — 3.3%  
        Money Market Funds — 0.8%  
    25,387,112     State Street Institutional Treasury Money Market Fund-Institutional Class     25,387,112    
        Other Short-Term Investments — 2.5%  
    14,718,808     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     14,718,808    
    62,000,000     U.S. Treasury Bill, 1.70%, due 01/22/09 (a)      61,587,948    
    Total Other Short-Term Investments     76,306,756    
    TOTAL SHORT-TERM INVESTMENTS (COST $101,662,620)     101,693,868    
            TOTAL INVESTMENTS — 99.7%
(Cost $3,346,267,554)
    3,120,088,486    
            Other Assets and Liabilities (net) — 0.3%     10,117,664    
    TOTAL NET ASSETS — 100.0%   $ 3,130,206,150    

 

See accompanying notes to the financial statements.


11



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  1,104     S&P 500 E-Mini   September 2008   $ 70,799,520     $ 550,489    

 

As of August 31, 2008, 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)  Rate shown represents yield-to-maturity.

See accompanying notes to the financial statements.


12




GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $3,346,267,554) (Note 2)   $ 3,120,088,486    
Receivable for Fund shares sold     97,175    
Dividends and interest receivable     8,235,777    
Receivable for collateral on open futures contracts (Note 2)     3,974,400    
Receivable for expenses reimbursed by Manager (Note 3)     58,621    
Total assets     3,132,454,459    
Liabilities:  
Payable for Fund shares repurchased     57,262    
Payable to affiliate for (Note 3):  
Management fee     835,089    
Shareholder service fee     229,962    
Administration fee – Class M     6,577    
Trustees and Chief Compliance Officer of GMO Trust fees     7,498    
Payable for 12b-1 fee – Class M     16,470    
Payable for variation margin on open futures contracts (Note 2)     855,600    
Accrued expenses     239,851    
Total liabilities     2,248,309    
Net assets   $ 3,130,206,150    

 

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, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 3,471,859,413    
Accumulated undistributed net investment income     8,589,545    
Accumulated net realized loss     (124,614,229 )  
Net unrealized depreciation     (225,628,579 )  
    $ 3,130,206,150    
Net assets attributable to:  
Class III shares   $ 787,924,804    
Class IV shares   $ 441,139,902    
Class VI shares   $ 1,862,700,880    
Class M shares   $ 38,440,564    
Shares outstanding:  
Class III     66,784,318    
Class IV     37,475,937    
Class VI     158,242,634    
Class M     3,263,153    
Net asset value per share:  
Class III   $ 11.80    
Class IV   $ 11.77    
Class VI   $ 11.77    
Class M   $ 11.78    

 

See accompanying notes to the financial statements.


14



GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 34,134,548    
Interest     576,859    
Total investment income     34,711,407    
Expenses:  
Management fee (Note 3)     5,411,588    
Shareholder service fee – Class III (Note 3)     752,788    
Shareholder service fee – Class IV (Note 3)     233,685    
Shareholder service fee – Class VI (Note 3)     542,749    
12b-1 fee – Class M (Note 3)     58,284    
Administration fee – Class M (Note 3)     46,627    
Custodian, fund accounting agent and transfer agent fees     277,841    
Audit and tax fees     31,096    
Legal fees     42,136    
Trustees fees and related expenses (Note 3)     19,418    
Registration fees     17,204    
Miscellaneous     23,000    
Total expenses     7,456,416    
Fees and expenses reimbursed by Manager (Note 3)     (381,064 )  
Expense reductions (Note 2)     (28,320 )  
Net expenses     7,047,032    
Net investment income (loss)     27,664,375    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (88,755,555 )  
Closed futures contracts     (4,053,458 )  
Net realized gain (loss)     (92,809,013 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     31,416,227    
Open futures contracts     2,014,812    
Net unrealized gain (loss)     33,431,039    
Net realized and unrealized gain (loss)     (59,377,974 )  
Net increase (decrease) in net assets resulting from operations   $ (31,713,599 )  

 

See accompanying notes to the financial statements.


15



GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 27,664,375     $ 72,698,949    
Net realized gain (loss)     (92,809,013 )     349,051,892    
Change in net unrealized appreciation (depreciation)     33,431,039       (613,657,620 )  
Net increase (decrease) in net assets from operations     (31,713,599 )     (191,906,779 )  
Distributions to shareholders from:  
Net investment income  
Class III     (7,560,538 )     (28,161,365 )  
Class IV     (3,747,822 )     (10,426,216 )  
Class VI     (16,254,120 )     (43,036,312 )  
Class M     (274,673 )     (1,560,161 )  
Total distributions from net investment income     (27,837,153 )     (83,184,054 )  
Net realized gains  
Class III           (171,156,746 )  
Class IV           (61,162,205 )  
Class VI           (291,784,061 )  
Class M           (10,886,017 )  
Total distributions from net realized gains           (534,989,029 )  
      (27,837,153 )     (618,173,083 )  
Net share transactions (Note 7):  
Class III     (324,037,238 )     (378,601,907 )  
Class IV     (27,955,988 )     (15,629,517 )  
Class VI     (139,009,184 )     (1,232,938,512 )  
Class M     (17,205,488 )     (60,272,243 )  
Increase (decrease) in net assets resulting from net share
transactions
    (508,207,898 )     (1,687,442,179 )  
Total increase (decrease) in net assets     (567,758,650 )     (2,497,522,041 )  
Net assets:  
Beginning of period     3,697,964,800       6,195,486,841    
End of period (including accumulated undistributed net investment
income of $8,589,545 and $8,762,323, respectively)
  $ 3,130,206,150     $ 3,697,964,800    

 

See accompanying notes to the financial statements.


16




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 12.05     $ 14.77     $ 14.50     $ 14.28     $ 13.54     $ 9.98    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.09       0.22       0.22       0.24       0.19       0.16    
Net realized and unrealized
gain (loss)
    (0.25 )     (1.10 )     0.64       0.54       0.73       3.56    
Total from investment
operations
    (0.16 )     (0.88 )     0.86       0.78       0.92       3.72    
Less distributions to
shareholders:
 
From net investment income     (0.09 )     (0.25 )     (0.22 )     (0.24 )     (0.18 )     (0.16 )  
From net realized gains           (1.59 )     (0.37 )     (0.32 )              
Total distributions     (0.09 )     (1.84 )     (0.59 )     (0.56 )     (0.18 )     (0.16 )  
Net asset value, end
of period
  $ 11.80     $ 12.05     $ 14.77     $ 14.50     $ 14.28     $ 13.54    
Total Return(a)      (1.30 )%**      (7.33 )%     5.97 %     5.60 %     6.89 %     37.50 %  
Ratios/Supplemental Data:  
Net assets, end
of period (000's)
  $ 787,925     $ 1,131,800     $ 1,789,872     $ 2,841,959     $ 1,739,392     $ 1,517,458    
Net expenses to average
daily net assets
    0.46 %(b)*      0.46 %(b)      0.46 %     0.47 %     0.48 %     0.48 %  
Net investment income to
average daily net assets
    1.52 %*      1.55 %     1.51 %     1.69 %     1.46 %     1.32 %  
Portfolio turnover rate     30 %**      71 %     78 %     65 %     65 %     57 %  
Fees and expenses reimbursed
by the Manager to
average daily net assets:
    0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(b)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


17



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 12.02     $ 14.75     $ 14.48     $ 14.26     $ 13.52     $ 9.97    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.10       0.22       0.22       0.25       0.20       0.16    
Net realized and unrealized
gain (loss)
    (0.25 )     (1.10 )     0.65       0.54       0.73       3.55    
Total from investment
operations
    (0.15 )     (0.88 )     0.87       0.79       0.93       3.71    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.26 )     (0.23 )     (0.25 )     (0.19 )     (0.16 )  
From net realized gains           (1.59 )     (0.37 )     (0.32 )              
Total distributions     (0.10 )     (1.85 )     (0.60 )     (0.57 )     (0.19 )     (0.16 )  
Net asset value, end of period   $ 11.77     $ 12.02     $ 14.75     $ 14.48     $ 14.26     $ 13.52    
Total Return(a)      (1.27 )%**      (7.36 )%     6.05 %     5.66 %     6.96 %     37.50 %  
Ratios/Supplemental Data:  
Net assets, end
of period (000's)
  $ 441,140     $ 478,084     $ 602,048     $ 749,822     $ 866,206     $ 709,525    
Net expenses to average daily
net assets
    0.41 %(b)*      0.41 %(b)      0.41 %     0.43 %     0.44 %     0.44 %  
Net investment income to
average daily net assets
    1.58 %*      1.57 %     1.55 %     1.76 %     1.49 %     1.36 %  
Portfolio turnover rate     30 %**      71 %     78 %     65 %     65 %     57 %  
Fees and expenses reimbursed
by the Manager to
average daily net assets:
    0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(b)  The net expense ratio does not include the effect of expense reductions.

†  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 VI share outstanding throughout each period)

    Six Months
Ended
August 31, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value,
beginning of period
  $ 12.02     $ 14.75     $ 14.47     $ 14.26     $ 13.52     $ 11.54    
Income (loss) from
investment operations:
 
Net investment
income (loss) 
    0.10       0.23       0.23       0.25       0.21       0.10    
Net realized and
unrealized gain (loss)
    (0.25 )     (1.11 )     0.65       0.54       0.72       2.01    
Total from investment
operations
    (0.15 )     (0.88 )     0.88       0.79       0.93       2.11    
Less distributions to
shareholders:
 
From net investment
income
    (0.10 )     (0.26 )     (0.23 )     (0.26 )     (0.19 )     (0.13 )  
From net realized gains           (1.59 )     (0.37 )     (0.32 )              
Total distributions     (0.10 )     (1.85 )     (0.60 )     (0.58 )     (0.19 )     (0.13 )  
Net asset value, end
of period
  $ 11.77     $ 12.02     $ 14.75     $ 14.47     $ 14.26     $ 13.52    
Total Return(b)      (1.25 )%**      (7.32 )%     6.17 %     5.64 %     7.01 %     18.41 %**   
Ratios/Supplemental Data:  
Net assets, end
of period (000's)
  $ 1,862,701     $ 2,031,659     $ 3,671,926     $ 2,543,300     $ 1,750,325     $ 542,274    
Net expenses to average
daily net assets
    0.37 %(c)*      0.37 %(c)      0.37 %     0.38 %     0.39 %     0.39 %*   
Net investment income to
average daily net assets
    1.63 %*      1.63 %     1.61 %     1.78 %     1.56 %     1.17 %*   
Portfolio turnover rate     30 %**      71 %     78 %     65 %     65 %     57 %***   
Fees and expenses
reimbursed by the Manager
to average daily net assets:
    0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(c)  The net expense ratio does not include the effect of expense reductions.

†  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.


19



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 12.03     $ 14.75     $ 14.47     $ 14.26     $ 13.52     $ 9.96    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.07       0.18       0.18       0.20       0.16       0.12    
Net realized and unrealized
gain (loss)
    (0.25 )     (1.11 )     0.64       0.53       0.72       3.57    
Total from investment
operations
    (0.18 )     (0.93 )     0.82       0.73       0.88       3.69    
Less distributions to shareholders:  
From net investment income     (0.07 )     (0.20 )     (0.17 )     (0.20 )     (0.14 )     (0.13 )  
From net realized gains           (1.59 )     (0.37 )     (0.32 )              
Total distributions     (0.07 )     (1.79 )     (0.54 )     (0.52 )     (0.14 )     (0.13 )  
Net asset value, end of period   $ 11.78     $ 12.03     $ 14.75     $ 14.47     $ 14.26     $ 13.52    
Total Return(a)      (1.48 )%**      (7.64 )%     5.73 %     5.22 %     6.61 %     37.23 %  
Ratios/Supplemental Data:  
Net assets, end
of period (000's)
  $ 38,441     $ 56,422     $ 131,640     $ 157,009     $ 171,316     $ 141,188    
Net expenses to average daily
net assets
    0.76 %(b)*      0.76 %(b)      0.76 %     0.77 %     0.78 %     0.78 %  
Net investment income to
average daily net assets
    1.22 %*      1.23 %     1.22 %     1.41 %     1.17 %     0.98 %  
Portfolio turnover rate     30 %**      71 %     78 %     65 %     65 %     57 %  
Fees and expenses reimbursed
by the Manager to
average daily net assets:
    0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(b)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20




GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 in companies with similar market capitalizations.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security


21



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 3,094,701,374     $ 550,489    
Level 2 - Other Significant Observable Inputs     25,387,112          
Level 3 - Significant Unobservable Inputs              
Total   $ 3,120,088,486     $ 550,489    

 

*  Other financial instruments include futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.


22



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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.


23



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, if any, after


24



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $10,237,100.

As of August 31, 2008, 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)
 
$ 3,398,872,037     $ 118,263,292     $ (397,046,843 )   $ (278,783,551 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


25



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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


26



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 for support services provided to Class M shareholders. That fee is paid monthly at the annual rate of 0.20% of the average daily Class M net assets. 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 services to Class M shareholders. The Trustees currently limit payments on Class M shares to 0.25% of the Fund's average daily Class M net assets.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Expenses include shareholder service fees, administration and distribution (12b-1) 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 invest ment 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 fee paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $17,762 and $10,212, 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, 2008 aggregated $1,008,957,455 and $1,457,701,655, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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


27



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 35.78% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. One of the shareholders is another fund of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 63.43% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,978,899     $ 23,838,627       10,821,336     $ 155,921,642    
Shares issued to shareholders
in reinvestment of distributions
    536,825       6,330,580       13,691,161       193,621,517    
Shares repurchased     (29,672,472 )     (354,206,445 )     (51,723,168 )     (728,145,066 )  
Net increase (decrease)     (27,156,748 )   $ (324,037,238 )     (27,210,671 )   $ (378,601,907 )  

 


28



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $       7,471,098     $ 107,806,250    
Shares issued to shareholders
in reinvestment of distributions
    289,421       3,399,012       5,018,252       70,729,411    
Shares repurchased     (2,580,183 )     (31,355,000 )     (13,542,835 )     (194,165,178 )  
Net increase (decrease)     (2,290,762 )   $ (27,955,988 )     (1,053,485 )   $ (15,629,517 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     19,123,924     $ 223,531,421       51,884,829     $ 705,180,355    
Shares issued to shareholders
in reinvestment of distributions
    1,381,932       16,254,120       23,622,907       334,820,373    
Shares repurchased     (31,258,928 )     (378,794,725 )     (155,480,537 )     (2,272,939,240 )  
Net increase (decrease)     (10,753,072 )   $ (139,009,184 )     (79,972,801 )   $ (1,232,938,512 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class M:   Shares   Amount   Shares   Amount  
Shares sold     10,515     $ 128,125       124,923     $ 1,799,606    
Shares issued to shareholders
in reinvestment of distributions
    23,319       274,673       874,683       12,446,178    
Shares repurchased     (1,462,111 )     (17,608,286 )     (5,233,840 )     (74,518,027 )  
Net increase (decrease)     (1,428,277 )   $ (17,205,488 )     (4,234,234 )   $ (60,272,243 )  

 


29




GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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


30



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

concerning fees paid to managers of funds deemed by those 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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


31



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


32



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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, 2008 (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     $ 987.00     $ 2.30    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    
Class IV      
1) Actual     0.41 %   $ 1,000.00     $ 987.30     $ 2.05    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    
Class VI      
1) Actual     0.37 %   $ 1,000.00     $ 987.50     $ 1.85    
2) Hypothetical     0.37 %   $ 1,000.00     $ 1,023.34     $ 1.89    
Class M      
1) Actual     0.76 %   $ 1,000.00     $ 985.20     $ 3.80    
2) Hypothetical     0.76 %   $ 1,000.00     $ 1,021.37     $ 3.87    

 

*  Expenses are calculated using each Class's annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


34




GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.6 %  
Short-Term Investments     3.5    
Futures     0.0    
Other     (0.1 )  
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Financials     32.5 %  
Consumer Discretionary     16.3    
Health Care     10.3    
Information Technology     9.8    
Energy     8.3    
Industrials     8.0    
Materials     6.4    
Consumer Staples     5.9    
Utilities     2.0    
Telecommunication Services     0.5    
      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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.6%  
        Consumer Discretionary — 15.7%  
    3,700     Advance Auto Parts, Inc.     159,248    
    1,100     Aeropostale, Inc. *      38,346    
    4,900     American Eagle Outfitters, Inc.     73,745    
    950     ArvinMeritor, Inc.     14,259    
    3,800     Asbury Automotive Group, Inc.     46,132    
    2,400     Autoliv, Inc.     92,136    
    17,600     AutoNation, Inc. *      199,760    
    1,100     Black & Decker Corp.     69,575    
    4,500     Blyth, Inc.     71,145    
    2,000     BorgWarner, Inc.     82,700    
    2,600     Brinker International, Inc.     49,192    
    5,900     Brunswick Corp.     81,361    
    3,400     Career Education Corp. *      63,750    
    1,300     CBRL Group, Inc.     33,592    
    1,250     CEC Entertainment, Inc. *      42,825    
    1,300     Columbia Sportswear Co.     52,507    
    1,000     Core-Mark Holding Co., Inc. *      29,500    
    3,100     Dollar Tree, Inc. *      118,916    
    1,100     Dress Barn, Inc. *      17,886    
    2,400     Ethan Allen Interiors, Inc.     65,136    
    3,800     Family Dollar Stores, Inc.     94,696    
    3,300     Foot Locker, Inc.     53,757    
    1,190     Furniture Brands International, Inc.     10,650    
    2,500     Group 1 Automotive, Inc.     52,900    
    400     Harman International Industries, Inc.     13,612    
    1,400     Harte-Hanks, Inc.     17,290    
    900     Hasbro, Inc.     33,660    
    800     Hooker Furniture Corp.     13,472    
    800     ITT Educational Services, Inc. *      71,128    
    500     Jakks Pacific, Inc. *      12,475    
    5,100     Jones Apparel Group, Inc.     101,286    
    1,900     K-Swiss, Inc.-Class A     32,585    
    1,600     Lee Enterprises, Inc.     6,000    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Discretionary — continued  
    5,000     Leggett & Platt, Inc.     111,550    
    6,200     Liz Claiborne, Inc.     100,502    
    700     Matthews International Corp.-Class A     35,182    
    1,624     MDC Holdings, Inc.     67,315    
    1,200     Men's Wearhouse, Inc.     26,280    
    400     Meredith Corp.     11,352    
    200     National Presto Industries, Inc.     15,464    
    3,900     New York Times Co.-Class A     50,661    
    4,700     Office Depot, Inc. *      33,088    
    600     OfficeMax, Inc.     7,344    
    3,100     O'Reilly Automotive, Inc. *      90,272    
    1,000     Oxford Industries, Inc.     22,850    
    9,300     Penske Auto Group, Inc.     123,225    
    900     Polaris Industries, Inc.     40,581    
    3,100     Pomeroy IT Solutions, Inc. *      16,120    
    500     Pre-Paid Legal Services, Inc. *      22,320    
    3,200     RadioShack Corp.     60,832    
    2,900     Regis Corp.     79,634    
    4,500     Rent-A-Center, Inc. *      101,970    
    2,400     Ross Stores, Inc.     96,504    
    200     Ruby Tuesday, Inc. *      1,398    
    600     Snap-On, Inc.     34,212    
    3,400     Sonic Automotive, Inc.     36,584    
    1,000     Stanley Works (The)     47,950    
    140     Strayer Education, Inc.     29,378    
    3,100     Thor Industries, Inc.     71,238    
    2,100     Timberland Co.-Class A *      35,406    
    800     Tractor Supply Co. *      34,096    
    3,000     TRW Automotive Holdings Corp. *      57,540    
    1,900     Tupperware Corp.     67,868    
    1,500     Williams-Sonoma, Inc.     26,535    
    1,100     Wolverine World Wide, Inc.     28,963    
    500     Zale Corp. *      13,655    
    Total Consumer Discretionary     3,513,091    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — 5.7%  
    1,300     Alberto-Culver Co.     34,008    
    4,000     BJ's Wholesale Club, Inc. *      152,120    
    1,500     Casey's General Stores, Inc.     43,500    
    200     Chattem, Inc. *      14,024    
    1,500     Chiquita Brands International, Inc. *      22,020    
    200     Coca-Cola Bottling Co. Consolidated     8,116    
    4,400     Dean Foods Co. *      110,748    
    1,000     Energizer Holdings, Inc. *      84,940    
    1,000     Estee Lauder Cos. (The), Inc.-Class A     49,770    
    2,300     Flowers Foods, Inc.     60,812    
    2,000     Fresh Del Monte Produce, Inc. *      46,420    
    700     Hormel Foods Corp.     24,962    
    2,400     Ingles Markets, Inc.-Class A     59,304    
    800     Longs Drug Stores Corp.     57,320    
    1,100     McCormick & Co., Inc. (Non Voting)     44,495    
    100     Molson Coors Brewing Co.-Class B     4,765    
    1,800     Nash Finch Co.     73,296    
    2,000     NBTY, Inc. *      66,480    
    1,200     Nu Skin Enterprises, Inc.-Class A     20,100    
    2,100     Pantry (The), Inc. *      38,514    
    3,300     PepsiAmericas, Inc.     77,319    
    1,000     Ruddick Corp.     31,840    
    1,400     Supervalu, Inc.     32,466    
    5,700     Tyson Foods, Inc.-Class A     82,764    
    600     United Natural Foods, Inc. *      11,532    
    400     WD-40 Co.     13,956    
    Total Consumer Staples     1,265,591    
        Energy — 8.1%  
    1,100     Berry Petroleum Co.     45,782    
    600     Bristow Group, Inc. *      24,462    
    4,500     Cimarex Energy Co.     249,930    
    400     Comstock Resources, Inc. *      25,976    
    1,300     Encore Acquisition Co. *      67,028    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    1,100     Forest Oil Corp. *      62,612    
    1,100     Frontier Oil Corp.     21,307    
    4,100     Grey Wolf, Inc. *      35,711    
    200     Helix Energy Solutions Group, Inc. *      6,154    
    2,000     Helmerich & Payne, Inc.     114,240    
    1,200     Holly Corp.     38,400    
    300     Hornbeck Offshore Services, Inc. *      13,218    
    700     Natural Gas Services Group, Inc. *      18,158    
    1,700     Oil States International, Inc. *      94,571    
    800     Overseas Shipholding Group, Inc.     57,392    
    11,300     Patterson-UTI Energy, Inc.     321,146    
    200     Petroleum Development Corp. *      12,158    
    800     Pioneer Drilling Co. *      13,408    
    200     Plains Exploration & Production Co. *      10,780    
    700     Rowan Cos., Inc.     25,858    
    1,000     St. Mary Land & Exploration Co.     42,220    
    1,400     Stone Energy Corp. *      66,738    
    1,100     Swift Energy Co. *      51,381    
    600     Tidewater, Inc.     36,402    
    3,000     Unit Corp. *      203,190    
    700     W&T Offshore, Inc.     24,612    
    800     Whiting Petroleum Corp. *      76,992    
    1,300     World Fuel Services Corp.     37,453    
    Total Energy     1,797,279    
        Financials — 31.4%  
    44     Alleghany Corp. *      14,080    
    500     Allied World Assurance Holdings, Ltd./Bermuda     19,310    
    124     Amcore Financial, Inc.     1,090    
    5,750     American Financial Group, Inc.     164,047    
    400     American National Insurance Co.     38,180    
    500     American Physicians Capital, Inc.     21,150    
    4,100     Anchor Bancorp Wisconsin, Inc.     31,488    
    15,700     Annaly Capital Management, Inc.     234,872    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    2,600     Anthracite Capital, Inc. REIT     14,638    
    1,400     Anworth Mortgage Asset Corp. REIT     9,156    
    2,200     Arch Capital Group Ltd. *      153,472    
    2,900     Aspen Insurance Holdings Ltd.     78,590    
    7,600     Associated Banc Corp.     133,000    
    3,550     Astoria Financial Corp.     77,567    
    4,100     Axis Capital Holdings Ltd.     137,063    
    300     Bancfirst Corp.     14,442    
    2,500     Bancorpsouth, Inc.     57,550    
    1,600     Bank Mutual Corp.     19,280    
    1,400     Bank of Hawaii Corp.     74,032    
    500     Bank of the Ozarks, Inc.     11,185    
    800     BOK Financial Corp.     34,848    
    1,700     Brown & Brown, Inc.     34,476    
    3,300     Cathay General Bancorp     63,888    
    2,700     Central Pacific Financial Corp.     32,130    
    1,400     Chemical Financial Corp.     40,362    
    1,000     City Holding Co.     41,810    
    2,400     City National Corp.     118,776    
    800     CNA Surety Corp. *      12,856    
    2,896     Commerce Bancshares, Inc.     130,320    
    2,200     Community Bank System, Inc.     49,720    
    300     Community Trust Bancorp     10,062    
    400     Cullen/Frost Bankers, Inc.     22,272    
    500     Delphi Financial Group, Inc.-Class A     13,415    
    2,000     Dime Community Bancshares     32,840    
    2,200     East-West Bancorp, Inc.     27,434    
    1,500     Encore Capital Group, Inc. *      19,050    
    2,300     Endurance Specialty Holdings Ltd.     75,026    
    1,600     Erie Indemnity Co.-Class A     74,000    
    1,000     FBL Financial Group, Inc.-Class A     22,950    
    1,800     Federal Agricultural Mortgage Corp.-Class C     52,740    
    500     Financial Federal Corp.     12,485    
    4,516     First American Corp.     114,119    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    2,200     First Niagara Financial Group, Inc.     32,912    
    5,500     FirstMerit Corp.     111,320    
    1,200     Flushing Financial Corp.     20,868    
    6,800     Fulton Financial Corp.     72,488    
    1,300     Hancock Holding Co.     63,765    
    3,100     Hanmi Financial Corp.     15,841    
    900     Hanover Insurance Group (The), Inc.     42,507    
    1,500     Harleysville Group, Inc.     54,405    
    8,300     HCC Insurance Holdings, Inc.     208,994    
    200     Health Care REIT, Inc.     10,374    
    4,100     Horace Mann Educators Corp.     61,090    
    700     Independent Bank Corp., MI     5,187    
    200     Infinity Property & Casualty Corp.     9,300    
    700     Inland Real Estate Corp. REIT     10,528    
    4,820     International Bancshares Corp.     124,549    
    500     IPC Holdings, Ltd.     15,835    
    273     Kansas City Life Insurance Co.     12,989    
    1,400     Knight Capital Group, Inc.-Class A *      24,136    
    500     LTC Properties, Inc. REIT     13,435    
    140     Markel Corp. *      51,800    
    1,400     Max Capital Group Ltd.     36,400    
    2,700     Mercury General Corp.     137,538    
    5,666     MFA Mortgage Investments, Inc. REIT     38,529    
    1,000     Montpelier Re Holdings, Ltd.     16,190    
    900     Nara Bancorp, Inc.     9,855    
    1,100     National Penn Bancshares, Inc.     15,708    
    2,100     Nationwide Financial Services, Inc.-Class A     108,024    
    600     Navigators Group, Inc. *      31,440    
    700     NBT Bancorp, Inc.     17,563    
    1,900     New York Community Bancorp, Inc.     31,331    
    900     Northwest Bancorp, Inc.     24,966    
    600     OceanFirst Financial Corp.     10,830    
    300     Odyssey Re Holdings Corp.     11,328    
    3,800     Old National Bancorp     66,234    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    8,475     Old Republic International Corp.     92,632    
    2,300     Oriental Financial Group, Inc.     39,744    
    1,100     Pacific Capital Bancorp     16,181    
    800     Park District National Corp.     49,040    
    1,800     PartnerRe Ltd.     124,038    
    5,200     Philadelphia Consolidated Holding Corp. *      310,596    
    1,300     Platinum Underwriters Holdings Ltd.     46,995    
    14,100     Popular, Inc.     114,915    
    2,000     Presidential Life Corp.     36,000    
    500     PrivateBancorp, Inc.     15,320    
    100     ProAssurance Corp. *      5,390    
    2,600     Protective Life Corp.     94,354    
    2,100     Provident Bankshares Corp.     16,254    
    1,400     Provident Financial Services, Inc.     21,350    
    3,700     Reinsurance Group of America, Inc.     178,192    
    1,200     RenaissanceRe Holdings Ltd.     60,852    
    1,900     RLI Corp.     106,229    
    1,600     S&T Bancorp     53,696    
    500     S.Y. Bancorp, Inc.     14,120    
    1,000     Safeco Corp.     67,600    
    1,800     Safety Insurance Group, Inc.     77,400    
    3,600     SEI Investment Co.     85,032    
    3,600     Selective Insurance Group, Inc.     86,904    
    2,800     StanCorp Financial Group, Inc.     137,228    
    1,200     State Auto Financial Corp.     37,044    
    2,300     Stewart Information Services Corp.     43,033    
    400     Student Loan Corp.     47,164    
    400     SVB Financial Group *      22,420    
    6,200     Synovus Financial Corp.     57,040    
    8,300     TCF Financial Corp.     130,725    
    3,700     Transatlantic Holdings, Inc.     222,370    
    3,500     Trustmark Corp.     67,165    
    300     UMB Financial Corp.     15,609    
    1,600     United Bankshares, Inc.     41,200    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    800     United Fire & Casualty Co.     23,792    
    1,500     Unitrin, Inc.     38,295    
    4,800     W.R. Berkley Corp.     113,088    
    900     Waddell and Reed Financial, Inc.     28,980    
    1,727     Washington Federal, Inc.     29,756    
    1,500     Webster Financial Corp.     31,980    
    1,400     Westamerica Bancorporation     71,680    
    3,000     Whitney Holding Corp.     64,950    
    2,800     Wilmington Trust Corp.     65,716    
    900     Wilshire Bancorp, Inc.     12,213    
    2,700     Zenith National Insurance Corp.     103,113    
    700     Zions Bancorporation     18,788    
    Total Financials     6,994,213    
        Health Care — 9.9%  
    2,500     AMERIGROUP Corp. *      64,700    
    2,800     Apria Healthcare Group *      55,384    
    600     Bio-Rad Laboratories, Inc. *      64,560    
    2,800     Centene Corp. *      63,224    
    1,200     Charles River Laboratories International, Inc. *      78,732    
    800     Covance, Inc. *      75,472    
    3,700     Endo Pharmaceuticals Holdings, Inc. *      84,064    
    9,900     Health Management Associates, Inc.-Class A *      57,519    
    2,400     Health Net, Inc. *      66,360    
    800     Idexx Laboratories, Inc. *      45,040    
    300     Immucor, Inc. *      9,663    
    1,100     IMS Health, Inc.     24,442    
    2,900     Invacare Corp.     73,747    
    3,100     Invitrogen Corp. *      131,626    
    1,500     Kindred Healthcare, Inc. *      46,395    
    20,000     King Pharmaceuticals, Inc. *      228,800    
    200     Landauer, Inc.     13,052    
    2,400     LifePoint Hospitals, Inc. *      80,976    
    1,700     Lincare Holdings, Inc. *      56,100    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    900     Merit Medical Systems, Inc. *      17,424    
    2,100     Molina Healthcare, Inc. *      66,087    
    1,000     Mylan, Inc. *      12,890    
    3,200     Omnicare, Inc.     103,200    
    3,000     Owens & Minor, Inc.     138,360    
    2,400     Patterson Cos., Inc. *      78,096    
    1,500     Pediatrix Medical Group, Inc. *      85,425    
    2,200     Perrigo Co.     76,978    
    500     Pharmaceutical Product Development, Inc.     20,400    
    1,000     PharmaNet Development Group, Inc. *      26,100    
    1,700     RehabCare Group, Inc. *      31,178    
    700     Res-Care, Inc. *      13,468    
    600     Techne Corp. *      46,302    
    900     Universal Health Services, Inc.-Class B     55,602    
    100     Varian, Inc. *      4,971    
    500     VCA Antech, Inc. *      15,370    
    1,100     Waters Corp. *      75,075    
    300     Watson Pharmaceuticals, Inc. *      9,093    
    500     WellCare Health Plans, Inc. *      20,880    
    Total Health Care     2,216,755    
        Industrials — 7.8%  
    100     A.O. Smith Corp.     4,117    
    400     AGCO Corp. *      24,652    
    700     Alliant Techsystems, Inc. *      73,661    
    600     Applied Industrial Technologies, Inc.     17,466    
    500     Brady Corp.-Class A     18,355    
    300     Carlisle Cos., Inc.     9,717    
    1,700     CBIZ, Inc. *      14,450    
    1,800     Ceradyne, Inc. *      81,108    
    2,800     Cintas Corp.     86,240    
    700     Clarcor, Inc.     27,951    
    1,900     Comfort Systems USA, Inc.     28,956    
    2,500     Copart, Inc. *      110,025    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    1,700     Crane Co.     62,424    
    100     Curtiss-Wright Corp.     5,387    
    4,000     Deluxe Corp.     66,040    
    300     EnerSys *      8,436    
    1,000     Ennis, Inc.     16,510    
    100     Flowserve Corp.     13,212    
    1,400     Gardner Denver, Inc. *      63,196    
    1,100     HNI Corp.     25,454    
    800     Hubbell, Inc.-Class B     34,808    
    1,400     IKON Office Solutions, Inc.     24,234    
    3,300     Kelly Services, Inc.-Class A     63,822    
    700     Kennametal, Inc.     24,661    
    300     Lennox International, Inc.     11,100    
    1,500     Manpower, Inc.     72,090    
    900     Mine Safety Appliances Co.     32,697    
    1,600     Mueller Industries, Inc.     44,880    
    400     Pacer International, Inc.     8,432    
    800     Pentair, Inc.     29,400    
    900     Resources Connection, Inc. *      21,762    
    400     Rush Enterprises, Inc.-Class A *      5,276    
    1,300     Ryder Systems, Inc.     83,876    
    22     Seaboard Corp.     28,534    
    2,000     Simpson Manufacturing Co., Inc.     55,600    
    2,900     Skywest, Inc.     49,561    
    1,120     SPX Corp.     133,560    
    600     Teledyne Technologies, Inc. *      37,398    
    400     Teleflex, Inc.     25,828    
    1,300     Timken Co. (The)     42,016    
    1,600     United Stationers, Inc. *      79,328    
    300     Universal Forest Products, Inc.     9,855    
    900     Volt Information Sciences, Inc. *      12,618    
    300     Watson Wyatt Worldwide, Inc.     17,577    
    700     Werner Enterprises, Inc.     15,967    
    300     WESCO International, Inc. *      11,532    
    Total Industrials     1,733,769    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — 9.4%  
    800     Actel Corp. *      11,024    
    500     ADTRAN, Inc.     11,400    
    2,000     Affiliated Computer Services, Inc.-Class A *      106,480    
    200     Anixter International, Inc. *      14,762    
    2,200     Arrow Electronics, Inc. *      73,018    
    400     Avnet, Inc. *      11,740    
    400     Avocent Corp. *      9,388    
    700     Benchmark Electronics, Inc. *      11,543    
    2,400     Brightpoint, Inc. *      20,664    
    300     Cabot Microelectronics Corp. *      11,586    
    400     CACI International, Inc.-Class A *      20,260    
    100     Checkpoint Systems, Inc. *      2,129    
    3,400     Convergys Corp. *      50,150    
    1,000     CSG Systems International, Inc. *      18,900    
    700     Diebold, Inc.     27,755    
    3,800     Earthlink, Inc. *      35,416    
    550     Factset Research Systems, Inc.     34,491    
    900     FLIR Systems, Inc. *      32,130    
    2,000     Global Payments, Inc.     96,420    
    400     Hewitt Associates, Inc.-Class A *      16,084    
    13,550     Ingram Micro, Inc.-Class A *      256,231    
    3,900     Insight Enterprises, Inc. *      64,896    
    700     Intersil Corp.-Class A     16,401    
    1,400     j2 Global Communications, Inc. *      34,538    
    1,100     Jabil Circuit, Inc.     18,546    
    6,400     Lexmark International, Inc. *      230,208    
    300     Mantech International Corp.-Class A *      17,667    
    600     Maximus, Inc.     22,200    
    1,600     Plantronics, Inc.     41,280    
    1,000     Plexus Corp. *      28,030    
    4,900     QLogic Corp. *      91,532    
    300     Rogers Corp. *      12,003    
    1,300     SAIC, Inc. *      26,065    
    1,600     Semtech Corp. *      23,664    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    1,100     SRA International, Inc.-Class A *      25,828    
    2,100     Sybase, Inc. *      72,261    
    2,800     SYNNEX Corp. *      64,372    
    6,597     Tech Data Corp. *      225,222    
    1,500     Total System Services, Inc.     29,880    
    6,100     Western Digital Corp. *      166,286    
    2,500     Zoran Corp. *      22,250    
    Total Information Technology     2,104,700    
        Materials — 6.2%  
    400     Amcol International Corp.     14,584    
    600     AptarGroup, Inc.     24,234    
    400     Arch Chemicals, Inc.     14,680    
    1,000     Ball Corp.     45,920    
    1,800     Bemis Co., Inc.     50,256    
    800     Carpenter Technology Corp.     31,048    
    800     Celanese Corp.-Class A     30,848    
    1,600     Commercial Metals Co.     41,648    
    900     Compass Minerals International, Inc.     62,343    
    700     Cytec Industries, Inc.     35,560    
    600     Eastman Chemical Co.     36,192    
    2,700     FMC Corp.     198,558    
    3,600     Headwaters, Inc. *      55,404    
    1,000     Lubrizol Corp.     52,990    
    800     NewMarket Corp.     54,352    
    600     Olin Corp.     16,146    
    600     Olympic Steel, Inc.     28,566    
    3,800     PolyOne Corp. *      31,198    
    2,800     Reliance Steel & Aluminum Co.     159,628    
    900     Schnitzer Steel Industries, Inc.-Class A     61,569    
    700     Sensient Technologies Corp.     20,447    
    4,000     Sigma-Aldrich Corp.     227,040    
    500     Sonoco Products Co.     17,280    
    558     Stepan Co.     32,827    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Materials — continued  
    2,100     Worthington Industries, Inc.     36,960    
    Total Materials     1,380,278    
        Telecommunication Services — 0.5%  
    2,200     CenturyTel, Inc.     84,986    
    600     Syniverse Holdings, Inc. *      9,954    
    300     Telephone & Data Systems, Inc.     11,520    
    Total Telecommunication Services     106,460    
        Utilities — 1.9%  
    1,500     Energen Corp.     83,760    
    1,100     Energy East Corp.     29,920    
    100     Equitable Resources, Inc.     4,991    
    2,400     Hawaiian Electric Industries, Inc.     63,480    
    400     IDACORP, Inc.     11,920    
    500     Laclede Group (The), Inc.     22,465    
    1,300     MDU Resources Group, Inc.     42,952    
    700     National Fuel Gas Co.     33,117    
    400     ONEOK, Inc.     17,484    
    400     Piedmont Natural Gas Co.     11,540    
    2,400     TECO Energy, Inc.     42,816    
    300     UIL Holdings Corp.     9,780    
    900     Vectren Corp.     24,966    
    500     Wisconsin Energy Corp.     23,385    
    Total Utilities     422,576    
    TOTAL COMMON STOCKS (COST $23,248,703)     21,534,712    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 3.5%  
        Money Market Funds — 3.5%  
    792,809     State Street Institutional Treasury Money Market Fund-Institutional Class     792,809    
    TOTAL SHORT-TERM INVESTMENTS (COST $792,809)     792,809    
        TOTAL INVESTMENTS — 100.1%
(Cost $24,041,512)
    22,327,521    
        Other Assets and Liabilities (net) — (0.1%)     (28,988 )  
    TOTAL NET ASSETS — 100.0%   $ 22,298,533    

 

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)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys  
  3     Russell Mini   September 2008   $ 221,970     $ 3,034    
  2     S&P Mid 400 E-Mini   September 2008     163,200       696    
    $ 385,170     $ 3,730    

 

As of August 31, 2008, 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.

See accompanying notes to the financial statements.


16




GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $24,041,512) (Note 2)   $ 22,327,521    
Dividends and interest receivable     24,563    
Receivable for collateral on open futures contracts (Note 2)     19,000    
Receivable for expenses reimbursed by Manager (Note 3)     9,176    
Total assets     22,380,260    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     5,825    
Shareholder service fee     2,818    
Trustees and Chief Compliance Officer of GMO Trust fees     124    
Payable for variation margin on open futures contracts (Note 2)     2,970    
Accrued expenses     69,990    
Total liabilities     81,727    
Net assets   $ 22,298,533    
Net assets consist of:  
Paid-in capital   $ 29,876,182    
Accumulated undistributed net investment income     39,337    
Accumulated net realized loss     (5,906,725 )  
Net unrealized depreciation     (1,710,261 )  
    $ 22,298,533    
Net assets attributable to:  
Class III shares   $ 22,298,533    
Shares outstanding:  
Class III     2,942,229    
Net asset value per share:  
Class III   $ 7.58    

 

See accompanying notes to the financial statements.


17



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends   $ 253,446    
Interest     633    
Total investment income     254,079    
Expenses:  
Management fee (Note 3)     45,616    
Shareholder service fee – Class III (Note 3)     22,072    
Custodian, fund accounting agent and transfer agent fees     24,564    
Audit and tax fees     27,508    
Legal fees     368    
Trustees fees and related expenses (Note 3)     224    
Miscellaneous     368    
Total expenses     120,720    
Fees and expenses reimbursed by Manager (Note 3)     (52,716 )  
Net expenses     68,004    
Net investment income (loss)     186,075    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (2,731,231 )  
Closed futures contracts     (26,015 )  
Net realized gain (loss)     (2,757,246 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     3,241,341    
Open futures contracts     3,730    
Net unrealized gain (loss)     3,245,071    
Net realized and unrealized gain (loss)     487,825    
Net increase (decrease) in net assets resulting from operations   $ 673,900    

 

See accompanying notes to the financial statements.


18



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 186,075     $ 737,962    
Net realized gain (loss)     (2,757,246 )     (1,023,435 )  
Change in net unrealized appreciation (depreciation)     3,245,071       (9,361,725 )  
Net increase (decrease) in net assets from operations     673,900       (9,647,198 )  
Distributions to shareholders from:  
Net investment income  
Class III     (177,945 )     (739,082 )  
Net realized gains  
Class III           (4,151,014 )  
      (177,945 )     (4,890,096 )  
Net share transactions (Note 7):  
Class III     (13,495,744 )     (8,753,035 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     68,301       68,226    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (13,427,443 )     (8,684,809 )  
Total increase (decrease) in net assets     (12,931,488 )     (23,222,103 )  
Net assets:  
Beginning of period     35,230,021       58,452,124    
End of period (including accumulated undistributed net investment
income of $39,337 and $31,207, respectively)
  $ 22,298,533     $ 35,230,021    

 

See accompanying notes to the financial statements.


19




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 7.36     $ 10.01     $ 10.52     $ 12.38     $ 15.51     $ 9.81    
Income (loss) from investment
operations:
 
Net investment income (loss)     0.05       0.13       0.15       0.20       0.19       0.17    
Net realized and unrealized gain (loss)     0.21       (1.87 )     0.68       1.11       1.32       5.78    
Total from investment operations     0.26       (1.74 )     0.83       1.31       1.51       5.95    
Less distributions to shareholders:  
From net investment income     (0.04 )     (0.13 )     (0.20 )     (0.21 )     (0.16 )     (0.15 )  
From net realized gains           (0.78 )     (1.14 )     (2.96 )     (4.48 )     (0.10 )  
Total distributions     (0.04 )     (0.91 )     (1.34 )     (3.17 )     (4.64 )     (0.25 )  
Net asset value, end of period   $ 7.58     $ 7.36     $ 10.01     $ 10.52     $ 12.38     $ 15.51    
Total Return(a)      3.56 %**      (18.73 )%     8.71 %     11.67 %     14.98 %     61.14 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 22,299     $ 35,230     $ 58,452     $ 53,389     $ 80,084     $ 179,268    
Net expenses to average daily
net assets
    0.46 %*      0.46 %     0.46 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    1.26 %*      1.44 %     1.46 %     1.71 %     1.48 %     1.21 %  
Portfolio turnover rate     33 %**      63 %     79 %     48 %     66 %     86 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.36 %*      0.19 %     0.22 %     0.19 %     0.12 %     0.08 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts: 
  $ 0.02     $ 0.01     $ 0.02     $ 0.04     $ 0.09     $ 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. 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 Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 in companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


21



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 21,534,712     $ 3,730    
Level 2 - Other Significant Observable Inputs     792,809          
Level 3 - Significant Unobservable Inputs              
Total   $ 22,327,521     $ 3,730    

 

*  Other financial instruments include futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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


22



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the


23



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Statement of Assets and Liabilities. Such risks involve the possibility 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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, 2008 (Unaudited)

Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $2,991,843.

As of August 31, 2008, 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)
 
$ 24,695,477     $ 1,384,297     $ (3,752,253 )   $ (2,367,956 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.


25



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for estimated or known transaction costs (e.g. stamp duties and transfer taxes) incurred by the Fund in connection with the transfer of the purchasi ng 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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


26



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fee paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $224 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, 2008 aggregated $9,205,185 and $22,902,124, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 57.10% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.


27



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 0.15% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 95.93% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold         $       3,584     $ 31,432    
Shares issued to shareholders
in reinvestment of distributions
    22,175       164,576       541,777       4,846,264    
Shares repurchased     (1,869,617 )     (13,660,320 )     (1,595,273 )     (13,630,731 )  
Purchase premiums                       114    
Redemption fees           68,301             68,112    
Net increase (decrease)     (1,847,442 )   $ (13,427,443 )     (1,049,912 )   $ (8,684,809 )  

 


28




GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those services to have similar objectives. In


29



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


30



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


31



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 1,035.60     $ 2.36    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


32




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     91.6 %  
Short-Term Investments     6.0    
Forward Currency Contracts     0.5    
Preferred Stocks     0.3    
Rights and Warrants     0.0    
Futures     (0.2 )  
Other     1.8    
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region***     30.9 %  
Japan     23.0    
United Kingdom     20.9    
Switzerland     8.8    
Canada     4.7    
Australia     3.8    
Singapore     2.6    
Hong Kong     2.2    
Denmark     1.5    
Sweden     1.0    
Norway     0.6    
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 97.7%  
        United States — 97.7%  
        Affiliated Issuers  
    569,346     GMO International Growth Equity Fund, Class IV     13,704,165    
      537,297     GMO International Intrinsic Value Fund, Class IV     13,711,830    
      27,415,995    
    TOTAL MUTUAL FUNDS (COST $36,258,308)     27,415,995    
        SHORT-TERM INVESTMENTS — 1.8%  
      500,000     ING Bank Time Deposit, 2.25%, due 09/02/08     500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $500,000)     500,000    
            TOTAL INVESTMENTS — 99.5%
(Cost $36,758,308)
    27,915,995    
            Other Assets and Liabilities (net) — 0.5%     129,872    
    TOTAL NET ASSETS — 100.0%   $ 28,045,867    

 

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, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   SGD     173,416     $ 122,788     $ (434 )  
    $ 122,788     $ (434 )  
Sales  
11/21/08   AUD     1,679,261     $ 1,428,279     $ 16,033    
11/21/08   CAD     187,000       175,964       472    
11/21/08   CHF     165,584       150,493       1,762    
11/21/08   CHF     1,188,693       1,080,355       2,428    
11/21/08   CHF     1,188,693       1,080,355       1,583    
11/21/08   DKK     836,823       163,884       2,483    
11/21/08   DKK     6,058,333       1,186,465       1,793    
11/21/08   EUR     1,607,121       2,347,819       3,656    
11/21/08   EUR     1,559,853       2,278,766       4,671    
11/21/08   EUR     1,559,853       2,278,766       4,515    
11/21/08   GBP     1,221,006       2,212,916       50,744    
11/21/08   GBP     1,221,006       2,212,916       50,421    
11/21/08   HKD     4,160,379       533,870       (488 )  
11/21/08   JPY     215,991,580       1,993,751       (22,611 )  
11/21/08   JPY     222,536,780       2,054,168       (25,111 )  
11/21/08   JPY     215,991,580       1,993,751       (25,213 )  
11/21/08   NOK     954,756       174,674       1,284    
11/21/08   NOK     7,263,433       1,328,859       (798 )  
11/21/08   NZD     159,000       109,999       2,080    
11/21/08   SEK     4,605,797       710,547       10,634    
    $ 25,496,597     $ 80,338    

 

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, 2008 (Unaudited)

Notes to Schedule of Investments:

As of August 31, 2008, 87.03% 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).

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.


4




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $500,000) (Note 2)   $ 500,000    
Investments in affiliated issuers, at value (cost $36,258,308) (Notes 2 and 8)     27,415,995    
Cash     98,067    
Interest receivable     113    
Unrealized appreciation on open forward currency contracts (Note 2)     154,559    
Receivable for expenses reimbursed by Manager (Note 3)     27,210    
Total assets     28,195,944    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     12,735    
Shareholder service fee     3,541    
Trustees and Chief Compliance Officer of GMO Trust fees     133    
Unrealized depreciation on open forward currency contracts (Note 2)     74,655    
Accrued expenses     59,013    
Total liabilities     150,077    
Net assets   $ 28,045,867    
Net assets consist of:  
Paid-in capital   $ 34,655,107    
Accumulated undistributed net investment income     1,296,986    
Accumulated net realized gain     856,183    
Net unrealized depreciation     (8,762,409 )  
    $ 28,045,867    
Net assets attributable to:  
Class III shares   $ 28,045,867    
Shares outstanding:  
Class III     7,320,948    
Net asset value per share:  
Class III   $ 3.83    

 

See accompanying notes to the financial statements.


5



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 506,408    
Interest     8,688    
Total investment income     515,096    
Expenses:  
Management fee (Note 3)     79,671    
Shareholder service fee – Class III (Note 3)     22,131    
Custodian and fund accounting agent fees     34,960    
Transfer agent fees     13,524    
Audit and tax fees     30,176    
Legal fees     368    
Trustees fees and related expenses (Note 3)     127    
Registration fees     1,748    
Miscellaneous     368    
Total expenses     183,073    
Fees and expenses reimbursed by Manager (Note 3)     (81,052 )  
Expense reductions (Note 2)     (920 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (75,200 )  
Shareholder service fee waived (Note 3)     (13,006 )  
Net expenses     12,895    
Net investment income (loss)     502,201    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (401,324 )  
Realized gains distributions from affiliated issuers (Note 8)     1,265,664    
Foreign currency, forward contracts and foreign currency related transactions     110,911    
Net realized gain (loss)     975,251    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (3,658,646 )  
Foreign currency, forward contracts and foreign currency related transactions     913,927    
Net unrealized gain (loss)     (2,744,719 )  
Net realized and unrealized gain (loss)     (1,769,468 )  
Net increase (decrease) in net assets resulting from operations   $ (1,267,267 )  

 

See accompanying notes to the financial statements.


6



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 502,201     $ 725,814    
Net realized gain (loss)     975,251       33,909,730    
Change in net unrealized appreciation (depreciation)     (2,744,719 )     (24,076,799 )  
Net increase (decrease) in net assets from operations     (1,267,267 )     10,558,745    
Distributions to shareholders from:  
Net realized gains  
Class III     (7,003,324 )     (48,200,678 )  
Net share transactions (Note 7):  
Class III     6,043,412       (159,181,264 )  
Total increase (decrease) in net assets     (2,227,179 )     (196,823,197 )  
Net assets:  
Beginning of period     30,273,046       227,096,243    
End of period (including accumulated undistributed net investment
income of $1,296,986 and $794,785, respectively)
  $ 28,045,867     $ 30,273,046    

 

See accompanying notes to the financial statements.


7




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning
of period
  $ 5.32     $ 7.45     $ 9.07     $ 8.38     $ 7.33     $ 5.54    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.08       0.03       0.10       0.07       0.21       0.20    
Net realized and unrealized
gain (loss)
    (0.31 )     (0.29 )     1.17       2.17       0.84       1.59    
Total from investment
operations
    (0.23 )     (0.26 )     1.27       2.24       1.05       1.79    
Less distributions to shareholders:  
From net investment income                 (0.12 )     (0.71 )(b)               
From net realized gains     (1.26 )     (1.87 )     (2.77 )     (0.84 )              
Total distributions     (1.26 )     (1.87 )     (2.89 )     (1.55 )              
Net asset value, end of period   $ 3.83     $ 5.32     $ 7.45     $ 9.07     $ 8.38     $ 7.33    
Total Return(c)      (4.35 )%**      (6.75 )%     15.60 %     28.42 %     14.32 %     32.31 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 28,046     $ 30,273     $ 227,096     $ 728,814     $ 580,905     $ 160,586    
Net expenses to average daily
net assets(d) 
    0.09 %(e)*      0.08 %(e)      0.07 %     0.05 %     0.04 %     0.04 %  
Net investment income to
average daily net assets(a) 
    3.40 %*      0.42 %     1.23 %     0.82 %     2.64 %     2.98 %  
Portfolio turnover rate     9 %**      11 %     18 %     36 %     3 %     5 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:
    1.15 %*      0.71 %     0.68 %     0.67 %     0.71 %     0.87 %  

 

(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 include amounts (approximately $0.07 per share) from foreign currency transactions which are treated as realized capital gain for book purposes.

(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).

(e)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 total return greater than that of the MSCI EAFE Index (Europe, Australasia, and Far East) (Hedged). The Fund is a fund of funds and invests primarily 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Securities for which quotations are not


9



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 27,915,995     $    
Level 2 - Other Significant Observable Inputs           154,559    
Level 3 - Significant Unobservable Inputs              
Total   $ 27,915,995     $ 154,559    

 

*  Other financial instruments include forward currency contracts.


10



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs           (74,655 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (74,655 )  

 

**  Other financial instruments include forward currency contracts.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


11



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a


12



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. The Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility that the counterparties to the


13



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no swap agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 of August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


14



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

 2/28/2011   $ (64,645 )  
Total   $ (64,645 )  

 

As of August 31, 2008, 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)
 
$ 37,094,149     $     $ (9,178,154 )   $ (9,178,154 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities, is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the


15



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

nature and type of expense and the relative size of the funds. In addition, the Fund also incurs 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).

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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%.


16



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.54% of the Fund's average daily net assets. Excluded Expenses include 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), h edging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes) (collectively, "Excluded Fund Fees and Expenses"). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 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 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, 2008, 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  
  0.511 %     0.088 %     0.599 %  

 

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $127 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, 2008 aggregated $4,102,072 and $2,690,000, 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 that provide general indemnifications. The Fund's


17



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 96.69% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and 96.69% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     186     $ 1,000       839,414     $ 6,424,624    
Shares issued to shareholders
in reinvestment of distributions
    1,756,093       6,725,838       7,433,717       47,788,021    
Shares repurchased     (126,279 )     (683,426 )     (33,056,614 )     (213,393,909 )  
Net increase (decrease)     1,630,000     $ 6,043,412       (24,783,483 )   $ (159,181,264 )  

 


18



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 15,047,067     $ 2,030,392     $ 1,470,000     $ 282,381     $ 488,011     $ 13,704,165    
GMO International
Intrinsic Value Fund,
Class IV
    15,016,826       2,071,680       1,220,000       224,027       777,653       13,711,830    
Totals   $ 30,063,893     $ 4,102,072     $ 2,690,000     $ 506,408     $ 1,265,664     $ 27,415,995    

 


19




GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of


20



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

the investment techniques used to manage the Fund. 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client relatio nships. 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 advisory fees, shareholder fees and most other expenses 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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,


21



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


22



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 956.50     $ 3.40    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.73     $ 3.52    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


23




GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     93.9 %  
Cash and Cash Equivalents     6.3    
Short-Term Investments     3.6    
Preferred Stocks     1.4    
Forward Currency Contracts     0.1    
Private Equity Securities     0.1    
Debt Obligations     0.1    
Investment Funds     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Futures     (2.9 )  
Swaps     (3.4 )  
Other     0.8    
      100.0 %  

 

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


1



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Country / Region Summary**   % of Investments  
United States     50.8 %  
Euro Region***     13.0    
Japan     9.2    
United Kingdom     8.6    
Switzerland     3.3    
Brazil     1.9    
Australia     1.7    
Korea     1.7    
Canada     1.3    
Taiwan     1.1    
Russia     1.0    
Singapore     1.0    
China     0.7    
Hong Kong     0.7    
Turkey     0.7    
Thailand     0.6    
Denmark     0.4    
South Africa     0.4    
Sweden     0.4    
Norway     0.3    
Hungary     0.2    
India     0.2    
Malaysia     0.2    
Argentina     0.1    
Indonesia     0.1    
Israel     0.1    
Mexico     0.1    
Philippines     0.1    
Poland     0.1    
      100.0 %  

 

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

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


2




GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        AFFILIATED ISSUERS — 100.0%        
        Mutual Funds — 100.0%        
  2,407,745     GMO Alpha Only Fund, Class IV     24,101,529    
  2,007,798     GMO Emerging Markets Fund, Class VI     28,570,962    
  2,353,860     GMO International Core Equity Fund, Class VI     79,089,683    
  977,749     GMO International Growth Equity Fund, Class IV     23,534,414    
  923,987     GMO International Intrinsic Value Fund, Class IV     23,580,143    
  16,130     GMO Short-Duration Investment Fund, Class III     135,004    
  2,824,768     GMO U.S. Core Equity Fund, Class VI     33,247,514    
  1,141     GMO U.S. Growth Fund, Class III     18,157    
  5,467,999     GMO U.S. Quality Equity Fund, Class VI     110,344,225    
      322,621,631    
        Private Investment Fund — 0.0%        
  175     GMO SPV I, LLC (a) (b)      49    
    TOTAL AFFILIATED ISSUERS (COST $373,363,728)     322,621,680    
        SHORT-TERM INVESTMENTS — 0.0%        
  17,943     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     17,943    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,943)     17,943    
        TOTAL INVESTMENTS — 100.0%
(Cost $373,381,671)
    322,639,623    
        Other Assets and Liabilities (net) — (0.0%)     (25,866 )  
    TOTAL NET ASSETS — 100.0%   $ 322,613,757    

 

See accompanying notes to the financial statements.


3



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

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)  Underlying investment represents interests in defaulted securities.

As of August 31, 2008, 43.93% 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 Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $17,943) (Note 2)   $ 17,943    
Investments in affiliated issuers, at value (cost $373,363,728) (Notes 2 and 8)     322,621,680    
Receivable for expenses reimbursed by Manager (Note 3)     7,378    
Total assets     322,647,001    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     723    
Accrued expenses     32,521    
Total liabilities     33,244    
Net assets   $ 322,613,757    
Net assets consist of:  
Paid-in capital   $ 361,730,529    
Accumulated undistributed net investment income     3,763,813    
Accumulated net realized gain     7,861,463    
Net unrealized depreciation     (50,742,048 )  
    $ 322,613,757    
Net assets attributable to:  
Class III shares   $ 322,613,757    
Shares outstanding:  
Class III     36,553,163    
Net asset value per share:  
Class III   $ 8.83    

 

See accompanying notes to the financial statements.


5



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 3,764,407    
Interest     149    
Total investment income     3,764,556    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     19,504    
Audit and tax fees     16,008    
Legal fees     4,048    
Trustees fees and related expenses (Note 3)     1,979    
Registration fees     2,116    
Miscellaneous     2,299    
Total expenses     45,954    
Fees and expenses reimbursed by Manager (Note 3)     (42,964 )  
Expense reductions (Note 2)     (2,244 )  
Net expenses     746    
Net investment income (loss)     3,763,810    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (5,312,996 )  
Realized gains distributions from affiliated issuers (Note 8)     13,205,004    
Net realized gain (loss)     7,892,008    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (32,754,538 )  
Net realized and unrealized gain (loss)     (24,862,530 )  
Net increase (decrease) in net assets resulting from operations   $ (21,098,720 )  

 

See accompanying notes to the financial statements.


6



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 3,763,810     $ 6,114,741    
Net realized gain (loss)     7,892,008       65,404,358    
Change in net unrealized appreciation (depreciation)     (32,754,538 )     (67,173,593 )  
Net increase (decrease) in net assets from operations     (21,098,720 )     4,345,506    
Distributions to shareholders from:  
Net investment income  
Class III           (15,144,364 )  
Net realized gains  
Class III     (27,481,786 )     (46,141,439 )  
      (27,481,786 )     (61,285,803 )  
Net share transactions (Note 7):  
Class III     14,665,723       59,195,425    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     4,598       32,563    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    14,670,321       59,227,988    
Total increase (decrease) in net assets     (33,910,185 )     2,287,691    
Net assets:  
Beginning of period     356,523,942       354,236,251    
End of period (including accumulated undistributed net
investment income of $3,763,813 and $3, respectively)
  $ 322,613,757     $ 356,523,942    

 

See accompanying notes to the financial statements.


7




GMO Global Equity Allocation Fund

(formerly 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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 10.25     $ 11.96     $ 11.89     $ 11.63     $ 10.86     $ 7.51    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)      0.11       0.20       0.23       0.23       0.23       0.14    
Net realized and unrealized
gain (loss)
    (0.71 )     0.09 (b)      1.08       1.32       1.23       3.55    
Total from investment
operations
    (0.60 )     0.29       1.31       1.55       1.46       3.69    
Less distributions to shareholders:  
From net investment income           (0.49 )     (0.38 )     (0.34 )     (0.27 )     (0.21 )  
From net realized gains     (0.82 )     (1.51 )     (0.86 )     (0.95 )     (0.42 )     (0.13 )  
Total distributions     (0.82 )     (2.00 )     (1.24 )     (1.29 )     (0.69 )     (0.34 )  
Net asset value, end of period   $ 8.83     $ 10.25     $ 11.96     $ 11.89     $ 11.63     $ 10.86    
Total Return(c)      (6.01 )%**      1.01 %     11.56 %     13.91 %     13.70 %     49.63 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 322,614     $ 356,524     $ 354,236     $ 326,032     $ 335,819     $ 222,856    
Net expenses to average daily
net assets(d)(e) 
    0.00 %(f)*      0.00 %(f)      0.00 %     0.00 %     0.00 %     0.00 %  
Net investment income to average
daily net assets(a) 
    2.15 %*      1.63 %     1.90 %     1.99 %     2.11 %     1.99 %  
Portfolio turnover rate     40 %**      30 %     15 %     20 %     17 %     73 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:
    0.02 %*      0.02 %     0.02 %     0.02 %     0.04 %     0.05 %  
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)    $ 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 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 and/or waived during the periods shown and assumes the effect of reinvested distributions. 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)  The net expense ratio does not include the effect of expense reductions.

(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.


8




GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (Unaudited)

1.  Organization

GMO Global Equity Allocation Fund (formerly 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 MSCI ACWI (All Country World Index) 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, GMO Flexible Equities 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).

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Securities for which quotations are not


9



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 322,639,574     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs     49          
Total   $ 322,639,623     $    

 


10



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 49     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     171          
Realized gain distributions paid     (171 )        
Change in unrealized appreciation/depreciation              
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 49     $    

 

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

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


11



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

of its net investment income and all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 373,821,303     $ 49     $ (51,181,729 )   $ (51,181,680 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


12



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchase and redemption of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.11% 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, 2008. 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 t hat portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.


13



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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 it 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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).


14



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2008, 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
 
  0.455 %     0.066 %     0.001 %     0.522 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $1,703 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 and class exchanges, for the period ended August 31, 2008 aggregated $141,278,325 and $137,102,093, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 38.12% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.


15



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     10,295     $ 92,552       1,944,098     $ 23,157,515    
Shares issued to shareholders
in reinvestment of distributions
    2,835,577       25,378,414       4,518,134       52,432,161    
Shares repurchased     (1,076,098 )     (10,805,243 )     (1,300,196 )     (16,394,251 )  
Purchase premiums           102             23,181    
Redemption fees           4,496             9,382    
Net increase (decrease)     1,769,774     $ 14,670,321       5,162,036     $ 59,227,988    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 22,706,205     $ 4,262,534     $ 500,000     $ 239,377     $ 2,307,157     $ 24,101,529    
GMO Emerging Countries
Fund, Class III
    8,443,861       1,022,610       7,544,143             1,022,610          
GMO Emerging Country
Debt Fund, Class IV
    1,702,519             1,711,767                      
GMO Emerging Markets
Fund, Class VI
    36,561,535       18,920,011       12,385,520             6,416,634       28,570,962    

 


16



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Affiliate   Value,
beginning of
period
  Purchases   Sales
Proceeds
  Dividend
Income
  Distributions
of Realized
Gains
  Value,
end of
period
 
GMO International
Core Equity Fund,
Class VI
  $     $ 93,278,266     $     $ 1,120,057     $ 665,818     $ 79,089,683    
GMO International
Growth Equity Fund,
Class IV
    29,271,874       1,529,339       3,843,474       505,585       873,754       23,534,414    
GMO International
Intrinsic Value Fund,
Class IV
    28,827,179       1,783,341       3,120,000       398,847       1,384,494       23,580,143    
GMO Short-Duration
Investment Fund,
Class III
    135,936       356             356             135,004    
GMO SPV I, LLC     49                         171       49    
GMO U.S. Core Equity
Fund, Class VI
    134,495,007       674,459       105,370,000       674,459             33,247,514    
GMO U.S. Growth
Fund, Class III
    17,965       91             91             18,157    
GMO U.S. Quality Equity
Fund, Class VI
    94,350,851       19,807,318       2,627,189       825,635       534,366       110,344,225    
Totals   $ 356,512,981     $ 141,278,325     $ 137,102,093     $ 3,764,407     $ 13,205,004     $ 322,621,680    

 

9.  Subsequent event

Effective September 30, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.07% of the amount invested or redeemed. Effective October 8, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.08% of the amount invested or redeemed. Effective October 21, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.12% of the amount invested or redeemed.


17




GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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


18



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 advis ory 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


19



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


20



GMO Global Equity Allocation Fund

(formerly GMO Global (U.S.+) Equity Allocation Fund)
(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 939.90     $ 2.54    
2) Hypothetical     0.52 %   $ 1,000.00     $ 1,022.58     $ 2.65    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


21




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August
31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     67.3 %  
Debt Obligations     22.1    
Cash and Cash Equivalents     11.7    
Short-Term Investments     9.8    
Options Purchased     0.2    
Forward Currency Contracts     0.1    
Preferred Stocks     0.1    
Loan Participations     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.1 )  
Reverse Repurchase Agreements     (0.1 )  
Futures     (5.4 )  
Swaps     (6.8 )  
Other     1.1    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     70.3 %  
Euro Region***     9.5    
Japan     6.5    
United Kingdom     5.4    
Switzerland     3.2    
Canada     1.7    
Singapore     0.9    
Australia     0.7    
Hong Kong     0.6    
Denmark     0.5    
Norway     0.2    
Sweden     0.2    
Brazil     0.1    
Mexico     0.1    
Russia     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 except for GMO Alpha Only Fund. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.1%  
        Affiliated Issuer — 100.1%  
    15,265,382     GMO Alpha Only Fund, Class IV     152,806,479    
    2,922,690     GMO Core Plus Bond Fund, Class IV     26,041,165    
    7,384,372     GMO Domestic Bond Fund, Class VI     67,936,223    
    586,955     GMO Emerging Country Debt Fund, Class IV     5,599,553    
    631,997     GMO International Bond Fund, Class III     5,251,896    
    6,303,721     GMO International Growth Equity Fund, Class IV     151,730,565    
    5,968,409     GMO International Intrinsic Value Fund, Class IV     152,313,789    
    2,644,319     GMO Special Situations Fund, Class VI     57,434,599    
    6,529,744     GMO Strategic Fixed Income Fund, Class VI     148,355,781    
    5,699,510     GMO U.S. Core Equity Fund, Class VI     67,083,237    
    13,192,920     GMO U.S. Quality Equity Fund, Class VI     266,233,126    
    TOTAL MUTUAL FUNDS (COST $1,231,175,394)     1,100,786,413    
        SHORT-TERM INVESTMENTS — 0.0%  
    38,071     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     38,071    
    TOTAL SHORT-TERM INVESTMENTS (COST $38,071)     38,071    
          TOTAL INVESTMENTS — 100.1%
(Cost $1,231,213,465)
    1,100,824,484    
          Other Assets and Liabilities (net) — (0.1%)     (910,695 )  
    TOTAL NET ASSETS — 100.0%   $ 1,099,913,789    

 

Notes to Schedule of Investments:

As of August 31, 2008, 29.94% 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.


2




GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $38,071) (Note 2)   $ 38,071    
Investments in affiliated issuers, at value (cost $1,231,175,394) (Notes 2 and 8)     1,100,786,413    
Receivable for Fund shares sold     33,962,020    
Receivable for expenses reimbursed by Manager (Note 3)     9,765    
Total assets     1,134,796,269    
Liabilities:  
Payable for investments purchased     33,962,017    
Payable for Fund shares repurchased     876,300    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     2,231    
Accrued expenses     41,932    
Total liabilities     34,882,480    
Net assets   $ 1,099,913,789    
Net assets consist of:  
Paid-in capital   $ 1,199,076,956    
Accumulated undistributed net investment income     8,200,112    
Accumulated net realized gain     23,025,702    
Net unrealized depreciation     (130,388,981 )  
    $ 1,099,913,789    
Net assets attributable to:  
Class III shares   $ 1,099,913,789    
Shares outstanding:  
Class III     52,373,447    
Net asset value per share:  
Class III   $ 21.00    

 

See accompanying notes to the financial statements.


3



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 11,118,859    
Interest     201    
Total investment income     11,119,060    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,000    
Audit and tax fees     15,272    
Legal fees     12,512    
Trustees fees and related expenses (Note 3)     6,056    
Registration fees     1,380    
Miscellaneous     6,808    
Total expenses     65,028    
Fees and expenses reimbursed by Manager (Note 3)     (55,936 )  
Expense reductions (Note 2)     (7,527 )  
Net expenses     1,565    
Net investment income (loss)     11,117,495    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (23,670,893 )  
Realized gains distributions from affiliated issuers (Note 8)     48,530,749    
Net realized gain (loss)     24,859,856    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (73,457,807 )  
Net realized and unrealized gain (loss)     (48,597,951 )  
Net increase (decrease) in net assets resulting from operations   $ (37,480,456 )  

 

See accompanying notes to the financial statements.


4



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 11,117,495     $ 32,758,480    
Net realized gain (loss)     24,859,856       61,340,612    
Change in net unrealized appreciation (depreciation)     (73,457,807 )     (89,711,146 )  
Net increase (decrease) in net assets from operations     (37,480,456 )     4,387,946    
Distributions to shareholders from:  
Net investment income  
Class III     (7,945,083 )     (43,466,039 )  
Net realized gains  
Class III     (36,546,421 )     (24,846,890 )  
      (44,491,504 )     (68,312,929 )  
Net share transactions (Note 7):  
Class III     81,682,000       634,481,810    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     38,241       234,265    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    81,720,241       634,716,075    
Total increase (decrease) in net assets     (251,719 )     570,791,092    
Net assets:  
Beginning of period     1,100,165,508       529,374,416    
End of period (including accumulated undistributed net investment
income of $8,200,112 and $5,027,700, respectively)
  $ 1,099,913,789     $ 1,100,165,508    

 

See accompanying notes to the financial statements.


5




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 22.70     $ 23.71     $ 22.37     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.23       0.99       0.69       0.52    
Net realized and unrealized gain (loss)     (1.00 )     (0.15 )     2.17       2.34    
Total from investment operations     (0.77 )     0.84       2.86       2.86    
Less distributions to shareholders:  
From net investment income     (0.17 )     (1.02 )     (0.90 )     (0.47 )  
From net realized gains     (0.76 )     (0.83 )     (0.62 )     (0.02 )  
Total distributions     (0.93 )     (1.85 )     (1.52 )     (0.49 )  
Net asset value, end of period   $ 21.00     $ 22.70     $ 23.71     $ 22.37    
Total Return(c)      (3.43 )%**      3.15 %     12.98 %     14.42 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,099,914     $ 1,100,166     $ 529,374     $ 366,622    
Net expenses to average daily net assets(d)(e)      0.00 %(f)*      0.00 %(f)      0.00 %     0.00 %*   
Net investment income to average daily net assets(b)      2.02 %*      4.05 %     2.98 %     3.22 %*   
Portfolio turnover rate     16 %**      47 %     23 %     10 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.01 %*      0.01 %     0.02 %     0.06 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
  $ 0.00 (g)    $ 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)  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.

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

(e)  Net expenses to average daily net assets were less than 0.01%.

(f)  The net expense ratio does not include the effect of expense reductions.

(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 Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August
31, 2008 (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 benchmark 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, 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, GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, and GMO Special Situations 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. Shares of GMO Special Situations Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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


7



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

bid price. Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 7.55% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset- backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


8



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 1,043,389,885     $    
Level 2 - Other Significant Observable Inputs     57,434,599          
Level 3 - Significant Unobservable Inputs              
Total   $ 1,100,824,484     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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


9



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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. The Fund had no repurchase agreements outstanding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 1,236,165,960     $ 4,388,860     $ (139,730,336 )   $ (135,341,476 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have


10



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases of Fund shares was 0.07% of the amount invested. In the case of cash redemptions, the fee is currently 0.04% of the amount 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, 2008. 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 Manager may waiv e the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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


11



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

transactions include a cash component. However, when a substantial portion of a Fund is being redeemed, the Fund may charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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).


12



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2008, 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
 
  0.397 %     0.071 %     0.003 %     0.471 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $5,320 and $3,036, 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, 2008 aggregated $272,648,827 and $174,915,737, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 32.90% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.


13



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 98.44% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,681,455     $ 56,760,216       23,859,232     $ 579,450,743    
Shares issued to shareholders
in reinvestment of distributions
    2,103,030       44,394,969       2,788,898       67,229,949    
Shares repurchased     (886,150 )     (19,473,185 )     (502,061 )     (12,198,882 )  
Purchase premiums           34,182             232,499    
Redemption fees           4,059             1,766    
Net increase (decrease)     3,898,335     $ 81,720,241       26,146,069     $ 634,716,075    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 90,584,368     $ 70,889,665     $     $ 906,928     $ 8,741,122     $ 152,806,479    
GMO Core Plus
Bond Fund,
Class IV
    26,514,728       1,060,589       25,000       1,060,589             26,041,165    
GMO Domestic Bond
Fund, Class VI
          68,583,957       1,239,595             107,501       67,936,223    
GMO Emerging
Country Debt Fund,
Class IV
    5,743,483       152,950             31,629       121,321       5,599,553    

 


14



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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
  $ 103,926,197     $ 24,950,520     $ 98,007,614     $ 516,691     $ 24,433,829     $    
GMO International
Bond Fund,
Class III
    5,569,426       413,051             413,051             5,251,896    
GMO International
Growth Equity
Fund, Class IV
    156,545,575       16,897,866       1,000,000       3,078,170       5,319,696       151,730,565    
GMO International
Intrinsic Value
Fund, Class IV
    159,656,664       19,380,267       3,157,072       2,433,387       8,446,880       152,313,789    
GMO Special
Situations
Fund, Class VI
    58,396,773             2,000,000                   57,434,599    
GMO Strategic Fixed
Income Fund,
Class VI
    216,621,119       6,653,930       67,476,456       33,683             148,355,781    
GMO U.S. Core Equity
Fund, Class VI
    69,986,654       573,240       2,000,000       573,240             67,083,237    
GMO U.S. Quality
Equity Fund,
Class VI
    206,637,036       63,092,792       10,000       2,071,491       1,360,400       266,233,126    
Totals   $ 1,100,182,023     $ 272,648,827     $ 174,915,737     $ 11,118,859     $ 48,530,749     $ 1,100,786,413    

 

9.  Subsequent event

Effective September 30, 2008, the Fund no longer charged a premium on cash purchases or fee on cash redemptions of the amount invested or redeemed. Effective October 8, 2008, the fee on cash redemptions was changed to 0.22% of the amount redeemed. Effective October 21, 2008, the premium on cash purchases was changed to 0.03% of the amount invested and the fee on cash redemptions was changed to 0.50% of the amount redeemed.


15




GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August
31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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


16



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 Tr ust; 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


17



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (Unaudited)

Following their review, on June 16, 2008, 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, 2008.


18



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.47 %   $ 1,000.00     $ 965.70     $ 2.33    
2) Hypothetical     0.47 %   $ 1,000.00     $ 1,022.84     $ 2.40    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


19




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.0 %  
Loan Participations     5.0    
Options Purchased     3.8    
Loan Assignments     1.7    
Short-Term Investments     1.5    
Forward Currency Contracts     0.9    
Rights and Warrants     0.4    
Promissory Notes     0.2    
Futures     0.0    
Swaps     (0.0 )  
Written Options     (0.5 )  
Reverse Repurchase Agreements     (9.4 )  
Other     1.4    
      100.0 %  

 

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


1



GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Country / Region Summary**   % of Investments  
Mexico     12.7 %  
Brazil     11.0    
Russia     10.7    
Turkey     8.4    
Venezuela     7.5    
Philippines     6.9    
Colombia     4.8    
Argentina     4.7    
Uruguay     4.4    
Ukraine     2.6    
Indonesia     2.4    
Dominican Republic     2.0    
Congo     1.9    
Ivory Coast     1.8    
Vietnam     1.6    
El Salvador     1.5    
South Africa     1.4    
Iraq     1.1    
Kazakhstan     0.9    
Pakistan     0.9    
Peru     0.8    
Egypt     0.8    
Qatar     0.8    
Gabon     0.7    
Panama     0.7    
Aruba     0.7    
Israel     0.7    
Sri Lanka     0.6    
Jamaica     0.6    
Africa     0.5    
Ecuador     0.5    
Serbia     0.5    
Guatemala     0.4    
Bosnia & Herzegovina     0.3    
Chile     0.3    
Poland     0.3    
India     0.3    
Tunisia     0.3    
Costa Rica     0.2    
Trinidad & Tobago     0.2    
Georgia     0.2    
China     0.2    
Belize     0.1    
Thailand     0.1    
Nicaragua     0.1    
Lebanon     (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 Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value   Description   Value ($)  
      DEBT OBLIGATIONS — 88.9%  
      Argentina — 10.0%  
      Foreign Government Obligations  
USD     9,000,000     Province of Buenos Aires, Reg S, Step Up, Variable Rate, 3.00%, due 05/15/35     2,760,921    
USD     29,071,104     Republic of Argentina, 8.28%, due 12/31/33     17,413,591    
USD     45,719,999     Republic of Argentina Capitalization Bond, Series 2031, 12.00%,
due 06/19/31 (a) 
    11,887,200    
DEM     3,830,000     Republic of Argentina Discount Bond, Series DM,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.00%, due 03/31/23 (a) 
    1,436,424    
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    
EUR     214,800,000     Republic of Argentina GDP Linked, Variable Rate, 1.26%, due 12/15/35 (b)      25,209,787    
USD     71,474     Republic of Argentina GDP Linked, Variable Rate, 1.32%, due 12/15/35 (b)      6,361    
ARS     28,000,000     Republic of Argentina GDP Linked, Variable Rate, 1.38%, due 12/15/35 (b) (c)      651,697    
DEM     5,000,000     Republic of Argentina Global Bond, 9.00%, due 11/19/08 (a) (c)      825,100    
USD     26,545,000     Republic of Argentina Global Bond, 12.13%, due 02/25/19 (a)      6,901,700    
USD     6,931,000     Republic of Argentina Global Bond, 12.00%, due 02/01/20 (a)      1,802,060    
USD     13,540,000     Republic of Argentina Global Bond, 8.88%, due 03/01/29 (a)      3,520,400    
USD     31,390,000     Republic of Argentina Global Bond, EMTN, Reg S,
Variable Rate, 3 mo. LIBOR + .58%, 0.00%, due 04/06/04 (a) 
    10,044,800    
USD     198,230     Republic of Argentina Global Bond, Series 2008, Step Up, 15.50%,
due 12/19/08 (a) 
    51,540    
USD     28,054,525     Republic of Argentina Global Bond, Series 2018, 12.25%, due 06/19/18 (a)      7,294,176    
USD     8,000,000     Republic of Argentina Global Bond, Series BT04, 9.75%, due 09/19/27 (a)      2,080,000    
DEM     20,000,000     Republic of Argentina Global Bond, Series DM, 5.87%, due 03/31/23 (a)      7,500,908    
EUR     3,500,000     Republic of Argentina Global Bond, Series FEB, Step Down, 8.00%,
due 02/26/08 (a) 
    1,431,291    
ARS     28,000,000     Republic of Argentina Global Bond, Step Up, 0.63%, due 12/31/38 (c)      2,484,373    
ARS     6,774,220     Republic of Argentina Global Bond, Variable Rate, 2.00%, due 02/04/18 (c)      1,997,873    
USD     15,000,000     Republic of Argentina Global Par Bond, Series L-GP, Step Up, 6.00%,
due 03/31/23 (a) 
    7,500,000    
USD     1,815,200     Republic of Argentina Pro 4, 2.00%, due 12/28/10 (a)      289,706    
USD     7,211,000     Republic of Argentina, Series BGLO, 8.38%, due 12/20/03 (a)      1,802,750    
USD     46,000,000     Republic of Argentina, Series F, due 10/15/04 (a)      11,500,000    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Argentina — continued  
EUR     284,000,000     Republic of Argentina, Step Up, 1.20%, due 12/31/38     121,867,844    
USD     17,000,000     Republic of Argentina, Step Up, 1.33%, due 12/31/38     4,743,000    
    Total Argentina     269,003,502    
      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     3,552,500    
USD     3,752,000     Government of Aruba, 6.80%, due 04/02/14     3,808,280    
USD     20,000,000     Government of Aruba, Reg S, 6.40%, due 09/06/15     20,000,000    
    Total Aruba     32,335,780    
      Belize — 0.1%  
      Foreign Government Obligations  
USD     4,023,400     Government of Belize, Reg S, Step Up, 4.25%, due 02/20/29     2,806,321    
      Bosnia & Herzegovina — 0.5%  
      Foreign Government Obligations  
DEM     22,719,600     Bosnia & Herzegovina, Series A, Step Up,
Variable Rate, 6 mo. DEM LIBOR + .81%, 5.93%, due 12/11/17
    13,403,346    
      Brazil — 2.2%  
      Foreign Government Obligations  
USD     9,258,333     Brazilian Government International Exit Bonds, 6.00%, due 09/15/13     9,258,333    
USD     362,501     Brazilian Government International Exit Bonds Odd Lot, 6.00%,
due 09/15/13
    362,501    
USD     12,500,000     Republic of Brazil, 8.00%, due 01/15/18     13,950,000    
USD     28,000,000     Republic of Brazil, 8.25%, due 01/20/34 (d)      34,790,000    
    Total Brazil     58,360,834    
      China — 0.3%  
      Foreign Government Obligations  
USD     7,500,000     China Government International Bond, 6.80%, due 05/23/11     8,047,516    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Colombia — 0.5%  
      Foreign Government Obligations  
USD     8,000,000     Republic of Colombia, 8.70%, due 02/15/16     9,240,000    
USD     3,800,000     Republic of Colombia, 11.85%, due 03/09/28     4,959,000    
    Total Colombia     14,199,000    
      Congo Republic (Brazzaville) — 2.2%  
      Foreign Government Obligations  
USD     109,865,600     Republic of Congo, Step Up, 2.50%, due 06/30/29     57,954,104    
      Costa Rica — 0.3%  
      Foreign Government Obligations  
USD     3,000,000     Republic of Costa Rica, Reg S, 8.05%, due 01/31/13     3,240,000    
USD     3,710,000     Republic of Costa Rica, Reg S, 10.00%, due 08/01/20     4,748,800    
    Total Costa Rica     7,988,800    
      Dominican Republic — 2.4%  
      Asset-Backed Securities — 0.5%  
USD     15,250,310     Autopistas Del Nordeste Ltd., Reg S, 9.39%, due 04/15/24     14,220,914    
      Foreign Government Obligations — 1.9%  
USD     2,206,784     Dominican Republic Bond, Variable Rate, 6 mo. LIBOR + .81%, 3.94%,
due 08/31/09
    2,190,233    
USD     42,557,000     Dominican Republic Bond, Variable Rate, 6 mo. LIBOR + .81%, 3.69%,
due 08/30/24
    40,429,150    
USD     9,000,000     Dominican Republic, Reg S, 8.63%, due 04/20/27     8,437,500    
USD     196,439     Dominican Republic, Series RG, Variable Rate, 6 mo. LIBOR + .81%, 3.94%,
due 08/31/09
    194,965    
      51,251,848    
    Total Dominican Republic     65,472,762    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Ecuador — 0.3%  
      Foreign Government Obligations  
USD     2,233,332     Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 3.94%, due 02/27/15 (c) 
    1,705,819    
USD     8,587,000     Republic of Ecuador, Step Up, 10.00%, due 08/15/30     7,599,495    
    Total Ecuador     9,305,314    
      Egypt — 0.1%  
      Corporate Debt  
USD     1,545,961     Petroleum Export, 144A, 5.27%, due 06/15/11     1,519,680    
      El Salvador — 1.3%  
      Foreign Government Obligations  
USD     34,000,000     Republic of El Salvador, Reg S, 7.65%, due 06/15/35     35,105,000    
      Gabon — 0.8%  
      Foreign Government Obligations  
USD     21,000,000     Gabonese Republic Series Reg S, 8.20%, due 12/12/17     21,525,000    
      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     7,745,625    
      Indonesia — 1.2%  
      Foreign Government Agency — 0.9%  
USD     31,000,000     Majapahit Holding BV, 144A, 7.88%, due 06/29/37     25,420,000    
      Foreign Government Obligations — 0.3%  
USD     8,000,000     Republic of Indonesia, 144A, 7.75%, due 01/17/38     7,920,000    
    Total Indonesia     33,340,000    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Iraq — 0.4%  
      Foreign Government Obligations  
USD     16,000,000     Republic of Iraq, Reg S, 5.80%, due 01/15/28     11,760,000    
      Israel — 0.7%  
      Foreign Government Agency  
USD     19,000,000     Israel Electric Corp. Ltd., 144A, 7.25%, due 01/15/19     19,045,103    
      Ivory Coast — 2.1%  
      Foreign Government Obligations  
FRF     37,500,000     Ivory Coast Discount Bond, Series FRF, Variable Rate, Step Up, 4.00%,
due 03/31/28 (a) 
    3,690,230    
FRF     85,905,000     Ivory Coast FLIRB, Series FRF, Variable Rate, Step Up, 4.00%,
due 03/30/18 (a) 
    7,108,692    
USD     69,850,000     Ivory Coast FLIRB, Variable Rate, Step Up, 4.00%, due 03/31/18 (a)      26,892,250    
FRF     256,889,500     Ivory Coast PDI, Series FRF, Variable Rate, Step Up, 2.90%,
due 03/31/18 (a) 
    19,821,430    
    Total Ivory Coast     57,512,602    
      Jamaica — 0.6%  
      Foreign Government Agency — 0.3%  
USD     7,000,000     Air Jamaica Ltd., Reg S, 9.38%, due 07/08/15     7,157,500    
      Foreign Government Obligations — 0.3%  
USD     7,400,000     Government of Jamaica, 8.00%, due 06/24/19     7,215,000    
USD     2,500,000     Government of Jamaica, 8.00%, due 03/15/39     2,350,000    
      9,565,000    
    Total Jamaica     16,722,500    
      Malaysia — 1.0%  
      Asset-Backed Securities  
MYR     45,000,000     Transshipment Megahub Berhad, Series C, 5.45%, due 11/03/09     13,230,146    
MYR     50,000,000     Transshipment Megahub Berhad, Series F, 6.70%, due 11/02/12     14,854,133    
    Total Malaysia     28,084,279    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Mexico — 7.5%  
      Foreign Government Agency — 3.4%  
GBP     7,689,000     Pemex Project Funding Master Trust, EMTN, 7.50%, due 12/18/13     14,121,013    
EUR     30,000,000     Pemex Project Funding Master Trust, Reg S, 6.38%, due 08/05/16     44,011,500    
EUR     26,500,000     Pemex Project Funding Master Trust, Reg S, 5.50%, due 02/24/25 (d)      32,948,109    
      91,080,622    
      Foreign Government Obligations — 4.1%  
USD     58,000,000     United Mexican States, 6.05%, due 01/11/40 (d)      56,318,000    
GBP     29,994,000     United Mexican States, GMTN, 6.75%, due 02/06/24     54,537,877    
      110,855,877    
    Total Mexico     201,936,499    
      Nicaragua — 0.2%  
      Foreign Government Obligations  
USD     7,389,593     Republic of Nicaragua BPI, Series E, 5.00%, due 02/01/11     6,502,842    
      Pakistan — 0.5%  
      Foreign Government Obligations  
USD     20,000,000     Islamic Republic of Pakistan, Reg S, 7.88%, due 03/31/36     12,600,000    
      Peru — 2.4%  
      Foreign Government Obligations  
USD     12,452,000     Peru Enhanced Pass-Through Finance Ltd., Reg S, 0.00%, due 06/02/25     4,389,330    
USD     25,000,000     Peru Par Bond, Series 30 Yr., Step Up, 3.00%, due 03/07/27     20,000,000    
USD     1,640,372     Peru Trust II, Series 98-A LB, 0.00%, due 02/28/16     1,370,531    
USD     4,625,077     Peru Trust, Series 97-I-P, Class A3, 0.00%, due 12/31/15     3,216,278    
USD     1,539,783     Racers, Series 1998 I-P, due 03/10/16     1,049,362    
EUR     22,160,000     Republic of Peru Global Bond, 7.50%, due 10/14/14     33,972,770    
    Total Peru     63,998,271    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Philippines — 5.3%  
      Foreign Government Agency  
USD     59,501,000     Central Bank of Philippines, Series A, 8.60%, due 06/15/27     66,641,715    
USD     6,000,000     National Power Corp., 9.88%, due 03/16/10     6,285,000    
USD     31,600,000     National Power Corp., 9.63%, due 05/15/28     34,602,000    
USD     8,500,000     National Power Corp., Global Bond, 8.40%, due 12/15/16     8,925,000    
EUR     12,000,000     Republic of Philippines, 9.13%, due 02/22/10     18,044,715    
USD     6,843,000     Republic of Philippines, 8.38%, due 02/15/11     7,313,798    
    Total Philippines     141,812,228    
      Poland — 0.6%  
      Foreign Government Obligations  
USD     10,000,000     Delphes Co. No. 2 Ltd., EMTN, Reg S, 7.75%, due 05/05/09     10,278,800    
USD     6,000,000     Poland Government International Bond, 6.25%, due 07/03/12     6,370,200    
    Total Poland     16,649,000    
      Qatar — 0.6%  
      Foreign Government Obligations  
USD     10,000,000     State of Qatar, Reg S, 9.75%, due 06/15/30     14,900,000    
      Russia — 10.7%  
      Corporate Debt — 7.6%  
EUR     40,000,000     Gaz Capital (Gazprom), EMTN, 5.36%, due 10/31/14     51,200,045    
EUR     38,000,000     Gaz Capital (Gazprom), EMTN, Reg S, 5.88%, due 06/01/15     49,058,152    
EUR     21,000,000     Gaz Capital (Gazprom), Reg S, 5.44%, due 11/02/17     25,378,131    
USD     13,685,147     Gazprom International SA, Reg S, 7.20%, due 02/01/20     13,514,082    
USD     26,791,935     Gazstream SA, Reg S, 5.63%, due 07/22/13 (d)      26,501,511    
USD     8,000,000     Sberbank Capital SA, EMTN, 6.48%, due 05/15/13     7,870,400    
USD     14,900,000     Transcapital Ltd. (Transneft), Series 144A, 8.70%, due 08/07/18     14,915,049    
USD     19,000,000     VTB Capital SA, Reg S, 6.25%, due 06/30/35     16,815,000    
      205,252,370    
      Foreign Government Agency — 1.7%  
USD     29,500,000     RSHB Capital SA, 144A, 6.30%, due 05/15/17     26,052,335    
USD     20,500,000     RSHB Capital SA, 144A, 7.75%, due 05/29/18     19,346,875    
      45,399,210    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Foreign Government Obligations — 1.4%  
USD     32,990,457     Russian Federation, Reg S, Step Up, 7.50%, due 03/31/30     36,743,122    
    Total Russia     287,394,702    
      Serbia — 0.5%  
      Foreign Government Obligations  
USD     14,966,026     Republic of Serbia, Reg S, Step Up, 3.75%, due 11/01/24     13,731,329    
      South Africa — 1.3%  
      Foreign Government Agency — 0.1%  
ZAR     163,000,000     Eskom Holdings Ltd., due 12/31/32     2,265,801    
      Foreign Government Obligations — 1.2%  
USD     8,000,000     Republic of South Africa, 5.88%, due 05/30/22     7,520,000    
EUR     20,000,000     Republic of South Africa, EMTN, 4.50%, due 04/05/16     25,896,367    
      33,416,367    
    Total South Africa     35,682,168    
      South Korea — 0.2%  
      Foreign Government Agency  
USD     5,000,000     Korea Southern Power Co., Reg S, 5.38%, due 04/18/13     4,928,000    
      Sri Lanka — 0.6%  
      Foreign Government Obligations  
USD     19,000,000     Republic of Sri Lanka, 144A, 8.25%, due 10/24/12     17,195,000    
      Thailand — 0.2%  
      Foreign Government Agency  
USD     5,000,000     PTT Public Co. Ltd., 5.75%, due 08/01/14     5,016,000    
      Trinidad & Tobago — 0.6%  
      Corporate Debt  
USD     8,000,000     First Citizens St. Lucia, Reg S, 5.13%, due 02/14/11     8,044,000    
USD     7,000,000     First Citizens St. Lucia, Reg S, 5.46%, due 02/01/12     7,081,900    
    Total Trinidad & Tobago     15,125,900    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Tunisia — 0.1%  
      Foreign Government Agency  
JPY     360,000,000     Banque Centrale De Tunisie, Series 6BR, 4.35%, due 08/15/17     3,771,854    
      Turkey — 2.6%  
      Foreign Government Obligations  
USD     18,000,000     Republic of Turkey, 7.38%, due 02/05/25 (d)      18,315,000    
USD     56,000,000     Republic of Turkey, 6.88%, due 03/17/36 (d)      52,640,000    
    Total Turkey     70,955,000    
      Ukraine — 4.6%  
      Foreign Government Agency — 0.7%  
USD     9,000,000     Credit Suisse First Boston, the EXIM of Ukraine, 6.80%, due 10/04/12     8,093,606    
USD     10,000,000     Dresdner Kleinwort Wasserstein for CJSC, the EXIM of Ukraine, 7.75%,
due 09/23/09
    9,950,000    
      18,043,606    
      Foreign Government Obligations — 3.9%  
USD     18,000,000     City of Kyiv, Reg S, 8.25%, due 11/26/12     17,145,000    
CHF     100,000,000     Ukraine Government, 3.50%, due 09/15/18     88,452,981    
      105,597,981    
    Total Ukraine     123,641,587    
      United States — 10.5%  
      Asset-Backed Securities — 9.7%  
USD     4,000,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .48%, 2.95%, due 05/15/24
    2,100,000    
USD     51,040,000     Capital One Auto Finance Trust, Series 06-C, Class A4,
Variable Rate, 1 mo. LIBOR + .03%, 2.50%, due 05/15/13
    43,579,483    
USD     26,000,000     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
Variable Rate, 1 mo. LIBOR + .51%, 2.98%, due 04/16/12
    24,099,920    
USD     45,000,000     Chase Issuance Trust, Series 06-A5, Class A,
Variable Rate, 1 mo. LIBOR + .02%, 2.49%, due 11/15/13
    43,265,072    
USD     242,113     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .34%, 2.81%, due 10/25/34
    164,637    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Asset-Backed Securities — continued  
USD     1,070,431     CHYPS CBO Ltd., Series 97-1A, Class A2A, 144A, 6.72%, due 01/15/10     107,043    
USD     25,000,000     Citibank Credit Card Issuance Trust, Series 06-A8, Class A8,
Variable Rate, 3 mo. LIBOR + .04%, 2.75%, due 12/17/18
    21,471,575    
USD     3,857,096     Citigroup Mortgage Loan Trust, Inc., Series 05-HE3, Class A2C,
Variable Rate, 1 mo. LIBOR + 0.26%, 2.73%, due 09/25/35
    3,368,093    
USD     1,753,428     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, Variable Rate, 1 mo. LIBOR + .44%, 2.91%, due 10/25/30
    1,321,132    
USD     29,239,348     Countrywide Home Equity Loan Trust, Series 05-F, Class 2A, AMBAC,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 12/15/35
    17,836,002    
USD     20,764,906     Countrywide Home Equity Loan Trust, Series 05-H, Class 2A, FGIC,
Variable Rate, 1 mo. LIBOR + .24%, 2.71%, due 12/15/35
    12,524,976    
USD     16,603,452     Countrywide Home Equity Loan Trust, Series 06-D, Class 2A, XL,
Variable Rate, 1 mo. LIBOR + .20%, 2.67%, due 05/15/36
    8,813,610    
USD     7,042,276     First Franklin Mortgage Loan Asset Backed Certificates,
Series 05-FF10, Class A6M, Variable Rate, 1 mo. LIBOR + .35%, 2.82%,
due 11/25/35
    5,665,993    
USD     24,808,321     Greenpoint Mortgage Funding Trust, Series 07-HE1, Class A1, XL,
Variable Rate, 1 mo. LIBOR + .15%, 2.61%, due 12/13/32
    5,165,092    
USD     7,925,737     GSAMP Trust, Series 05-HE6, Class A2B,
Variable Rate, 1 mo. LIBOR + .19%, 2.66%, due 11/25/35
    6,578,362    
USD     9,250,000     Home Equity Asset Trust, Series 07-1, Class 2A4,
Variable Rate, 1 mo. LIBOR + .23%, 2.70%, due 05/25/37
    3,979,350    
USD     10,000,000     IXIS Real Estate Capital Trust, Series 06-HE2, Class A3,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 08/25/36
    8,371,000    
USD     2,109,490     Master Asset-Backed Securities Trust, Series 06-FRE1, Class A2,
Variable Rate, 1 mo. LIBOR + .12%, 2.59%, due 12/25/35
    2,077,847    
USD     13,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
Variable Rate, 1 mo. LIBOR + .16%, 2.63%, due 10/25/36
    7,412,600    
USD     13,000,000     Morgan Stanley ABS Capital I, Series 06-NC3, Class A2C,
Variable Rate, 1 mo. LIBOR + .17%, 2.64%, due 03/25/36
    7,800,000    
USD     10,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
Variable Rate, 3 mo. LIBOR + .45%, 3.25%, due 12/20/09
    9,570,000    
USD     15,000,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
Variable Rate, 1 mo. LIBOR + .15%, 2.62%, due 11/25/36
    9,000,000    
USD     15,200,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A4,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 11/25/36
    7,616,720    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Asset-Backed Securities — continued  
USD     12,868,000     Option One Mortgage Loan Trust, Series 06-3, Class 2A4,
Variable Rate, 1 mo. LIBOR + .22%, 2.69%, due 02/25/37
    6,015,790    
USD     19,100     Quest Trust, Series 03-X4A, Class A, 144A, AMBAC,
Variable Rate, 1 mo. LIBOR + .43%, 2.90%, due 12/25/33
    18,718    
USD     196,469     SHYPPCO Finance Co., LLC, Series 1I, Class A2B, 6.64%, due 06/15/10     190,575    
USD     8,000,000     Wamu Asset-Backed Certificates, Series 07-HE2, Class 2A4,
Variable Rate, 1 mo. LIBOR + .36%, 2.83%, due 04/25/37
    2,884,007    
      260,997,597    
      U.S. Government — 0.8%  
USD     6,000,000     U.S. Treasury Note, 3.13%, due 09/15/08 (e)      6,002,813    
USD     7,000,000     U.S. Treasury Note, 2.88%, due 06/30/10 (e)      7,074,375    
USD     9,000,000     U.S. Treasury Note, 2.38%, due 08/31/10     9,002,813    
      22,080,001    
    Total United States     283,077,598    
      Uruguay — 4.5%  
      Foreign Government Obligations  
EUR     2,000,000     Republic of Uruguay, 7.00%, due 06/28/19     2,890,089    
USD     69,651,571     Republic of Uruguay, 7.63%, due 03/21/36     70,522,216    
USD     21,745,700     Republic of Uruguay, PIK, 7.88%, due 01/15/33     22,615,528    
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     14,688,838    
JPY     1,318,400,000     Republica Orient Uruguay, Series 3BR, Step Up, 2.50%, due 03/14/11     10,963,951    
    Total Uruguay     122,081,062    
      Venezuela — 5.9%  
      Foreign Government Agency — 0.4%  
USD     16,000,000     Petroleos De Venezuela, 5.38%, due 04/12/27     9,120,000    
      Foreign Government Obligations — 5.5%  
EUR     7,400,000     Republic of Venezuela, 11.13%, due 07/25/11     11,046,153    
EUR     11,000,000     Republic of Venezuela, 7.00%, due 03/16/15     13,434,510    
USD     26,000,000     Republic of Venezuela, 7.00%, due 03/31/38     18,005,000    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Foreign Government Obligations — continued  
USD     717,391     Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 4.25%, due 12/18/08
    717,391    
USD     262,360     Republic of Venezuela Restructured Debt, 0.00%, due 04/15/20     9,230,612    
USD     81,000,000     Republic of Venezuela, Series Reg S, 9.00%, due 05/07/23 (d)      70,672,500    
USD     30,000,000     Republic of Venezuela, Series Reg S, 9.25%, due 05/07/28 (d)      26,175,000    
      149,281,166    
    Total Venezuela     158,401,166    
      Vietnam — 0.9%  
      Foreign Government Obligations  
USD     4,173,913     Socialist Republic of Vietnam, Series 18 Yr.,
Variable Rate, 6 mo. LIBOR +0.81%, 3.63%, due 03/12/16
    4,023,652    
USD     19,750,000     Socialist Republic of Vietnam, Series 30 Yr., Step Up, 4.00%, due 03/12/28     16,318,438    
USD     4,000,000     Socialist Republic of Vietnam, Series 30 Yr.,
Variable Rate, 6 mo. LIBOR +0.81%, 3.63%, due 03/13/28
    3,765,000    
    Total Vietnam     24,107,090    
    TOTAL DEBT OBLIGATIONS (COST $2,541,788,601)     2,397,984,364    
      LOAN ASSIGNMENTS — 1.7%  
      Indonesia — 0.9%  
JPY     152,280,002     Republic of Indonesia Loan Agreement, 6 mo. JPY LIBOR + .88%, 4.50%,
due 03/28/13
    1,336,342    
USD     3,276,901     Republic of Indonesia Loan Agreement, 6 mo. LIBOR + .88%, 4.50%,
due 03/29/13
    3,145,825    
USD     3,759,600     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    3,327,246    
USD     3,759,600     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    3,327,246    
USD     5,012,800     Republic of Indonesia Loan Agreement, dated June 14, 1995,
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    4,436,328    
USD     2,796,002     Republic of Indonesia Loan Agreement, dated September 29, 1994, 4.50%,
due 12/01/19
    2,516,402    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Indonesia — continued  
USD     515,818     Republic of Indonesia Loan Agreement, dated September 29, 1994, 4.50%,
due 12/01/19
    464,236    
USD     2,754,443     Republic of Indonesia Loan Agreement, dated September 29, 1994, 4.50%,
due 12/01/19
    2,478,999    
EUR     3,262,131     Republic of Indonesia, Indonesia Paris Club Debt *      3,847,710    
    Total Indonesia     24,880,334    
      Russia — 0.3%  
USD     3,955,201     Russia Foreign Trade Obligations * (c)      5,572,503    
DEM     45,916     Russia Foreign Trade Obligations * (c)      33,607    
FIM     1,740,000     Russia Foreign Trade Obligations * (c)      442,607    
GBP     14,162     Russia Foreign Trade Obligations * (c)      37,482    
USD     265,723     Russia Foreign Trade Obligations * (c)      367,655    
USD     80,572     Russia Foreign Trade Obligations * (c)      109,679    
    Total Russia     6,563,533    
      Vietnam — 0.5%  
USD     16,000,000     Vietnam Shipbuilding Industry Group Loan Agreement,
6 mo. LIBOR + 1.50%, 6.89%, due 06/26/15
    14,400,000    
    TOTAL LOAN ASSIGNMENTS (COST $40,663,779)     45,843,867    
      LOAN PARTICIPATIONS — 5.0%  
      Egypt — 0.1%  
CHF     5,394,244     Paris Club Loan Agreement (Participation with Standard Chartered Bank), 0.00%,
due 01/03/24 * 
    3,677,039    
      Indonesia — 1.6%  
USD     21,721,537     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
3 mo. LIBOR + 1.25%, 4.50%, due 02/12/13
    19,549,384    
USD     16,883,322     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
6 mo. LIBOR + .88%, 4.50%, due 09/29/19
    14,857,323    
JPY     900,281,695     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
6 mo. LIBOR + 0.88%, 1.76%, due 03/29/13
    7,941,837    

 

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, 2008 (Unaudited)

Par Value   Description   Value ($)  
      Indonesia — continued  
USD     462,720     Republic of Indonesia Loan Agreement, (Participation with Citibank),
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    409,507    
USD     462,720     Republic of Indonesia Loan Agreement, (Participation with Citibank),
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    409,507    
USD     616,960     Republic of Indonesia Loan Agreement, (Participation with Citibank),
3 mo. LIBOR + .88%, 4.50%, due 12/14/19
    546,010    
    Total Indonesia     43,713,568    
      Iraq — 1.3%  
JPY     4,926,803,587     Republic of Iraq Paris Club Loan Agreement (Participation with Deutsche Bank),
due 01/01/28
    29,945,640    
JPY     643,772,123     Republic of Iraq Paris Club Loan, T Chatani (Participation with Deutsche Bank),
due 01/01/28
    3,835,125    
    Total Iraq     33,780,765    
      Poland — 0.2%  
JPY     699,999,970     Poland Paris Club Debt (Participation with Deutsche Bank), 0.00%,
due 03/31/09
    6,514,679    
      Russia — 0.9%  
EUR     57,042,402     Russian Foreign Trade Obligations
(Participation with GML International Ltd) * (c) 
    22,927,771    
      Vietnam — 0.9%  
JPY     2,865,073,279     Socialist Republic of Vietnam Loan Agreement
(Participation with Deutsche Bank), Variable Rate,
6 mo. JPY LIBOR + .60%, 1.31%, due 09/01/17
    23,036,427    
    TOTAL LOAN PARTICIPATIONS (COST $119,437,625)     133,650,249    
      PROMISSORY NOTES — 0.2%  
      Dominican Republic — 0.1%  
USD     1,089,012     Dominican Republic Promissory Notes, 0.00%, due 9/15/2009     1,017,682    
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 9/15/2010     720,814    

 

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, 2008 (Unaudited)

Par Value /
Principal Amount
  Description   Value ($)  
      Dominican Republic — continued  
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 9/15/2011     669,735    
    Total Dominican Republic     2,408,231    
      Ghana — 0.0%  
USD     3,312,500     Republic of Ghana Promissory Notes, 0.00%, due 8/9/2007 (a) (f)      331,250    
      Nigeria — 0.1%  
USD     33,450,000     Central Bank of Nigeria Promissory Notes, Series RC, 0.00%, due 1/15/2010     3,721,312    
    TOTAL PROMISSORY NOTES (COST $23,786,619)     6,460,793    
      OPTIONS PURCHASED — 3.7%  
      Currency Options — 3.3%  
EUR     50,000,000     EUR Put/TRY Call, Expires 01/15/09, Strike 2.44     24,423,866    
EUR     45,000,000     EUR Put/TRY Call, Expires 10/31/08, Strike 2.46     25,012,890    
EUR     23,000,000     EUR Put/TRY Call, Expires 12/12/08, Strike 2.49     12,718,566    
USD     42,000,000     USD Call/BRL Put, Expires 06/24/10, Strike 1.91     3,033,427    
USD     42,000,000     USD Put/BRL Call, Expires 06/24/10, Strike 1.91     2,946,520    
USD     45,000,000     USD Put/BRL Call, Expires 12/09/08, Strike 2.40     19,380,147    
    Total Currency Options     87,515,416    
      Options on Bonds — 0.0%  
USD     50,000,000     Republic of Brazil Call, Expires 11/24/2008, Strike 124.00     1,008,734    
      Options on Interest Rates — 0.0%  
TWD     1,849,200,000     TWD Interest Rate Cap Call Option, Expires 03/16/10, Strike 2.19%     191,781    
TWD     1,849,200,000     TWD Interest Rate Floor Call Option, Expires 03/16/10, Strike 2.19%     53,109    
    Total Options on Interest Rates     244,890    
      Options on Interest Rate Swaps — 0.4%  
BRL     306,217,779     BRL Swaption Call, Expires 01/02/09, Strike 14.42%     811,572    
BRL     306,217,779     BRL Swaption Put, Expires 01/02/09, Strike 14.42%     416,306    
KRW     72,000,000,000     KRW Swaption Call, Expires 02/24/09, Strike 6.05%     2,016,000    

 

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, 2008 (Unaudited)

Principal Amount /
Shares
  Description   Value ($)  
      Options on Interest Rate Swaps — continued  
KRW     50,000,000,000     KRW Swaption Call, Expires 03/21/11, Strike 5.64%     1,363,000    
KRW     72,000,000,000     KRW Swaption Call, Expires 04/08/09, Strike 6.20%     2,445,840    
KRW     90,000,000,000     KRW Swaption Call, Expires 04/27/09, Strike 5.42%     1,748,700    
KRW     72,000,000,000     KRW Swaption Put, Expires 02/24/09, Strike 6.05%     183,600    
KRW     50,000,000,000     KRW Swaption Put, Expires 03/21/11, Strike 5.64%     456,000    
KRW     72,000,000,000     KRW Swaption Put, Expires 04/08/09, Strike 6.20%     162,000    
KRW     90,000,000,000     KRW Swaption Put, Expires 04/27/09, Strike 5.42%     1,071,000    
    Total Options on Interest Rate Swaps     10,674,018    
    TOTAL OPTIONS PURCHASED (COST $42,013,519)     99,443,058    
      MUTUAL FUNDS — 6.5%  
      United States — 6.5%  
      Affiliated Issuers  
    5,213,322     GMO Short-Duration Collateral Fund     122,617,335    
    21,409     GMO Special Purpose Holding Fund (c) (g)      15,629    
    1,933,999     GMO World Opportunity Overlay Fund     51,134,929    
    Total United States     173,767,893    
    TOTAL MUTUAL FUNDS (COST $177,001,820)     173,767,893    
      RIGHTS AND WARRANTS — 0.4%  
      Nigeria — 0.2%  
    25,000     Central Bank of Nigeria Warrants, Expires 11/15/20 **      5,450,000    
      Uruguay — 0.0%  
    4,000,000     Banco Central Del Uruguay Value Recovery Rights, VRRB, Expires 01/02/21 **         
      Venezuela — 0.2%  
    164,215     Republic of Venezuela Bond Warrants, Expires 04/15/20 **      5,777,576    
    TOTAL RIGHTS AND WARRANTS (COST $0)     11,227,576    

 

See accompanying notes to the financial statements.


18



GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
      SHORT-TERM INVESTMENTS — 1.1%  
      Money Market Funds — 0.3%  
    6,865,102     State Street Institutional Liquid Cash Reserves Fund - Institutional Class     6,865,102    
      Other Short-Term Investments — 0.8%  
    5,000,000     U.S. Treasury Bill, 1.69%, due 09/25/08 (e) (h)      4,994,233    
    4,000,000     U.S. Treasury Bill, 1.69%, due 11/28/08 (e) (h)      3,983,616    
    14,000,000     U.S. Treasury Bill, 1.71%, due 12/11/08 (e) (h)      13,933,304    
      22,911,153    
    TOTAL SHORT-TERM INVESTMENTS (COST $29,754,349)     29,776,255    
            TOTAL INVESTMENTS — 107.5%
(Cost $2,974,446,312)
    2,898,154,055    
            Other Assets and Liabilities (net) — (7.5%)     (201,764,689 )  
    TOTAL NET ASSETS — 100.0%   $ 2,696,389,366    

 

See accompanying notes to the financial statements.


19



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
10/07/08   CHF     100,000,000     $ 90,850,761     $ 5,210,718    
10/21/08   EUR     160,000,000       234,127,600       11,755,600    
9/23/08   GBP     35,000,000       63,702,487       6,087,513    
10/28/08   JPY     11,000,000,000       101,393,885       (142,044 )  
    $ 490,074,733     $ 22,911,787    

 

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD 18,635,813     J.P. Morgan Chase Bank, 2.55%, dated 04/30/08, to be
repurchased on demand at face value plus accrued interest.
  $ (18,796,857 )  
USD 15,554,917     J.P. Morgan Chase Bank, 2.50%, dated 05/06/08, to be
repurchased on demand at face value plus accrued interest.
    (15,681,300 )  
USD 12,254,700     Deutsche Bank, 2.40%, dated 06/19/08, to be repurchased
on demand at face value plus accrued interest.
    (12,311,888 )  
EUR 18,002,479     J.P. Morgan Chase Bank, 4.60%, dated 07/07/08, to be
repurchased on demand at face value plus accrued interest.
    (17,018,161 )  
USD 6,342,000     Deutsche Bank, 2.70%, dated 07/09/08, to be repurchased
on demand at face value plus accrued interest.
    (6,366,734 )  
USD 4,521,250     Deutsche Bank, 2.70%, dated 07/10/08, to be repurchased
on demand at face value plus accrued interest.
    (4,537,866 )  
USD 13,570,729     Deutsche Bank, 2.70%, dated 07/10/08, to be repurchased
on demand at face value plus accrued interest.
    (13,620,602 )  

 

See accompanying notes to the financial statements.


20



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Reverse Repurchase Agreements — continued

Face Value   Description   Market Value  
USD 13,567,500     Deutsche Bank, 2.70%, dated 07/14/08, to be
repurchased on demand at face value plus accrued interest.
  $ (13,615,325 )  
USD 17,650,000     J.P. Morgan Chase Bank, 3.00%, dated 07/15/08, to be
repurchased on demand at face value plus accrued interest.
    (17,717,658 )  
USD 23,062,934     Deutsche Bank, 2.40%, dated 07/24/08, to be repurchased
on demand at face value plus accrued interest.
    (23,113,865 )  
USD 28,598,038     Deutsche Bank, 2.40%, dated 07/24/08, to be repurchased
on demand at face value plus accrued interest.
    (28,661,192 )  
USD 17,455,000     Deutsche Bank, 2.70%, dated 07/24/08, to be repurchased
on demand at face value plus accrued interest.
    (17,500,819 )  
USD 12,295,500     Deutsche Bank, 2.70%, dated 07/28/08, to be repurchased
on demand at face value plus accrued interest.
    (12,325,009 )  
USD 24,018,669     J.P. Morgan Chase Bank, 3.00%, dated 08/05/08, to be
repurchased on demand at face value plus accrued interest.
    (24,068,708 )  
USD 27,714,958     Deutsche Bank, 2.75%, dated 08/26/08, to be repurchased
on demand at face value plus accrued interest.
    (27,723,427 )  
    $ (253,059,411 )  

 

Average balance outstanding   $ (279,505,843 )  
Average interest rate     3.05 %  
Maximum balance outstanding   $ (563,557,754 )  
Average shares outstanding     280,221,155    
Average balance per share outstanding   $ (1.00 )  
Days outstanding     184    

 

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.


21



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

Principal
Amount
  Expiration
Date
  Description   Premiums   Market Value  
$ 45,000,000       12/09/2008     USDBRL Call/USD Put          
 
                Currency Option, Strike 2.14   $ (590,625 )   $ (12,404,969 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  2,000,000     USD   9/20/2008   UBS AG   Receive     9.20 %   Dominican Republic   $ 91,241    
  18,000,000     USD
  11/20/2008   Deutsche
Bank AG
  Receive     1.50 %   Credit of Uttam Galva
Steels Limited
    27,584    
  500,000,000     RUB
  11/20/2008   JP Morgan
Chase Bank
  Receive     0.75 %   Red Square CDO     100,368    
  14,000,000     USD
  12/20/2008   Deutsche
Bank AG
  (Pay)     0.79 %   Korean Deposit
Insurance Corporation
    (30,553 )  
  5,000,000     USD
  3/20/2009   JP Morgan
Chase Bank
  Receive     2.85 %   Republic of Peru     132,880    
  10,000,000     USD
  3/20/2009   JP Morgan
Chase Bank
  Receive     4.30 %   Republic of Philippines     264,242    
  10,000,000     USD
  4/17/2009   Deutsche
Bank AG
  Receive     3.90 %   Gazprom Loan Facility     297,407    
  10,000,000     USD   4/17/2009   Lehman Brothers   (Pay)     3.90 %   Gazprom OAO     (297,407 )  
  20,000,000     USD
  4/20/2009   JP Morgan
Chase Bank
  (Pay)     0.43 %   Republic of Brazil     (32,346 )  
  100,000,000     USD
  4/20/2009   JP Morgan
Chase Bank
  (Pay)     0.29 %   United Mexican States     (66,550 )  
  7,703,775     USD
  6/6/2009   Deutsche
Bank AG
  Receive     1.85 %   Deutsche Bank
Loan to Ukrnafta
    (50,071 )  
  7,000,000     USD
  8/5/2009   Deutsche
Bank AG
  Receive     4.85 %   Government of Ukraine     168,524    
  40,000,000     USD   8/20/2009   Lehman Brothers   (Pay)     0.33 %   United States of Mexico     8,048    

 

See accompanying notes to the financial statements.


22



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  10,000,000     USD   9/20/2009   JP Morgan
Chase Bank
  (Pay)     0.97 %   Gazprom OAO   $ 12,968    
  100,000,000     CHF   9/20/2009   Morgan Stanley   (Pay)     0.78 %   Government of Ukraine     1,029,186    
  849,572,575     RUB
  11/5/2009   Deutsche
Bank AG
  Receive     1.45 %   Russia Post Office     (414,927 )  
  10,000,000     USD
  11/20/2009   JP Morgan
Chase Bank
  (Pay)     0.90 %   United Mexican States     (79,387 )  
  10,000,000     USD
  11/20/2009   JP Morgan
Chase Bank
  (Pay)     0.88 %   United Mexican States     (76,409 )  
  25,000,000     USD
  12/29/2009   Deutsche
Bank AG
  Receive     2.25 %   Videocon Loan Facility     (1,205,123 )  
  7,000,000     USD
  2/5/2010   Deutsche
Bank AG
  Receive     4.85 %   Government of Ukraine     191,866    
  12,000,000     USD
  3/5/2010   Deutsche
Bank AG
  Receive     9.10 %   Republic of Turkey     1,928,840    
  3,000,000     USD
  3/29/2010   JP Morgan
Chase Bank
  Receive     4.70 %   Arab Republic of Egypt     183,761    
  85,000,000     USD
  6/20/2010   Deutsche
Bank AG
  (Pay)     2.10 %   Reference security
within CDX Index
    (1,690,083 )  
  36,000,000     USD
  6/20/2010   Lehman Brothers   (Pay)     2.10 %   Reference security
within CDX Index
    (715,800 )  
  12,000,000     USD
  6/20/2010   JP Morgan
Chase Bank
  (Pay)     4.00 %   Republic of Argentina     556,128    
  12,000,000     USD
  6/20/2010   JP Morgan
Chase Bank
  (Pay)     3.87 %   Republic of Argentina     584,546    
  150,000,000     USD
  6/20/2010   Deutsche
Bank AG
  (Pay)     1.47 %   Republic of Brazil     (2,476,557 )  
  50,000,000     USD   6/20/2010   Lehman Brothers   (Pay)     0.42 %   United States of Mexico     97,936    
  10,000,000     USD
  7/20/2010   Deutsche
Bank AG
  (Pay)     3.77 %   Republic of Argentina     567,162    
  6,000,000     USD
  7/20/2010   Deutsche
Bank AG
  (Pay)     3.80 %   Republic of Argentina     337,056    
  140,000,000     USD   7/20/2010   UBS AG   (Pay)     0.89 %   Republic of Turkey     1,209,899    
  5,000,000     USD
  7/23/2010   Deutsche
Bank AG
  Receive     4.56 %   Government of Ukraine     125,861    

 

See accompanying notes to the financial statements.


23



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  7,000,000     USD
  8/5/2010   Deutsche
Bank AG
  Receive     4.90 %   Government of Ukraine   $ 209,611    
  3,000,000     USD
  8/25/2010   Deutsche
Bank AG
  Receive     3.40 %   Deutsche Bank
Loan to Ukrtelekom
    (120,520 )  
  50,000,000     USD
  9/20/2010   JP Morgan
Chase Bank
  (Pay)     0.97 %   Gazprom OAO     721,495    
  35,000,000     USD
  9/20/2010   JP Morgan
Chase Bank
  (Pay)     0.70 %   Republic of Philippines     487,725    
  20,000,000     USD
  10/18/2010   JP Morgan
Chase Bank
  Receive     2.00 %   VTB Leasing     (711,177 )  
  5,000,000     USD
  10/25/2010   Deutsche
Bank AG
  Receive     4.60 %   Government of Ukraine     184,098    
  10,000,000     USD
  12/20/2010   JP Morgan
Chase Bank
  (Pay)     3.57 %   Republic of Argentina     719,255    
  5,000,000     USD
  12/20/2010   JP Morgan
Chase Bank
  (Pay)     3.43 %   Republic of Argentina     375,057    
  5,000,000     USD
  1/25/2011   Deutsche
Bank AG
  Receive     4.63 %   Government of Ukraine     124,410    
  7,000,000     USD
  2/7/2011   Deutsche
Bank AG
  Receive     4.95 %   Government of Ukraine     213,162    
  5,000,000     USD   2/20/2011   Morgan Stanley   (Pay)     2.80 %   Republic of Argentina     502,042    
  3,000,000     USD
  2/25/2011   Deutsche
Bank AG
  Receive     3.50 %   Deutsche Bank
Loan to Ukrtelekom
    (161,075 )  
  8,000,000     USD   3/20/2011   Citigroup   (Pay)     3.70 %   Republic of Iraq     160,546    
  8,000,000     USD   3/20/2011   UBS AG   (Pay)     3.55 %   Republic of Iraq     49,159    
  5,000,000     USD
  4/26/2011   Deutsche
Bank AG
  Receive     4.66 %   Government of Ukraine     179,646    
  10,000,000     USD
  6/20/2011   Deutsche
Bank AG
  (Pay)     1.89 %   Islamic Republic
of Pakistan
    1,594,466    
  34,000,000     USD
  6/20/2011   Deutsche
Bank AG
  (Pay)     1.35 %   Reference security
within CDX index
    577,150    
  11,000,000     USD
  6/20/2011   JP Morgan
Chase Bank
  (Pay)     1.35 %   Reference security
within CDX Index
    186,725    
  5,000,000     USD
  6/20/2011   Lehman Brothers   Receive     1.35 %   Reference security
within CDX index
    (84,875 )  

 

See accompanying notes to the financial statements.


24



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  20,000,000     USD
  6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX index
  $ 339,500    
  10,000,000     USD
  6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX index
    169,750    
  11,000,000     USD
  6/20/2011   Lehman Brothers   (Pay)     1.35 %   Reference security
within CDX Index
    186,725    
  150,000,000     USD
  6/20/2011   Deutsche
Bank AG
  Receive     1.86 %   Republic of Brazil     4,311,957    
  6,000,000     USD
  6/20/2011   JP Morgan
Chase Bank
  Receive     3.75 %   Republic of Georgia     17,193    
  9,000,000     USD   7/17/2011   UBS AG   Receive     5.05 %   Government of Ukraine     315,858    
  5,000,000     USD
  7/25/2011   Deutsche
Bank AG
  Receive     4.68 %   Government of Ukraine     119,590    
  7,000,000     USD
  8/5/2011   Deutsche
Bank AG
  Receive     5.00 %   Government of Ukraine     216,914    
  20,000,000     USD
  8/20/2011   Deutsche
Bank AG
  (Pay)     0.57 %   United Mexican States     139,732    
  620,000,000     MXN
  8/20/2011   Deutsche
Bank AG
  Receive     0.40 %   United Mexican States     (147,995 )  
  3,000,000     USD
  8/25/2011   Deutsche
Bank AG
  Receive     3.60 %   Deutsche Bank
Loan to Ukrtelekom
    (199,182 )  
  7,000,000     USD
  10/20/2011   JP Morgan
Chase Bank
  (Pay)     2.75 %   Republic of Argentina     828,116    
  13,500,000     USD   10/20/2011   Lehman Brothers   (Pay)     5.02 %   Republic of Ecuador     555,921    
  5,000,000     USD
  10/25/2011   Deutsche
Bank AG
  Receive     4.70 %   Government of Ukraine     176,155    
  19,000,000     USD
  10/30/2011   Deutsche
Bank AG
  Receive     4.00 %   Naftofaz Ukraine     (3,946,799 )  
  8,000,000     USD
  11/20/2011   JP Morgan
Chase Bank
  (Pay)     2.16 %   Republic of Argentina     1,125,460    
  5,000,000     USD
  12/20/2011   JP Morgan
Chase Bank
  (Pay)     0.66 %   Petroleos Mexicanos     54,780    
  65,000,000     USD
  12/20/2011   JP Morgan
Chase Bank
  (Pay)     1.40 %   Reference security
within CDX index
    1,435,056    
  8,541,730     USD
  12/20/2011   Deutsche
Bank AG
  Receive     1.60 %   Stemcor UK Ltd.     71,525    

 

See accompanying notes to the financial statements.


25



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  19,000,000     EUR
  1/20/2012   Duetsche
Bank AG
  (Pay)     0.42 %   Republic of Kazakhstan   $ 1,246,920    
  8,600,000,000     KZT
  1/20/2012   Deutsche
Bank AG
  Receive     0.32 %   Republic of Kazakhstan     (2,339,713 )  
  25,000,000     USD
  2/20/2012   JP Morgan
Chase Bank
  (Pay)     0.96 %   Republic of Brazil     57,303    
  3,000,000     USD
  2/25/2012   Deutsche
Bank AG
  Receive     3.68 %   Deutsche Bank
Loan to Ukrtelekom
    (230,298 )  
  19,000,000     USD
  5/5/2012   Deutsche
Bank AG
  Receive     4.00 %   Naftofaz Ukraine     (3,979,701 )  
  120,000,000     USD
  6/20/2012   Lehman Brothers   (Pay)     1.25 %   Reference security
within CDX index
    4,328,333    
  50,000,000     USD
  6/20/2012   Morgan Stanley   (Pay)     1.25 %   Reference security
within CDX index
    1,803,472    
  10,000,000     USD   6/20/2012   Morgan Stanley   Receive     2.10 %   Republic of Panama     321,620    
  5,000,000     USD
  7/30/2012   JP Morgan
Chase Bank
  Receive     3.05 %   Republic of Chile     470,511    
  5,000,000     USD   8/20/2012   Bear Stearns   Receive     3.50 %   Republic of Jamaica     (176,966 )  
  3,000,000     USD
  8/25/2012   Deutsche
Bank AG
  Receive     3.75 %   Deutsche Bank
Loan to Ukrtelekom
    (259,561 )  
  10,000,000     USD
  9/20/2012   JP Morgan
Chase Bank
  (Pay)     1.25 %   Gazprom OAO     377,569    
  15,000,000     USD
  9/20/2012   JP Morgan
Chase Bank
  (Pay)     1.15 %   Republic of Peru     (53,446 )  
  85,000,000     PEN
  9/20/2012   JP Morgan
Chase Bank
  Receive     0.92 %   Republic of Peru     38,929    
  10,000,000     USD
  10/4/2012   JP Morgan
Chase Bank
  Receive     2.95 %   Republic of Chile     1,033,197    
  4,000,000     USD   10/20/2012   UBS AG   (Pay)     4.13 %   Petroleos de Venezuela     252,573    
  4,000,000     USD   10/20/2012   UBS AG   (Pay)     3.90 %   Petroleos de Venezuela     284,649    
  75,000,000     USD
  10/20/2012   JPMorgan
Chase Bank
  Receive     0.79 %   Republic of Brazil     (787,821 )  
  15,000,000     USD
  10/20/2012   JP Morgan
Chase Bank
  Receive     0.80 %   Republic of Brazil     (152,407 )  

 

See accompanying notes to the financial statements.


26



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  20,000,000     USD
  10/20/2012   JP Morgan
Chase Bank
  Receive     0.80 %   Republic of Brazil   $ (203,209 )  
  5,000,000     USD
  11/5/2012   Deutsche
Bank AG
  Receive     6.50 %   Republic of Jamaica     422,402    
  50,000,000     USD
  12/20/2012   JP Morgan
Chase Bank
  (Pay)     1.75 %   Reference security
within CDX Index
    1,279,861    
  15,000,000     USD
  12/20/2012   Lehman Brothers   (Pay)     1.75 %   Reference security
within CDX Index
    383,958    
  42,000,000     USD
  12/20/2012   Morgan Stanley   (Pay)     1.20 %   Reference security
within CDX Index
    (589,805 )  
  210,000,000     USD
  12/20/2012   Morgan Stanley   Receive     0.71 %   Reference security
within CDX Index
    2,312,467    
  10,000,000     USD
  1/9/2013   Deutsche
Bank AG
  Receive     8.25 %   Republic of Turkey     2,344,984    
  10,000,000     USD   3/20/2013   Lehman Brothers   (Pay)     2.52 %   Gazprom OAO     (123,398 )  
  10,000,000     USD   3/20/2013   Lehman Brothers   Receive     2.50 %   Transneft OAO     (21,316 )  
  20,000,000     USD
  3/20/2013   Deutsche
Bank AG
  (Pay)     1.48 %   United Mexican States     (427,572 )  
  22,000,000     EUR
  6/20/2013   Deutsche
Bank AG
  (Pay)     5.79 %   Republic of Argentina     1,292,725    
  14,000,000     USD
  6/20/2013   JP Morgan
Chase Bank
  Receive     3.72 %   Russia AG Bank     453,300    
  257,483,491     RUB
  6/21/2013   Deutsche
Bank AG
  Receive     2.35 %   VTB Leasing     (376,290 )  
  8,816,063     EUR
  6/24/2013   JP Morgan
Chase Bank
  Receive     1.37 %   VTB Leasing     (1,191,704 )  
  11,959,871     EUR
  6/24/2013   JP Morgan
Chase Bank
  Receive     1.37 %   VTB Leasing     (1,616,666 )  
  50,000,000     USD
  8/20/2013   JP Morgan
Chase Bank
  (Pay)     1.20 %   Republic of Peru     249,777    
  277,250,000     PEN
  8/20/2013   JP Morgan
Chase Bank
  Receive     0.96 %   Republic of Peru     (593,220 )  
  130,000,000     USD
  10/20/2013   Deutsche
Bank AG
  Receive     3.30 %   Republic of Brazil     12,949,063    

 

See accompanying notes to the financial statements.


27



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

    Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
      80,000,000     USD
  10/20/2013   Deutsche
Bank AG
  Receive     4.05 %   Republic of Brazil   $ 10,858,898    
      13,500,000,000     JPY
  10/20/2013   Deutsche
Bank AG
  (Pay)     3.20 %   Republic of Brazil     (12,155,532 )  
      8,100,000,000     JPY
  10/20/2013   Deutsche
Bank AG
  (Pay)     3.95 %   Republic of Brazil     (9,937,881 )  
      10,000,000     USD
  12/20/2013   Deutsche
Bank AG
  Receive     10.50 %   Republic of Ecuador     1,224,179    
      10,000,000     USD
  12/24/2013   JP Morgan
Chase Bank
  Receive     3.80 %   Republic of Turkey     552,285    
      10,000,000     USD   1/20/2014   Citigroup   Receive     4.94 %   Republic of Colombia     1,604,749    
      5,000,000     USD
  3/20/2014   JP Morgan
Chase Bank
  Receive     4.90 %   Republic of Colombia     891,230    
      10,000,000     USD
  5/14/2014   Deutsche
Bank AG
  Receive     6.64 %   Republic of Turkey     2,023,378    
      5,000,000     USD
  5/19/2014   Deutsche
Bank AG
  Receive     6.42 %   Republic of Turkey     952,214    
      7,000,000     USD
  5/20/2014   JP Morgan
Chase Bank
  Receive     6.25 %   Republic of Turkey     1,271,715    
      10,000,000     USD
  6/16/2014   Deutsche
Bank AG
  Receive     6.22 %   Republic of Turkey     1,763,220    
    2,000,000     USD   8/24/2014   Deutsche   (Pay)     4.25 %   Lebanese Republic          
                  Bank AG                     20,766    
      600,000,000     EUR
  3/20/2015   Deutsche
Bank AG
  (Pay)     3.72 %   Bolivarian
Republic of Venezuela
    65,424,792    
      800,000,000     USD
  3/20/2015   Deutsche
Bank AG
  Receive     3.80 %   Bolivarian
Republic of Venezuela
    (60,678,508 )  
      412,500,000     USD
  4/20/2015   Deutsche
Bank AG
  Receive     4.40 %   Bolivarian
Republic of Venezuela
    (21,474,236 )  
      300,000,000     EUR
  4/20/2015   Deutsche
Bank AG
  (Pay)     4.32 %   Bolivarian
Republic of Venezuela
    22,440,232    
      10,000,000     USD
  4/20/2015   JP Morgan
Chase Bank
  Receive     4.65 %   Republic of Colombia     1,774,958    
      15,000,000     USD
  5/20/2015   Deutsche
Bank AG
  Receive     3.85 %   Republic of Turkey     832,935    

 

See accompanying notes to the financial statements.


28



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  56,950,000,000     COP   11/20/2015   Citigroup   Receive     1.81 %   Republic of Colombia   $ 783,152    
  15,000,000     USD   2/20/2016   Citigroup   (Pay)     2.16 %   Republic of Colombia     (314,821 )  
  56,700,000,000     COP   2/20/2016   Citigroup   Receive     1.46 %   Republic of Colombia     160,640    
  25,000,000     USD   4/20/2016   Citigroup   (Pay)     1.90 %   Republic of Colombia     (267,271 )  
  114,800,000,000     COP   4/20/2016   Citigroup   Receive     1.33 %   Republic of Colombia     201,286    
  22,000,000     EUR
  6/17/2016   Deutsche
Bank AG
  Receive     5.60 %   Republic of Angola     196,747    
  22,000,000     USD
  8/20/2016   JP Morgan
Chase Bank
  Receive     1.99 %   Republic of Brazil     633,465    
  40,000,000     USD   8/20/2016   Lehman Brothers   Receive     1.98 %   Republic of Brazil     1,138,824    
  20,000,000     USD   8/20/2016   Citigroup   (Pay)     2.15 %   Republic of Colombia     (370,393 )  
  97,680,000,000     COP   8/20/2016   Citigroup   Receive     1.51 %   Republic of Colombia     361,460    
  20,000,000     USD
  8/20/2016   Deutsche
Bank AG
  (Pay)     0.87 %   United Mexican States     624,182    
  620,000,000     MXN
  8/20/2016   Deutsche
Bank AG
  Receive     0.61 %   United Mexican States     (801,733 )  
  87,500,000     USD
  2/20/2017   Deutsche
Bank AG
  Receive     2.43 %   Bolivarian
Republic of Venezuela
    (16,006,759 )  
  50,000,000     USD   3/20/2017   Lehman Brothers   Receive     1.41 %   Republic of Brazil     (262,311 )  
  2,500,000     USD
  5/20/2017   Deutsche
Bank AG
  (Pay)     1.05 %   Republic of Peru     93,385    
  32,000,000     PEN
  5/20/2017   Deutsche
Bank AG
  Receive     0.79 %   Republic of Peru     (361,581 )  
  70,000,000     USD
  7/20/2017   Lehman Brothers   Receive     3.15 %   Bolivarian
Republic of Venezuela
    (11,471,815 )  
  4,500,000     USD   7/20/2017   Bear Stearns   Receive     3.30 %   Republic of Jamaica     (527,287 )  
  15,000,000     USD   7/20/2017   Lehman Brothers   Receive     1.04 %   Republic of Panama     (885,567 )  
  70,000,000     USD   7/20/2017   Lehman Brothers   Receive     2.20 %   Republic of Turkey     (4,732,419 )  
  35,000,000     USD   7/20/2017   Lehman Brothers   Receive     2.26 %   Republic of Turkey     (2,227,164 )  
  35,000,000     USD   7/20/2017   UBS AG   Receive     2.26 %   Republic of Turkey     (2,227,164 )  
  8,000,000     USD
  8/20/2017   JP Morgan
Chase Bank
  Receive     2.20 %   Republic of Colombia     144,428    
  17,000,000     USD
  9/20/2017   JP Morgan
Chase Bank
  Receive     1.74 %   Republic of Philippines     (1,269,401 )  

 

See accompanying notes to the financial statements.


29



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Credit Default Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  30,000,000     USD
  9/20/2017   JP Morgan
Chase Bank
  Receive     1.77 %   Republic of Philippines   $ (2,188,700 )  
  21,000,000     USD
  10/20/2017   Deutsche
Bank AG
  Receive     1.78 %   Vneshtorg Bank
Bond & Loan
    (2,395,859 )  
  4,000,000     USD
  11/20/2017   JP Morgan
Chase Bank
  Receive     4.85 %   Bolivarian
Republic of Venezuela
    (264,365 )  
  4,000,000     USD
  11/20/2017   JP Morgan
Chase Bank
  Receive     4.90 %   Bolivarian
Republic of Venezuela
    (252,883 )  
  200,000,000     USD   11/20/2017   Lehman Brothers   Receive     0.62 %   United States of Mexico     (11,295,844 )  
  25,000,000     USD
  1/20/2018   Deutsche
Bank AG
  Receive     1.50 %   Republic of Brazil     (189,529 )  
  12,000,000     USD   4/20/2018   Lehman Brothers   Receive     6.85 %   Republic of Ecuador     (81,256 )  
  11,500,000     USD   4/20/2018   Lehman Brothers   Receive     6.80 %   Republic of Ecuador     (114,369 )  
  30,000,000     USD   8/15/2031   Goldman Sachs   (Pay)     1.84 %   United Mexican States     (864,619 )  
  20,000,000     USD   8/15/2031   Goldman Sachs   (Pay)     1.89 %   United Mexican States     (695,629 )  
    Premiums to (Pay) Receive   $ (525,211 )   $ (17,803,810 )  

 

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  3,400,000,000     MXN
  10/24/2008   JP Morgan
Chase Bank
  Receive     7.95 %   28-day TIIE   $ (353,826 )  
  538,426     USD   12/1/2008   Citigroup   (Pay)     7.10 %   6 month LIBOR     11,400    
  244,800,000     PEN
  4/21/2009   JP Morgan
Chase Bank
  (Pay)     0.81 %   6 month LIBOR     10,047,071    
  20,000,000     USD
  1/4/2010   JP Morgan
Chase Bank
  (Pay)     5.11 %   6 month LIBOR     (537,552 )  
  20,000,000     USD
  1/4/2010   JP Morgan
Chase Bank
  Receive     5.62 %   Floating USD rate     1,749,548    
  230,000,000     PEN
  2/19/2010   JP Morgan
Chase Bank
  (Pay)     3.15 %   6 month LIBOR     3,784,065    
  90,000,000,000     KRW   5/29/2010   Merrill Lynch   (Pay)     4.79 %   3 month KRW LIBOR     1,322,130    

 

See accompanying notes to the financial statements.


30



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Interest Rate Swaps — continued

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  900,000,000     TWD   5/23/2011   JP Morgan
Chase Bank
  (Pay)
    2.49 %   90 Day
TWD-BA-TELERATE
  $ (85,111 )  
  2,500,000,000     TWD
  6/12/2011   JP Morgan
Chase Bank
  (Pay)     2.35 %   90 Day
TWD-BA-TELERATE
    76,281    
  3,000,000,000     TWD
  7/5/2011   JP Morgan
Chase Bank
  (Pay)     2.32 %   90 Day
TWD-BA-TELERATE
    177,656    
  2,500,000,000     TWD
  8/1/2011   JP Morgan
Chase Bank
  (Pay)     2.29 %   90 Day
TWD-BA-TELERATE
    222,884    
  4,500,000,000     TWD
  9/26/2011   JP Morgan
Chase Bank
  (Pay)     2.09 %   90 Day
TWD-BA-TELERATE
    1,322,094    
  2,796,036     USD   12/1/2011   Citigroup   (Pay)     6.32 %   6 month LIBOR     (220,702 )  
  51,000,000     BRL
  1/2/2013   JP Morgan
Chase Bank
  Receive     13.80 %   Floating Rate CDI     (45,181 )  
  36,000,000,000     KRW   3/16/2014   Deutsche
Bank AG
  (Pay)
    4.80 %   Korean bond rate for
91 day certificates
of deposit
    441,291    
  36,000,000,000     KRW   3/16/2014   Deutsche
Bank AG
  (Pay)     5.03 %   Korean bond rate for
91 day certificates
of deposit
    761,880    
  244,800,000     PEN
  4/21/2014   JP Morgan
Chase Bank
  Receive     5.03 %   6 month LIBOR     (12,912,364 )  
  230,000,000     PEN
  2/19/2015   JP Morgan
Chase Bank
  Receive     5.70 %   6 month LIBOR     (5,603,868 )  
  1,400,000,000     TWD
  11/24/2016   JP Morgan
Chase Bank
  (Pay)     2.15 %   90 Day
TWD-BA-TELERATE
    1,472,226    
  87,500,000     USD
  2/14/2017   Deutsche
Bank AG
  Receive     5.31 %   3 month LIBOR     5,919,237    
  100,000,000     USD
  8/1/2017   JP Morgan
Chase Bank
  Receive     4.08 %   3 month LIBOR     (2,496,311 )  
  20,000,000     SGD
  10/25/2017   JP Morgan
Chase Bank
  (Pay)     3.20 %   6 month SOR     85,362    
  20,000,000     SGD
  10/30/2017   JP Morgan
Chase Bank
  (Pay)     3.20 %   6 month SOR     99,338    
  40,000,000     SGD
  1/17/2018   JPMorgan
Chase Bank
  (Pay)     3.00 %   6 month SOR     670,392    

 

See accompanying notes to the financial statements.


31



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Interest Rate Swaps — continued

    Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
      75,000,000     USD   5/8/2018
  Deutsche   Receive
Bank AG
    4.44 %   3 month LIBOR   $ (178,332 )  
      25,000,000     USD
  12/2/2023   JP Morgan
Chase Bank
  Receive     5.34 %   3 month LIBOR     1,946,067    
    70,000,000     EUR
  9/4/2026   JP Morgan
Chase Bank
  (Pay)     4.28 %   6 month EUR LIBOR     5,034,446    
      100,000,000     USD
  7/20/2027   JP Morgan
Chase Bank
  Receive     5.87 %   3 month LIBOR     13,916,452    
            Premiums to (Pay) Receive   $(5,382,619)   $26,626,573  

 

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  60,000,000     USD
  1/7/2009   JP Morgan
Chase Bank
  3 month
LIBOR - 0.45%
  EMBI +
Total Return
  $ 506,754    
  100,000,000     USD
  4/10/2009   JP Morgan
Chase Bank
  3 month
LIBOR - 0.20%
  EMBI +
Total Return
    (588,358 )  
  27,967,218     USD
  12/19/2011   JP Morgan
Chase Bank
  CER Index +
3.59%
  3 month LIBOR     (3,029,547 )  
  45,335,905     USD
  12/19/2011   JP Morgan
Chase Bank
  CER Index +
1.24%
  3 month LIBOR     (2,246,128 )  
  27,967,218     USD   12/19/2011   JP Morgan
Chase Bank
  3 month
LIBOR + 0.35%
  Return on
Prestamos
Garatizados
    496,192    
  45,797,706     USD   12/19/2011   JP Morgan
Chase Bank
  3 month
LIBOR + 0.35%
  Return on
Prestamos
Garatizados
    (3,970,076 )  
  300,000,000     RUB
  3/26/2017   Morgan Stanley   3 month
LIBOR + 0.25%
  Return on
Sukhoi
    635,643    
    Premiums to (Pay) Receive   $ (1,780,589 )   $ (8,195,520 )  

 

See accompanying notes to the financial statements.


32



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Variance Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  210,000     USD   11/13/2008   JP Morgan
Chase Bank
  Per Vega on
USD/PEN the
realized variance
above 6.5%
  Per Vega on
USD/PEN the
realized variance
below 6.5%
  $ (829,226 )  
  105,000     USD   11/19/2008   JP Morgan
Chase Bank
  Per Vega on
USD/PEN the
realized variance
above 7.0%
  Per Vega on
USD/PEN the
realized variance
below 7.0%
    (349,140 )  
  105,000     USD   11/29/2008   JP Morgan
Chase Bank
  Per Vega on
USD/PEN the
realized variance
above 7.5%
  Per Vega on
USD/PEN the
realized variance
below 7.5%
    (296,953 )  
    Premiums to (Pay) Receive   $     $ (1,475,319 )  

 

As of August 31, 2008, for the swap 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:

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

CDI - Certificado de Depósito Interbancário

CDO - Collateralized Debt Obligation

CER- Coeficiente de Estabilización de Referencia

DCB - Debt Conversion Bond

EMBI - Emerging Markets Bond Index

EMTN - Euromarket Medium Term Note

FGIC - Insured as to the payment of principal and interest by Financial Guaranty Insurance Corporation.

FLIRB - Front Loaded Interest Reduction Bond

GDP - Gross Domestic Product

GMTN - Global Medium Term Note

LIBOR - London Interbank Offered Rate

See accompanying notes to the financial statements.


33



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

PDI - Past Due Interest

PIK - Payment In Kind

RMAC - Residential Mortgage Acceptance Corp.

SOR - Swap Offer Rate

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, 2008, which are subject to change based on the terms of the security, including varying reset dates.

VRRB - Variable Rate Reduction Bond

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

*  Non-performing. Borrower not currently paying interest.

* *  Non-income producing security.

(a)  Security is in default.

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

(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 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)  Underlying investment represents interests in defaulted securities.

(h)  Rate shown represents yield-to-maturity.

Currency Abbreviations:

ARS - Argentine Peso
BRL - Brazilian Real
CHF - Swiss Franc
COP - Colombia Peso
DE M - German Mark
EUR - Euro
FIM - Finnish Markka
FRF - French Franc
  GBP - British Pound
JPY - Japanese Yen
KRW - South Korean Won
KZT - Kazakhstan Tenge
MXN - Mexican Peso
MYR - Malaysian Ringgit
PEN - Peruvian Sol
RUB - Russian Ruble
  SGD - Singapore Dollar
TRY - Turkish Lira
TWD - Taiwan Dollar
USD - United States Dollar
ZAR - South African Rand
 

 

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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $2,797,444,492) (Note 2)   $ 2,724,386,162    
Investments in affiliated issuers, at value (cost $177,001,820) (Notes 2 and 8)     173,767,893    
Foreign currency, at value (cost $1,443,524) (Note 2)     1,414,816    
Receivable for investments sold     10,512,492    
Dividends and interest receivable     42,406,992    
Unrealized appreciation on open forward currency contracts (Note 2)     23,053,831    
Receivable for open swap contracts (Note 2)     222,839,424    
Total assets     3,198,381,610    
Liabilities:  
Payable for investments purchased     8,996,962    
Payable for Fund shares repurchased     2,000,000    
Written options outstanding, at value (premiums $590,625) (Note 2)     12,404,969    
Payable to affiliate for (Note 3):  
Management fee     802,981    
Shareholder service fee     257,226    
Trustees and Chief Compliance Officer of GMO Trust fees     5,584    
Unrealized depreciation on open forward currency contracts (Note 2)     142,044    
Payable for open swap contracts (Note 2)     223,687,500    
Payable for reverse repurchase agreements (Note 2)     253,059,411    
Accrued expenses     635,567    
Total liabilities     501,992,244    
Net assets   $ 2,696,389,366    

 

See accompanying notes to the financial statements.


35



GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 2,710,302,099    
Accumulated undistributed net investment income     27,312,455    
Accumulated net realized gain     37,620,745    
Net unrealized depreciation     (78,845,933 )  
    $ 2,696,389,366    
Net assets attributable to:  
Class III shares   $ 650,846,391    
Class IV shares   $ 2,045,542,975    
Shares outstanding:  
Class III     68,209,037    
Class IV     214,348,822    
Net asset value per share:  
Class III   $ 9.54    
Class IV   $ 9.54    

 

See accompanying notes to the financial statements.


36



GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Interest   $ 92,069,142    
Dividends from affiliated issuers (Note 8)     869,168    
Dividends     270,989    
Total investment income     93,209,299    
Expenses:  
Management fee (Note 3)     4,885,555    
Shareholder service fee – Class III (Note 3)     516,941    
Shareholder service fee – Class IV (Note 3)     1,051,246    
Custodian, fund accounting agent and transfer agent fees     950,084    
Audit and tax fees     68,908    
Legal fees     86,020    
Trustees fees and related expenses (Note 3)     35,373    
Registration fees     6,992    
Interest expense (Note 2)     4,304,515    
Miscellaneous     17,205    
Total expenses     11,922,839    
Expense reductions (Note 2)     (198 )  
Net expenses     11,922,641    
Net investment income (loss)     81,286,658    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     42,760,843    
Investments in affiliated issuers     (5,142,976 )  
Realized gains distributions from affiliated issuers (Note 8)     48,484    
Closed swap contracts     24,854,003    
Written options     (14,328,957 )  
Foreign currency, forward contracts and foreign currency related transactions     (6,942,021 )  
Net realized gain (loss)     41,249,376    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (217,155,196 )  
Investments in affiliated issuers     3,875,796    
Open swap contracts     (23,768,793 )  
Written options     9,557,939    
Foreign currency, forward contracts and foreign currency related transactions     34,113,519    
Net unrealized gain (loss)     (193,376,735 )  
Net realized and unrealized gain (loss)     (152,127,359 )  
Net increase (decrease) in net assets resulting from operations   $ (70,840,701 )  

 

See accompanying notes to the financial statements.


37



GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 81,286,658     $ 189,122,789    
Net realized gain (loss)     41,249,376       109,322,686    
Change in net unrealized appreciation (depreciation)     (193,376,735 )     (151,247,533 )  
Net increase (decrease) in net assets from operations     (70,840,701 )     147,197,942    
Distributions to shareholders from:  
Net investment income  
Class III     (3,648,155 )     (60,758,567 )  
Class IV     (11,562,159 )     (147,592,816 )  
Total distributions from net investment income     (15,210,314 )     (208,351,383 )  
Net realized gains  
Class III     (14,329,630 )     (37,184,110 )  
Class IV     (44,349,438 )     (85,627,144 )  
Total distributions from net realized gains     (58,679,068 )     (122,811,254 )  
      (73,889,382 )     (331,162,637 )  
Net share transactions (Note 7):  
Class III     (48,298,173 )     (87,026,767 )  
Class IV     40,100,205       246,523,243    
Increase (decrease) in net assets resulting from net share
transactions
    (8,197,968 )     159,496,476    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     175,818       614,140    
Class IV     39,378       127,854    
Increase in net assets resulting from purchase premiums
and redemption fees
    215,196       741,994    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (7,982,772 )     160,238,470    
Total increase (decrease) in net assets     (152,712,855 )     (23,726,225 )  
Net assets:  
Beginning of period     2,849,102,221       2,872,828,446    
End of period (including accumulated undistributed net investment
income of $27,312,455 and distributions in excess of
net investment income of $38,763,889, respectively)
  $ 2,696,389,366     $ 2,849,102,221    

 

See accompanying notes to the financial statements.


38



GMO Emerging Country Debt Fund

(A Series of GMO Trust)


Statement of Cash Flows For the Period Ended August 31, 2008 (Unaudited)

Cash flows from operating activities:  
Net investment income   $ 81,286,658    
Net amortization of discount and premium     (10,885,641 )  
      70,401,017    
Investments purchased     (489,796,340 )  
Proceeds from sale of investments     765,204,907    
Short term investments, net     36,070,895    
Other proceeds (cost):  
Swaps     24,854,003    
Written options     (15,798,957 )  
Foreign currency and forward contracts     (8,284,940 )  
      312,249,568    
Realized gain distributions from affiliated issuers     48,484    
Changes in assets and liabilities:  
(Increase) decrease in interest receivable     11,226,621    
Increase (decrease) in payable to affiliate for:  
Management fee     3,822    
Trustees and Chief Compliance Officer of GMO Trust fees     2,235    
Shareholder service fee     (1,603 )  
Increase (decrease) in accrued expenses     16,941    
Net cash provided (used in) operating activities     393,947,085    
Cash flows from financing activities*  
Proceeds from shares sold     3,753,277    
Shares repurchased     (83,552,296 )  
Cash distributions paid     (299,638 )  
Purchase premiums and redemption fees     215,196    
Increase (decrease) in payable for reverse repurchase agreements     (313,871,176 )  
Net cash provided (used in) financing activities     (393,754,637 )  
Net increase in cash     192,448    
Cash and cash equivalents, beginning of period     1,222,368    
Cash and cash equivalents, end of period   $ 1,414,816    
*Supplemental disclosure of cash flow information:  
Reinvestment of dividends and distributions   $ 73,589,744    

 

See accompanying notes to the financial statements.


39




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value,
beginning of period
  $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.51    
Income (loss) from
investment operations:
 
Net investment income (loss)      0.29       0.68       0.86       0.88       0.89       1.01    
Net realized and
unrealized gain (loss)
    (0.55 )     (0.13 )     0.30       1.14       1.16       1.81    
Total from investment
operations
    (0.26 )     0.55       1.16       2.02       2.05       2.82    
Less distributions to
shareholders:
 
From net investment income     (0.05 )     (0.76 )     (0.94 )     (1.26 )     (1.18 )     (1.06 )  
From net realized gains     (0.21 )     (0.46 )     (0.79 )     (0.55 )     (0.29 )     (0.76 )  
Total distributions     (0.26 )     (1.22 )     (1.73 )     (1.81 )     (1.47 )     (1.82 )  
Net asset value,
end of period
  $ 9.54     $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51    
Total Return(a)      (2.52 )%**      5.07 %     10.98 %     19.50 %     20.58 %     30.46 %  
Ratios/Supplemental Data:  
Net assets,
end of period (000's)
  $ 650,846     $ 734,921     $ 876,598     $ 1,020,976     $ 1,088,609     $ 925,517    
Net operating expenses to
average daily net assets(b) 
    0.58 %(c)*      0.57 %(c)      0.57 %     0.57 %     0.57 %     0.57 %  
Interest expense to average
daily net assets(d) 
    0.31 %*      0.74 %     0.48 %     0.22 %     0.08 %     0.08 %  
Total net expenses to
average daily net assets
    0.89 %(c)*      1.31 %(c)      1.05 %     0.79 %     0.65 %     0.65 %  
Net investment income to
average daily net assets
    5.80 %*      6.36 %     7.91 %     7.75 %     8.22 %     9.44 %  
Portfolio turnover rate     14 %**      53 %     83 %     144 %     121 %     119 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.00 (e)    $ 0.01     $ 0.01     $ 0.01     $ 0.01     $ 0.03    

 

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

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

(c)  The net expense ratio does not include the effect of expense reductions.

(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)  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)

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

    Six Months
Ended
August 31, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value,
beginning of period
  $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51     $ 9.52    
Income (loss) from
investment operations:
 
Net investment income (loss)      0.29       0.69       0.87       0.88       0.90       1.06    
Net realized and
unrealized gain (loss)
    (0.54 )     (0.13 )     0.29       1.15       1.16       1.75    
Total from investment
operations
    (0.25 )     0.56       1.16       2.03       2.06       2.81    
Less distributions to
shareholders:
 
From net investment income     (0.06 )     (0.77 )     (0.94 )     (1.27 )     (1.19 )     (1.06 )  
From net realized gains     (0.21 )     (0.46 )     (0.79 )     (0.55 )     (0.29 )     (0.76 )  
Total distributions     (0.27 )     (1.23 )     (1.73 )     (1.82 )     (1.48 )     (1.82 )  
Net asset value,
end of period
  $ 9.54     $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51    
Total Return(a)      (2.51 )%**      5.13 %     11.06 %     19.57 %     20.64 %     30.38 %  
Ratios/Supplemental Data:  
Net assets,
end of period (000's)
  $ 2,045,543     $ 2,114,181     $ 1,996,230     $ 1,799,792     $ 1,550,402     $ 1,238,209    
Net operating expenses to
average daily net assets(b) 
    0.53 %(c)*      0.53 %(c)      0.52 %     0.52 %     0.52 %     0.52 %  
Interest expense to average
daily net assets(d) 
    0.31 %*      0.74 %     0.48 %     0.22 %     0.08 %     0.08 %  
Total net expenses to
average daily net assets
    0.84 %(c)*      1.27 %(c)      1.00 %     0.74 %     0.60 %     0.60 %  
Net investment income to
average daily net assets
    5.83 %     6.45 %     7.97 %     7.75 %     8.29 %     9.95 %  
Portfolio turnover rate     14 %**      53 %     83 %     144 %     121 %     119 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.00 (e)    $ 0.00 (e)    $ 0.01     $ 0.00 (e)    $ 0.01     $ 0.04    

 

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

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

(c)  The net expense ratio does not include the effect of expense reductions.

(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)  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.


41




GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, although it may also make investments in entities related to, but not guaranteed by emerging countries, or in entities wholly unrelated to emerging countries.

Throughout the period ended August 31, 2008, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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


42



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

are readily available are generally valued at the most recent quoted bid price. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 33.27% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $48,484 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


43



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 39,996,921     $ 1,414,816    
Level 2 - Other Significant Observable Inputs     2,750,196,859       243,647,515    
Level 3 - Significant Unobservable Inputs     107,960,275       2,245,740    
Total   $ 2,898,154,055     $ 247,308,071    

 

*  Other financial instruments include foreign currency, forward currency contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs     (253,059,411 )     (225,513,443 )  
Level 3 - Significant Unobservable Inputs           (10,721,070 )  
Total   $ (253,059,411 )   $ (236,234,513 )  

 

**  Other financial instruments include forward currency contracts, swap agreements and written options.


44



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments***
 
Balance as of February 29, 2008   $ 139,080,487     $ (5,866,346 )  
Accrued discounts/premiums     725,287          
Realized gain (loss)     (40,787 )        
Realized gain distributions received     37,043          
Realized gain distributions paid     (48,484 )          
Change in unrealized appreciation/depreciation     (16,193,583 )     (2,608,984 )  
Net purchases (sales)     (15,599,688 )        
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 107,960,275     $ (8,475,330 )  

 

***  Other financial instruments include swap agreements.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


45



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Assets and Liabilities. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may write (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


46



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

For the period ended August 31, 2008, 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                 70,000,000       1,470,000    
Options expired                          
Options sold                          
Outstanding, end of period   $     $     $ (45,000,000 )   $ (590,625 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the


47



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. Indexed securities are 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 investing through conventional securities is difficult. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realize d variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them are based upon the


48



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 exposes the Fund, to varying degrees, to 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 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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, 2008, the Fund had entered into reverse repurchase agre ements, plus accrued interest, amounting to $253,059,411, collateralized by securities with a market value, plus accrued interest, of $296,165,740. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments. The Fund had no more than $159,776,727 in outstanding reverse repurchase agreements with any one counterparty.

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


49



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. The Fund had no delayed delivery commitments outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


50



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 2,999,917,711     $ 224,792,847     $ (326,556,503 )   $ (101,763,656 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).


51



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, 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 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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. 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Investment risks

Investments in emerging country debt present risks that are not inherent in many other securities. Many emerging countries are subject to 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 that impede the Fund's ability to repatriate amounts it receives. The Fund may acquire interests in securities in some countries based on the Manager's expectations that conditions in those countries will improve. 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. Its most sizable such positions are in Russia, Mexico and Brazil. The Fund's financial position would be substantially adversely affected in the case of a default by any of these countries on obligations held by the Fund, or on obligations issued by them generally. The Fund has purchased default protection in the form of credit default swap agreements with respect to debt associated with those countries and profits realized on those agreements would offset some of the losses the Fund would experience should those countries default on their bonds. However the Fund as of August 31, 2008, has sold more of such default protection


52



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 not 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.

Other matters

In July 2005, the Fund entered into litigation against the Government of Argentina ("Argentina") relating to Argentina's failure to make payments on sovereign debt held by the Fund. That debt, which continues to be valued according to the Fund's valuation policy, represented 1.76% of the net assets of the Fund as of August 31, 2008. The ultimate outcome of this litigation cannot be predicted. Costs associated with this action are being borne by the Fund.

Recently issued accounting pronouncements

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

In September 2008, the FASB issued Statement of Financial Accounting Standards No. 133-1 ("SFAS 133-1"), Accounting for Derivative Instruments and Hedging Activities, and Interpretation of Financial Accounting Standards No. 45-4, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 ("IFAS 45-1"). SFAS 133-1 and IFAS 45-4 are effective for interim periods ending after November 15, 2008. SFAS 133-1 and IFAS 45-4 require enhanced disclosures surrounding the Fund's selling of credit derivatives . The Manager is currently evaluating the impact the adoption of SFAS 133-1 and IFAS 45-4 will have on the Fund's financial st atement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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.


53



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2008, 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 Trust's independent Trustees and Chief Compliance Officer ("CCO") during the period ended August 31, 2008 was $34,085 and $7,728, 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, 2008, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 40,251,055     $ 28,152,968    
Investments (non-U.S. Government securities)     365,576,780       698,653,321    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


54



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 57.23% of the outstanding shares of the Fund were held by four shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.27% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 13.04% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     210,785     $ 2,076,354       11,479,041     $ 123,985,827    
Shares issued to shareholders
in reinvestment of distributions
    1,859,371       17,738,394       9,161,344       94,844,498    
Shares repurchased     (6,878,923 )     (68,112,921 )     (29,333,184 )     (305,857,092 )  
Purchase premiums           6,947             178,678    
Redemption fees           168,871             435,462    
Net increase (decrease)     (4,808,767 )   $ (48,122,355 )     (8,692,799 )   $ (86,412,627 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $       7,884,742     $ 82,812,310    
Shares issued to shareholders
in reinvestment of distributions
    5,854,439       55,851,350       22,455,867       232,182,559    
Shares repurchased     (1,564,489 )     (15,751,145 )     (6,365,177 )     (68,471,626 )  
Purchase premiums                       39,052    
Redemption fees           39,378             88,802    
Net increase (decrease)     4,289,950     $ 40,139,583       23,975,432     $ 246,651,097    

 


55



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 140,673,840     $ 53,669,168     $ 69,000,000     $ 869,168     $     $ 122,617,335    
GMO Special Purpose
Holding Fund
    26,976                         48,484       15,629    
GMO World Opportunity
Overlay Fund
    49,665,090                               51,134,929    
Totals   $ 190,365,906     $ 53,669,168     $ 69,000,000     $ 869,168     $ 48,484     $ 173,767,893    

 

9.  Subsequent event

Effective October 8, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed.


56




GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of


57



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements an d 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


58



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


59



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.89 %   $ 1,000.00     $ 974.80     $ 4.43    
2) Hypothetical     0.89 %   $ 1,000.00     $ 1,020.72     $ 4.53    
Class IV      
1) Actual     0.84 %   $ 1,000.00     $ 974.90     $ 4.18    
2) Hypothetical     0.84 %   $ 1,000.00     $ 1,020.97     $ 4.28    

 

*  Expenses are calculated using each Class's annualized expense ratio (including interest expense and indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


60




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     93.7 %  
Short-Term Investments     4.4    
Preferred Stocks     0.3    
Forward Currency Contracts     0.2    
Rights and Warrants     0.0    
Futures     (0.2 )  
Other     1.6    
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region***     30.9 %  
Japan     22.6    
United Kingdom     21.0    
Switzerland     8.8    
Canada     4.8    
Australia     3.9    
Singapore     2.7    
Hong Kong     2.3    
Denmark     1.4    
Sweden     1.0    
Norway     0.6    
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    14,241,965     GMO International Growth Equity Fund, Class IV     342,804,096    
    13,323,545     GMO International Intrinsic Value Fund, Class IV     340,016,875    
    TOTAL MUTUAL FUNDS (COST $871,642,014)     682,820,971    
        SHORT-TERM INVESTMENTS — 0.0%  
    34,205     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     34,205    
    TOTAL SHORT-TERM INVESTMENTS (COST $34,205)     34,205    
          TOTAL INVESTMENTS — 100.0%
(Cost $871,676,219)
    682,855,176    
          Other Assets and Liabilities (net) — (0.0%)     (36,057 )  
    TOTAL NET ASSETS — 100.0%   $ 682,819,119    

 

Notes to Schedule of Investments:

As of August 31, 2008, 89.02% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $34,205) (Note 2)   $ 34,205    
Investments in affiliated issuers, at value (cost $871,642,014) (Notes 2 and 8)     682,820,971    
Receivable for Fund shares sold     24,000,000    
Receivable for expenses reimbursed by Manager (Note 3)     11,656    
Total assets     706,866,832    
Liabilities:  
Payable for investments purchased     23,959,973    
Payable for Fund shares repurchased     40,027    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,522    
Accrued expenses     46,191    
Total liabilities     24,047,713    
Net assets   $ 682,819,119    
Net assets consist of:  
Paid-in capital   $ 839,997,549    
Accumulated undistributed net investment income     12,619,722    
Accumulated net realized gain     19,022,891    
Net unrealized depreciation     (188,821,043 )  
    $ 682,819,119    
Net assets attributable to:  
Class III shares   $ 682,819,119    
Shares outstanding:  
Class III     39,175,011    
Net asset value per share:  
Class III   $ 17.43    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 12,616,773    
Interest     222    
Total investment income     12,616,995    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     38,824    
Audit and tax fees     16,008    
Legal fees     8,280    
Trustees fees and related expenses (Note 3)     4,059    
Registration fees     920    
Miscellaneous     4,600    
Total expenses     72,691    
Fees and expenses reimbursed by Manager (Note 3)     (66,608 )  
Expense reductions (Note 2)     (8,810 )  
Net expenses     (2,727 )  
Net investment income (loss)     12,619,722    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (22,242,352 )  
Realized gains distributions from affiliated issuers (Note 8)     41,343,170    
Net realized gain (loss)     19,100,818    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (90,350,446 )  
Net realized and unrealized gain (loss)     (71,249,628 )  
Net increase (decrease) in net assets resulting from operations   $ (58,629,906 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 12,619,722     $ 13,263,942    
Net realized gain (loss)     19,100,818       98,425,498    
Change in net unrealized appreciation (depreciation)     (90,350,446 )     (103,922,554 )  
Net increase (decrease) in net assets from operations     (58,629,906 )     7,766,886    
Distributions to shareholders from:  
Net investment income  
Class III           (38,253,569 )  
Net realized gains  
Class III     (55,106,296 )     (36,477,386 )  
      (55,106,296 )     (74,730,955 )  
Net share transactions (Note 7):  
Class III     78,096,246       344,825,641    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     69,252       96,754    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    78,165,498       344,922,395    
Total increase (decrease) in net assets     (35,570,704 )     277,958,326    
Net assets:  
Beginning of period     718,389,823       440,431,497    
End of period (including accumulated undistributed net
investment income of $12,619,722 and $0, respectively)
  $ 682,819,119     $ 718,389,823    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 20.63     $ 22.16     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.36       0.47       0.53    
Net realized and unrealized gain (loss)     (1.95 )     0.52       2.45    
Total from investment operations     (1.59 )     0.99       2.98    
Less distributions to shareholders:  
From net investment income           (1.24 )     (0.72 )  
From net realized gains     (1.61 )     (1.28 )     (0.10 )  
Total distributions     (1.61 )     (2.52 )     (0.82 )  
Net asset value, end of period   $ 17.43     $ 20.63     $ 22.16    
Total Return(c)      (8.09 )%**      3.57 %     14.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 682,819     $ 718,390     $ 440,431    
Net expenses to average daily net assets(d)(e)      0.00 %(f)*      0.00 %(f)      0.00 %*   
Net investment income to average daily net assets(b)      3.54 %*      2.04 %     3.32 %*   
Portfolio turnover rate     21 %**      4 %     1 %**   
Fees and expenses reimbursed by the Manager
to average daily net assets:
    0.02 %*      0.02 %     0.03 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
  $ 0.00 (g)    $ 0.00 (g)    $ 0.01    

 

(a)  Period from June 5, 2006 (commencement of operations) through February 28, 2007.

(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 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)  Net expenses to average daily net assets were less than 0.01%.

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

(f)  The net expense ratio does not include the effect of expense reductions.

(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, 2008 (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, GMO Flexible Equities 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Securities for which quotations are not


7



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliab ility of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 682,855,176     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $ 682,855,176     $    

 


8



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment


9



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 885,792,811     $     $ (202,937,635 )   $ (202,937,635 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).


10



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases of the Fund shares was 0.04% of the amount invested. In the case of cash redemptions, the fee is currently 0.02% of the amount redeemed. 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, 2008. 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 Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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.


11



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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, 2008, 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
 
  0.524 %     0.089 %     0.613 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $3,507 and $2,024, respectively. The compensation and expenses of the


12



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 and class exchanges, for the period ended August 31, 2008 aggregated $224,151,747 and $147,127,067, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 12.61% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had investment discretion.


13



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     6,437,809     $ 123,001,719       12,892,226     $ 299,095,066    
Shares issued to shareholders
in reinvestment of distributions
    2,967,377       54,243,653       3,158,687       72,167,816    
Shares repurchased     (5,051,692 )     (99,149,126 )     (1,108,147 )     (26,437,241 )  
Purchase premiums           43,070             89,316    
Redemption fees           26,182             7,438    
Net increase (decrease)     4,353,494     $ 78,165,498       14,942,766     $ 344,922,395    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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 IV
  $     $ 2,449,278     $ 1,921,371     $     $ 299,278     $    
GMO Emerging Markets
Opportunities Fund,
Class IV
    52,923,870       10,283,374       50,085,676       212,954       10,070,419          
GMO International
Growth Equity Fund,
Class IV
    336,900,951       102,305,901       49,835,259       6,932,253       11,980,329       342,804,096    
GMO International
Intrinsic Value Fund,
Class IV
    328,564,268       109,113,194       45,284,761       5,471,566       18,993,144       340,016,875    
Totals   $ 718,389,089     $ 224,151,747     $ 147,127,067     $ 12,616,773     $ 41,343,170     $ 682,820,971    

 


14



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

9.  Subsequent event

Effective September 30, 2008, the Fund no longer charged a premium on cash purchases or fee on cash redemptions of the amount invested or redeemed. Effective October 21, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.04% of the amount invested or redeemed.


15




GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 comp etence 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 International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


17



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


18



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.61 %   $ 1,000.00     $ 919.10     $ 2.95    
2) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.13     $ 3.11    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


19




GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     96.5 %  
Short-Term Investments     3.1    
Futures     0.0    
Other     0.4    
      100.0 %  

 

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


1




GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    3,134,836     GMO U.S. Core Equity Fund, Class VI     36,897,014    
    1,913,679     GMO U.S. Quality Equity Fund, Class VI     38,618,048    
    81,891     GMO U.S. Small/Mid Cap Growth Fund, Class III     1,167,767    
    155,464     GMO U.S. Small/Mid Cap Value Fund, Class III     1,178,418    
    TOTAL MUTUAL FUNDS (COST $88,006,231)     77,861,247    
        SHORT-TERM INVESTMENTS — 0.0%  
      17,519     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     17,519    
    TOTAL SHORT-TERM INVESTMENTS (COST $17,519)     17,519    
            TOTAL INVESTMENTS — 100.0%
(Cost $88,023,750)
    77,878,766    
            Other Assets and Liabilities (net) — (0.0%)     (16,342 )  
    TOTAL NET ASSETS — 100.0%   $ 77,862,424    

 

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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $17,519) (Note 2)   $ 17,519    
Investments in affiliated issuers, at value (cost $88,006,231) (Notes 2 and 8)     77,861,247    
Receivable for expenses reimbursed by Manager (Note 3)     4,154    
Total assets     77,882,920    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     229    
Accrued expenses     20,267    
Total liabilities     20,496    
Net assets   $ 77,862,424    
Net assets consist of:  
Paid-in capital   $ 91,989,865    
Accumulated undistributed net investment income     734,217    
Distributions in excess of net realized gain     (4,716,674 )  
Net unrealized depreciation     (10,144,984 )  
    $ 77,862,424    
Net assets attributable to:  
Class III shares   $ 77,862,424    
Shares outstanding:  
Class III     15,669,172    
Net asset value per share:  
Class III   $ 4.97    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 734,588    
Interest     123    
Total investment income     734,711    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     5,428    
Audit and tax fees     15,272    
Legal fees     1,104    
Trustees fees and related expenses (Note 3)     481    
Registration fees     1,656    
Miscellaneous     644    
Total expenses     24,585    
Fees and expenses reimbursed by Manager (Note 3)     (23,828 )  
Expense reductions (Note 2)     (263 )  
Net expenses     494    
Net investment income (loss)     734,217    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (4,419,141 )  
Realized gains distributions from affiliated issuers (Note 8)     225,985    
Net realized gain (loss)     (4,193,156 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     2,416,388    
Net realized and unrealized gain (loss)     (1,776,768 )  
Net increase (decrease) in net assets resulting from operations   $ (1,042,551 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 734,217     $ 2,248,159    
Net realized gain (loss)     (4,193,156 )     11,547,121    
Change in net unrealized appreciation (depreciation)     2,416,388       (18,144,547 )  
Net increase (decrease) in net assets from operations     (1,042,551 )     (4,349,267 )  
Distributions to shareholders from:  
Net investment income  
Class III           (5,352,652 )  
Net realized gains  
Class III     (1,644,462 )     (11,494,628 )  
      (1,644,462 )     (16,847,280 )  
Net share transactions (Note 7):  
Class III     (14,520,512 )     (33,069,596 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     3,214       20,815    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    (14,517,298 )     (33,048,781 )  
Total increase (decrease) in net assets     (17,204,311 )     (54,245,328 )  
Net assets:  
Beginning of period     95,066,735       149,312,063    
End of period (including accumulated undistributed net investment
income of $734,217 and $0, respectively)
  $ 77,862,424     $ 95,066,735    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 5.11     $ 6.38     $ 6.56     $ 6.41     $ 6.40     $ 4.53    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.04       0.11       0.10       0.10       0.11       0.08    
Net realized and unrealized
gain (loss)
    (0.07 )     (0.42 )     0.28       0.31       0.34       1.89    
Total from investment
operations
    (0.03 )     (0.31 )     0.38       0.41       0.45       1.97    
Less distributions to shareholders:  
From net investment income           (0.32 )     (0.15 )     (0.12 )     (0.14 )     (0.02 )  
From net realized gains     (0.11 )     (0.64 )     (0.41 )     (0.14 )     (0.30 )     (0.08 )  
Total distributions     (0.11 )     (0.96 )     (0.56 )     (0.26 )     (0.44 )     (0.10 )  
Net asset value, end of period   $ 4.97     $ 5.11     $ 6.38     $ 6.56     $ 6.41     $ 6.40    
Total Return(b)(c)      (0.60 )%**      (6.43 )%     6.48 %     6.45 %     7.18 %     43.72 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 77,862     $ 95,067     $ 149,312     $ 173,146     $ 151,378     $ 73,342    
Net expenses to average daily
net assets(d) 
    0.00 %(e)(f)*      0.00 %(e)(f)      0.04 %     0.01 %     0.00 %(e)      0.00 %(e)   
Net investment income to
average daily net assets(a) 
    1.62 %*      1.78 %     1.63 %     1.52 %     1.75 %     1.43 %  
Portfolio turnover rate     10 %**      26 %     35 %     13 %     16 %     17 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.05 %*      0.04 %     0.18 %     0.51 %     0.54 %     0.58 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts:(g)† 
  $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 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.

(c)  Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

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

(e)  Net expenses were less than 0.01%.

(f)  The net expense ratio does not include the effect of expense reductions.

(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, 2008 (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, and also may invest in shares of GMO Flexible Equities Fund (collectively, the "underlying Funds"). The Fund seeks exposure to U.S. equity 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security


7



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 77,878,766     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $ 77,878,766     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.


8



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

 2/29/2012   $ (136,192 )  
 Total   $ (136,192 )  

 


9



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 88,494,223     $     $ (10,615,457 )   $ (10,615,457 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.


10



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.01% 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, 2008. 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 t hat portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges no premium for reinvested distributions.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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 it 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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


11



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, 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  
  0.321 %     0.057 %     0.378 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $481 and $276, 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, 2008 aggregated $9,019,378 and $24,220,527, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 61.34% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.


12



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
    Shares   Amount   Shares   Amount  
Class III:  
Shares sold     204,880     $ 1,062,341       1,644,319     $ 9,739,477    
Shares issued to shareholders
in reinvestment of distributions
    339,764       1,644,462       2,858,946       16,847,279    
Shares repurchased     (3,472,868 )     (17,227,315 )     (9,315,683 )     (59,656,352 )  
Purchase premiums           319             2,918    
Redemption fees           2,895             17,897    
Net increase (decrease)     (2,928,224 )   $ (14,517,298 )     (4,812,418 )   $ (33,048,781 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 56,188,236     $ 359,970     $ 18,570,527     $ 359,970     $     $ 36,897,014    
GMO U.S. Quality Equity
Fund, Class VI
    36,390,514       8,652,073       5,400,000       367,283       225,985       38,618,048    
GMO U.S. Small/Mid Cap
Growth Fund, Class III
    1,229,704       568       125,000       568             1,167,767    
GMO U.S. Small/Mid Cap
Value Fund, Class III
    1,256,760       6,767       125,000       6,767             1,178,418    
Totals   $ 95,065,214     $ 9,019,378     $ 24,220,527     $ 734,588     $ 225,985     $ 77,861,247    

 

9.  Subsequent event

Effective September 30, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.02% of the amount invested or redeemed.


13




GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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


14



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

"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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 o f 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


15



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


16



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.38 %   $ 1,000.00     $ 994.00     $ 1.91    
2) Hypothetical     0.38 %   $ 1,000.00     $ 1,023.29     $ 1.94    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


17




GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August
31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     95.3 %  
Short-Term Investments     3.6    
Preferred Stocks     0.1    
Forward Currency Contracts     0.1    
Cash and Cash Equivalents     0.1    
Rights and Warrants     0.0    
Swaps     (0.0 )  
Futures     (0.1 )  
Other     0.9    
      100.0 %  
Country/Region Summary**   % of Investments  
United States     55.7 %  
Euro Region***     13.7    
Japan     10.1    
United Kingdom     9.3    
Switzerland     3.9    
Canada     2.1    
Australia     1.7    
Singapore     1.2    
Hong Kong     1.0    
Denmark     0.6    
Sweden     0.4    
Norway     0.3    
      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 except for GMO Alpha Only Fund. The table excludes short-term investments. The table includes exposure through the use of derivative contracts.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    67,880     GMO Alpha Only Fund, Class IV     679,474    
    10,218,104     GMO International Growth Equity Fund, Class IV     245,949,764    
    9,610,658     GMO International Intrinsic Value Fund, Class IV     245,263,980    
    20,797,877     GMO U.S. Core Equity Fund, Class VI     244,791,008    
    17,935,746     GMO U.S. Quality Equity Fund, Class VI     361,943,350    
    TOTAL MUTUAL FUNDS (COST $1,292,291,529)     1,098,627,576    
        SHORT-TERM INVESTMENTS — 0.0%  
    30,841     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     30,841    
    TOTAL SHORT-TERM INVESTMENTS (COST $30,841)     30,841    
          TOTAL INVESTMENTS — 100.0%
(Cost $1,292,322,370)
    1,098,658,417    
          Other Assets and Liabilities (net) — (0.0%)     (39,121 )  
    TOTAL NET ASSETS — 100.0%   $ 1,098,619,296    

 

Notes to Schedule of Investments:

As of August 31, 2008, 39.83% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair values 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $30,841) (Note 2)   $ 30,841    
Investments in affiliated issuers, at value (cost $1,292,291,529) (Notes 2 and 8)     1,098,627,576    
Receivable for expenses reimbursed by Manager (Note 3)     9,982    
Total assets     1,098,668,399    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     2,230    
Accrued expenses     46,873    
Total liabilities     49,103    
Net assets   $ 1,098,619,296    
Net assets consist of:  
Paid-in capital   $ 1,250,178,254    
Accumulated undistributed net investment income     14,477,685    
Accumulated net realized gain     27,627,310    
Net unrealized depreciation     (193,663,953 )  
    $ 1,098,619,296    
Net assets attributable to:  
Class III shares   $ 1,098,619,296    
Shares outstanding:  
Class III     55,345,596    
Net asset value per share:  
Class III   $ 19.85    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 14,474,368    
Interest     194    
Total investment income     14,474,562    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,552    
Audit and tax fees     16,008    
Legal fees     12,328    
Trustees fees and related expenses (Note 3)     5,955    
Registration fees     644    
Miscellaneous     6,623    
Total expenses     65,110    
Fees and expenses reimbursed by Manager (Note 3)     (56,212 )  
Expense reductions (Note 2)     (12,021 )  
Net expenses     (3,123 )  
Net investment income (loss)     14,477,685    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (13,756,259 )  
Realized gains distributions from affiliated issuers (Note 8)     41,963,597    
Net realized gain (loss)     28,207,338    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (93,914,380 )  
Net realized and unrealized gain (loss)     (65,707,042 )  
Net increase (decrease) in net assets resulting from operations   $ (51,229,357 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 14,477,685     $ 16,856,249    
Net realized gain (loss)     28,207,338       117,754,564    
Change in net unrealized appreciation (depreciation)     (93,914,380 )     (134,909,725 )  
Net increase (decrease) in net assets from operations     (51,229,357 )     (298,912 )  
Distributions to shareholders from:  
Net investment income  
Class III           (44,014,224 )  
Net realized gains  
Class III     (48,651,977 )     (72,725,181 )  
      (48,651,977 )     (116,739,405 )  
Net share transactions (Note 7):  
Class III     254,021,894       159,046,461    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     104,310       42,292    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    254,126,204       159,088,753    
Total increase (decrease) in net assets     154,244,870       42,050,436    
Net assets:  
Beginning of period     944,374,426       902,323,990    
End of period (including accumulated undistributed net investment
income of $14,477,685 and $0, respectively)
  $ 1,098,619,296     $ 944,374,426    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006(a)   
Net asset value, beginning of period   $ 21.71     $ 24.25     $ 22.49     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.28       0.43       0.40       0.37    
Net realized and unrealized gain (loss)     (1.23 )     0.01 (c)      2.93       2.78    
Total from investment operations     (0.95 )     0.44       3.33       3.15    
Less distributions to shareholders:  
From net investment income           (1.10 )     (0.73 )     (0.46 )  
From net realized gains     (0.91 )     (1.88 )     (0.84 )     (0.20 )  
Total distributions     (0.91 )     (2.98 )     (1.57 )     (0.66 )  
Net asset value, end of period   $ 19.85     $ 21.71     $ 24.25     $ 22.49    
Total Return(d)      (4.42 )%**      0.72 %     14.94 %     15.90 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,098,619     $ 944,374     $ 902,324     $ 407,230    
Net expenses to average daily net assets(e)(f)      0.00 %(g)*      0.00 %(g)      0.00 %     0.00 %*   
Net investment income to average daily net assets(b)      2.62 %*      1.72 %     1.68 %     2.42 %*   
Portfolio turnover rate     11 %**      20 %     12 %     5 %**   
Fees and expenses reimbursed by the Manager to
average daily net assets:
    0.01 %*      0.01 %     0.02 %     0.06 %*   
Purchase premiums and redemption fees consisted
of the following per share amounts: 
  $ 0.00 (h)    $ 0.00 (h)    $ 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 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 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 exclude expenses incurred indirectly through investment in the underlying funds (See Note 3).

(f)  Net expenses to average daily net assets were less than 0.01%.

(g)  The net expense ratio does not reflect the effect of expense reductions.

(h)  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, 2008 (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, GMO Flexible Equities 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Securities for which quotations are not


7



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 1,098,658,417     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $ 1,098,658,417     $    

 


8



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized


9



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 1,296,203,521     $     $ (197,545,104 )   $ (197,545,104 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense


10



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases of Fund shares was 0.04% of the amount invested. In the case of cash redemptions, the fee is currently 0.03% of the amount 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, 2008. 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 Manager may waiv e the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced


11



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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, 2008, 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  
  0.430 %     0.071 %     0.501 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008, was $5,219 and $2,944, 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, 2008 aggregated $381,409,766 and $119,475,160, respectively.


12



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 11.47% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, less than 0.01% of the Fund's shares were held senior management of the Manager and GMO Trust officers, and 7.42% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     10,827,842     $ 234,976,835       4,764,267     $ 122,806,681    
Shares issued to shareholders
in reinvestment of distributions
    2,432,599       48,651,977       4,778,197       116,284,024    
Shares repurchased     (1,417,609 )     (29,606,918 )     (3,254,416 )     (80,044,244 )  
Purchase premiums           94,028             10,322    
Redemption fees           10,282             31,970    
Net increase (decrease)     11,842,832     $ 254,126,204       6,288,048     $ 159,088,753    

 


13



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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, 2008 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
  $     $ 738,869     $     $ 6,749     $ 65,044     $ 679,474    
GMO Emerging
Markets Fund,
Class VI
          17,730,086       14,090,061             2,194,706          
GMO Emerging
Markets
Opportunities
Fund, Class VI
    80,556,568       14,281,406       76,112,925       295,748       13,985,658          
GMO International
Growth Equity
Fund, Class IV
    224,920,412       65,370,947       8,059,640       5,355,524       9,255,424       245,949,764    
GMO International
Intrinsic Value
Fund, Class IV
    221,378,801       72,822,420       8,126,598       4,224,983       14,665,950       245,263,980    
GMO U.S. Core
Equity Fund,
Class VI
    224,789,300       35,454,775       10,680,000       2,054,775             244,791,008    
GMO U.S. Quality
Equity Fund,
Class VI
    192,718,528       175,011,263       2,405,936       2,536,589       1,796,815       361,943,350    
Totals   $ 944,363,609     $ 381,409,766     $ 119,475,160     $ 14,474,368     $ 41,963,597     $ 1,098,627,576    

 

9.  Subsequent event

Effective September 30, 2008, the Fund no longer charged a premium on cash purchases or fee on cash redemptions of the amount invested or redeemed. Effective October 21, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.04% of the amount invested or redeemed.


14




GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August
31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 co nsidered 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 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 comp etence 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 World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


16



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


17



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.50 %   $ 1,000.00     $ 955.80     $ 2.46    
2) Hypothetical     0.50 %   $ 1,000.00     $ 1,022.68     $ 2.55    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


18




GMO Alpha Only Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Alpha Only Fund

(A Series of GMO Trust)
Investments Concentration Summary
August
31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     87.2 %  
Cash and Cash Equivalents     84.4    
Short-Term Investments     7.8    
Forward Currency Contracts     0.2    
Preferred Stocks     0.1    
Rights and Warrants     0.0    
Futures     (38.6 )  
Swaps     (45.8 )  
Other     4.7    
      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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 91.6%  
        United States — 91.6%  
        Affiliated Issuers  
    30,909,253     GMO International Growth Equity Fund, Class IV     743,985,719    
    29,310,034     GMO International Intrinsic Value Fund, Class IV     747,992,059    
    56,640,321     GMO U.S. Core Equity Fund, Class VI     666,656,582    
    50,296,087     GMO U.S. Quality Equity Fund, Class VI     1,014,975,038    
        3,173,609,398    
    TOTAL MUTUAL FUNDS (COST $3,535,657,795)     3,173,609,398    
        SHORT-TERM INVESTMENTS — 4.5%  
    138,000,000     HBOS Treasury Services Time Deposit, 2.05%, due 09/02/08     138,000,000    
      15,800,000     Societe Generale Time Deposit, 2.35%, due 09/02/08     15,800,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $153,800,000)     153,800,000    
            TOTAL INVESTMENTS — 96.1%
(Cost $3,689,457,795)
    3,327,409,398    
            Other Assets and Liabilities (net) — 3.9%     136,520,829    
    TOTAL NET ASSETS — 100.0%   $ 3,463,930,227    

 

See accompanying notes to the financial statements.


2



GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
11/21/08   EUR     7,291,000     $ 10,651,315     $ 33,432    
11/21/08   JPY     219,990,000       2,030,659       19,910    
11/21/08   JPY     1,471,856,000       13,586,246       114,003    
    $ 26,268,220     $ 167,345    
Sales  
11/21/08   AUD     20,206,641     $ 17,186,563     $ 250,354    
11/21/08   AUD     20,206,641       17,186,563       248,333    
11/21/08   AUD     20,818,963       17,707,368       198,773    
11/21/08   CHF     20,738,504       18,848,388       37,763    
11/21/08   CHF     20,738,504       18,848,388       43,475    
11/21/08   CHF     21,366,944       19,419,551       43,640    
11/21/08   DKK     12,891,147       2,524,605       3,814    
11/21/08   DKK     12,511,996       2,450,352       3,077    
11/21/08   DKK     12,511,996       2,450,352       4,676    
11/21/08   EUR     27,441,895       40,089,462       122,876    
11/21/08   EUR     27,441,895       40,089,462       34,842    
11/21/08   EUR     27,441,895       40,089,462       58,030    
11/21/08   EUR     27,441,895       40,089,462       82,179    
11/21/08   EUR     27,441,895       40,089,462       62,421    
11/21/08   EUR     27,441,895       40,089,462       40,824    
11/21/08   EUR     27,441,895       40,089,462       79,435    
11/21/08   GBP     13,272,310       24,054,350       563,175    
11/21/08   GBP     13,272,310       24,054,350       555,433    
11/21/08   GBP     13,272,310       24,054,350       548,080    
11/21/08   GBP     13,272,310       24,054,350       553,442    
11/21/08   GBP     13,272,310       24,054,350       534,197    
11/21/08   GBP     13,272,310       24,054,350       551,584    
11/21/08   GBP     13,272,310       24,054,350       541,696    
11/21/08   HKD     45,794,741       5,876,491       (4,611 )  
11/21/08   HKD     45,794,741       5,876,491       (4,813 )  
11/21/08   HKD     47,182,460       6,054,566       (5,533 )  

 

See accompanying notes to the financial statements.


3



GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Sales  
11/21/08   JPY     2,814,481,167     $ 25,979,603     $ (317,591 )  
11/21/08   JPY     2,814,481,167       25,979,601       (320,164 )  
11/21/08   JPY     2,814,481,167       25,979,602       (310,101 )  
11/21/08   JPY     2,814,481,167       25,979,602       (294,640 )  
11/21/08   JPY     2,814,481,167       25,979,602       (319,931 )  
11/21/08   JPY     2,814,481,167       25,979,602       (328,536 )  
11/21/08   JPY     2,814,481,167       25,979,602       (316,560 )  
11/21/08   NOK     14,598,069       2,670,746       5,295    
11/21/08   NOK     15,040,435       2,751,677       (1,653 )  
11/21/08   NOK     14,598,069       2,670,745       2,135    
11/21/08   NZD     1,055,868       730,472       9,338    
11/21/08   SEK     38,360,416       5,917,953       78,954    
11/21/08   SEK     39,522,853       6,097,285       84,879    
11/21/08   SEK     38,360,416       5,917,954       77,358    
11/21/08   SGD     4,600,249       3,257,231       10,595    
11/21/08   SGD     4,600,249       3,257,231       10,558    
11/21/08   SGD     4,739,650       3,355,934       8,980    
    $ 801,920,804     $ 3,226,078    

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Sales      
  1,606     CAC 40   September 2008   $ 105,670,291     $ 488,935    
  371     DAX   September 2008     87,580,739       4,651,406    
  1,330     E-Mini MSCI EAFE   September 2008     120,032,500       (2,044,210 )  
  2,050     FTSE 100   September 2008     211,075,549       5,584,431    
  155     Hang Seng   September 2008     21,111,268       (449,532 )  
  228     IBEX 35   September 2008     39,223,665       629,970    
  1,597     OMXS 30   September 2008     21,544,782       477,653    
  6,544     S&P 500 E-Mini   September 2008     419,666,720       (7,882,979 )  
  171     S&P/MIB   September 2008     36,166,032       2,166,192    
  571     SPI 200   September 2008     63,054,856       2,045,889    
  1,801     TOPIX   September 2008     207,779,049       19,752,231    
    $ 1,332,905,451     $ 25,419,986    

 

See accompanying notes to the financial statements.


4



GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Swap Agreements

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  404,814,582     USD
  8/7/2009   JPMorgan Chase   Custom Low
Quality Equity Basket
  3 month
LIBOR -0.75%
  $ (8,652,870 )  
  419,141,113     USD   8/10/2009   Citi Group   Custom Low
Quality Equity Basket
  3 month
LIBOR -0.56%
    (8,804,096 )  
  183,000,002     USD   8/7/2009   BNP Paribas   AMEX Index   3 month
LIBOR -0.35%
    1,158,647    
  579,691,074     USD   6/16/2009   Deutsche Bank   MSCI EAFE
Equity Index
  1 month
LIBOR -0.15%
    (4,182,947 )  
  Premiums to (Pay) Receive   $     $ (20,481,266 )  

 

As of August 31, 2008, 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.


5



GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

LIBOR - London Interbank Offered Rate

As of August 31, 2008, 38.35% 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.


6




GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $153,800,000) (Note 2)   $ 153,800,000    
Investments in affiliated issuers, at value (cost $3,535,657,795) (Notes 2 and 8)     3,173,609,398    
Cash     45,414    
Receivable for Fund shares sold     6,000,000    
Interest receivable     26,669    
Unrealized appreciation on open forward currency contracts (Note 2)     5,617,556    
Receivable for collateral on open futures contracts (Note 2)     141,871,000    
Receivable for collateral open swap contracts (Note 2)     13,726,156    
Receivable for open swap contracts (Note 2)     1,158,647    
Receivable for expenses reimbursed by Manager (Note 3)     1,293,600    
Total assets     3,497,148,440    
Liabilities:  
Payable for Fund shares repurchased     4,100,000    
Payable for open swap contracts     21,639,913    
Payable to affiliate for (Note 3):  
Management fee     1,469,517    
Shareholder service fee     305,244    
Trustees and Chief Compliance Officer of GMO Trust fees     5,087    
Unrealized depreciation on open forward currency contracts (Note 2)     2,224,133    
Payable for variation margin on open futures contracts (Note 2)     3,330,341    
Accrued expenses     143,978    
Total liabilities     33,218,213    
Net assets   $ 3,463,930,227    

 

See accompanying notes to the financial statements.


7



GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 3,614,798,228    
Accumulated undistributed net investment income     1,427,750    
Accumulated net realized gain     201,420,507    
Net unrealized depreciation     (353,716,258 )  
    $ 3,463,930,227    
Net assets attributable to:  
Class III shares   $ 267,357,498    
Class IV shares   $ 3,196,572,729    
Shares outstanding:  
Class III     26,717,646    
Class IV     319,482,736    
Net asset value per share:  
Class III   $ 10.01    
Class IV   $ 10.01    

 

See accompanying notes to the financial statements.


8



GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 32,898,310    
Interest     2,299,293    
Total investment income     35,197,603    
Expenses:  
Management fee (Note 3)     7,251,050    
Shareholder service fee – Class III (Note 3)     147,766    
Shareholder service fee – Class IV (Note 3)     1,351,700    
Custodian and fund accounting agent fees     128,984    
Transfer agent fees     21,160    
Audit and tax fees     34,408    
Legal fees     35,420    
Trustees fees and related expenses (Note 3)     14,477    
Registration fees     3,220    
Miscellaneous     16,467    
Total expenses     9,004,652    
Fees and expenses reimbursed by Manager (Note 3)     (227,516 )  
Expense reductions (Note 2)     (2,881 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (5,890,487 )  
Shareholder service fee waived (Note 3)     (946,690 )  
Net expenses     1,937,078    
Net investment income (loss)     33,260,525    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (70,825,179 )  
Realized gains distributions from affiliated issuers (Note 8)     87,407,437    
Closed futures contracts     109,346,272    
Closed swap contracts     136,003,859    
Foreign currency, forward contracts and foreign currency related transactions     15,063,053    
Net realized gain (loss)     276,995,442    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (158,854,792 )  
Open futures contracts     (71,779,498 )  
Open swap contracts     (82,530,533 )  
Foreign currency, forward contracts and foreign currency related transactions     24,681,560    
Net unrealized gain (loss)     (288,483,263 )  
Net realized and unrealized gain (loss)     (11,487,821 )  
Net increase (decrease) in net assets resulting from operations   $ 21,772,704    

 

See accompanying notes to the financial statements.


9



GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 33,260,525     $ 37,393,719    
Net realized gain (loss)     276,995,442       269,696,616    
Change in net unrealized appreciation (depreciation)     (288,483,263 )     (146,534,773 )  
Net increase (decrease) in net assets from operations     21,772,704       160,555,562    
Distributions to shareholders from:  
Net investment income  
Class III     (1,790,364 )     (3,121,593 )  
Class IV     (25,800,055 )     (37,623,319 )  
Total distributions from net investment income     (27,590,419 )     (40,744,912 )  
Net realized gains  
Class III     (17,412,547 )        
Class IV     (248,665,164 )        
Total distributions from net realized gains     (266,077,711 )        
      (293,668,130 )     (40,744,912 )  
Net share transactions (Note 7):  
Class III     108,837,206       (140,995 )  
Class IV     892,448,770       752,392,494    
Increase (decrease) in net assets resulting from net share
transactions
    1,001,285,976       752,251,499    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     72,922       148,551    
Class IV     430,233       1,407,214    
Increase in net assets resulting from purchase premiums
and redemption fees
    503,155       1,555,765    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    1,001,789,131       753,807,264    
Total increase (decrease) in net assets     729,893,705       873,617,914    
Net assets:  
Beginning of period     2,734,036,522       1,860,418,608    
End of period (including accumulated undistributed net investment
income of $1,427,750 and distributions in excess of net
investment income of $4,242,356, respectively)
  $ 3,463,930,227     $ 2,734,036,522    

 

See accompanying notes to the financial statements.


10




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net assets value, beginning of
period
  $ 11.11     $ 10.42     $ 10.36     $ 10.26     $ 9.99     $ 9.63    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.12       0.21       0.17       0.16       0.19       0.17    
Net realized and unrealized gain
(loss)
    (0.04 )     0.70       0.10       0.31       0.08       0.19    
Total from investment
operations
    0.08       0.91       0.27       0.47       0.27       0.36    
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.22 )     (0.21 )     (0.37 )              
From net realized gains     (1.07 )                                
Total distributions     (1.18 )     (0.22 )     (0.21 )     (0.37 )              
Net asset value, end of period   $ 10.01     $ 11.11     $ 10.42     $ 10.36     $ 10.26     $ 9.99    
Total Return(b)      0.68 %**      8.74 %     2.64 %     4.63 %     2.70 %     3.74 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 267,357     $ 176,067     $ 166,626     $ 1,460,161     $ 179,488     $ 74,841    
Net expenses to average daily
net assets(c) 
    0.18 %(d)*      0.16 %(d)      0.15 %     0.10 %     0.18 %     0.26 %  
Net investment income to average
daily net assets(a) 
    2.16 %*      1.91 %     1.66 %     1.52 %     1.94 %     1.72 %  
Portfolio turnover rate     15 %**      44 %     22 %     40 %     19 %     11 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:
    0.49 %*      0.51 %     0.53 %     0.59 %     0.62 %     0.72 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts: 
  $ 0.00 (e)    $ 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).

(d)  The net expense ratio does not include the effect of expense reductions.

(e)  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.


11



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 11.11     $ 10.41     $ 10.37    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.12       0.21       0.20    
Net realized and unrealized gain (loss)     (0.04 )     0.71       0.06    
Total from investment operations     0.08       0.92       0.26    
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.22 )     (0.22 )  
From net realized gains     (1.07 )              
Total distributions     (1.18 )     (0.22 )     (0.22 )  
Net asset value, end of period   $ 10.01     $ 11.11     $ 10.41    
Total Return(c)      0.68 %**      8.90 %     2.54 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,196,573     $ 2,557,970     $ 1,693,793    
Net expenses to average daily net assets(d)      0.13 %(e)*      0.11 %(e)      0.10 %*   
Net investment income to average daily net assets(b)      2.30 %*      1.96 %     1.93 %*   
Portfolio turnover rate     15 %**      44 %     22 %††   
Fees and expenses reimbursed and/or waived by the Manager
to average daily net assets:
    0.49 %*      0.51 %     0.53 %*   
Purchase premiums and redemption fees consisted of the
following per share amounts: 
  $ 0.00 (f)    $ 0.01     $ 0.00 (f)   

 

(a)  Period from March 2, 2006 (commencement of operations) through February 28, 2007.

(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 shareholder.

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

(e)  The net expense ratio does not include the effect of expense reductions.

(f)  Purchase premiums and redemption fees were less than $0.01 per share.

†  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.


12




GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements
August
31, 2008 (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") and GMO Flexible Equities Fund. In addition, the Fund may invest directly in securities of the type in which the underlying funds invest. The Fund invests in sub-asset classes that it expects to outperform the relevant broader asset class and implements its strategy with either direct or indirect investments in a combination of U.S., foreign, and emerging country equities and emerging country debt. The Fund 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 expe cted 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 produce 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.

Throughout the period ended August 31, 2008, 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) or by visiting GMO's website at www.gmo.com.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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


13



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

in the financial statements. Actual results could differ from those estimates. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.


14



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 3,327,409,398     $ 35,796,707    
Level 2 - Other Significant Observable Inputs           6,776,203    
Level 3 - Significant Unobservable Inputs              
Total   $ 3,327,409,398     $ 42,572,910    

 

*  Other financial instruments include forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (10,376,721 )  
Level 2 - Other Significant Observable Inputs           (23,864,046 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (34,240,767 )  

 

**  Other financial instruments include forward currency contracts, futures contracts and swap agreements.

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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


15



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether the


16



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund had 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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. T he Fund had no purchased option contracts outstanding at the end of the period.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.


17



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.


18



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 3,694,850,550     $ 4,499,889     $ (371,941,041 )   $ (367,441,152 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

Brown Brothers Harriman & Co. ("BBH") serves as custodian and fund accounting agent of the Fund. State Street Bank and Trust Company ("State Street") serves as transfer agent of the Fund. BBH and State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the


19



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Fund maintains with each agent. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.06% 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, 2008 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 pu rchase premium or redemption fee in an amount approximately equal to the fee with respect to that portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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.


20



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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) (c ollectively, "Excluded Fund Fees and Expenses"). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 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) 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.


21



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2008, 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  
  0.417 %     0.065 %     0.482 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $13,005 and $7,359, 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, 2008 aggregated $1,421,220,200 and $381,175,938, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 80.20% of the outstanding shares of the Fund were held by three shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Two of the shareholders are other funds of the Trust. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.57% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 99.24% of the Fund's shares were held by accounts for which the Manager has investment discretion.


22



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     9,915,891     $ 99,953,264       7,060,158     $ 77,385,165    
Shares issued to shareholders
in reinvestment of distributions
    1,825,499       18,364,519       219,377       2,393,411    
Shares repurchased     (870,003 )     (9,480,577 )     (7,426,248 )     (79,919,571 )  
Purchase premiums           65,012             77,245    
Redemption fees           7,910             71,306    
Net increase (decrease)     10,871,387     $ 108,910,128       (146,713 )   $ 7,556    
    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     65,058,001     $ 652,186,013       111,659,135     $ 1,226,989,475    
Shares issued to shareholders
in reinvestment of distributions
    27,282,825       274,465,219       3,451,680       37,623,319    
Shares repurchased     (3,165,353 )     (34,202,462 )     (47,448,673 )     (512,220,300 )  
Purchase premiums           404,094             1,070,665    
Redemption fees           26,139             336,549    
Net increase (decrease)     89,175,473     $ 892,879,003       67,662,142     $ 753,799,708    

 


23



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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, 2008 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
  $ 257,477,237     $ 67,225,875     $ 281,175,938     $     $ 24,225,874     $    
GMO International
Growth Equity
Fund, Class IV
    580,969,085       253,287,439             13,453,657       23,250,628       743,985,719    
GMO International
Intrinsic Value
Fund, Class IV
    580,446,151       269,053,001             10,698,991       37,138,814       747,992,059    
GMO U.S. Core
Equity Fund,
Class VI
    612,178,641       159,898,262       100,000,000       4,951,360             666,656,582    
GMO U.S. Quality
Equity Fund,
Class VI
    332,173,994       671,755,623             3,794,302       2,792,121       1,014,975,038    
Totals   $ 2,363,245,108     $ 1,421,220,200     $ 381,175,938     $ 32,898,310     $ 87,407,437     $ 3,173,609,398    

 

9.  Subsequent event

Effective September 30, 2008, the Fund no longer charged a premium on cash purchases or fee on cash redemptions of the amount invested or redeemed.


24




GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement
August
31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 different from that of the Fund. As a result, the Trustees gave more weight to t he 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.


25



GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August
31, 2008 (Unaudited)

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 those 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. 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 con sidered 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 advisory fees, shareholder fees and most o ther expenses 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for mutual fund investment management agreements. The Trustees noted that the


26



GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August
31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


27



GMO Alpha Only Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.66 %   $ 1,000.00     $ 1,006.80     $ 3.34    
2) Hypothetical     0.66 %   $ 1,000.00     $ 1,021.88     $ 3.36    
Class IV      
1) Actual     0.61 %   $ 1,000.00     $ 1,006.80     $ 3.09    
2) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.13     $ 3.11    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


28




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.5 %  
Short-Term Investments     5.1    
Options Purchased     1.2    
Swaps     0.5    
Loan Participations     0.2    
Loan Assignments     0.1    
Futures     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.3 )  
Written Options     (0.5 )  
Forward Currency Contracts     (0.8 )  
Other     (1.0 )  
      100.0 %  
Country / Region Summary**   % of Investments  
United States     93.0 %  
Euro Region***     10.1    
Switzerland     6.8    
Emerging     2.8    
Canada     0.5    
Sweden     (0.1 )  
Japan     (1.5 )  
Australia     (3.8 )  
United Kingdom     (7.8 )  
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value ($) /
Principal Amount
  Description   Value ($)  
        DEBT OBLIGATIONS — 30.5%  
        Corporate Debt — 11.5%  
    13,850,000     JP Morgan & Co., Inc., Series A, MTN,
Variable Rate, CPI + 4.00%, 3.57%, due 02/15/12
    14,946,920    
        U.S. Government — 19.0%  
    4,698,630     U.S. Treasury Inflation Indexed Bond, 1.75%, due 01/15/28 (a)      4,389,548    
    4,395,463     U.S. Treasury Inflation Indexed Bond, 3.63%, due 04/15/28 (a)      5,402,298    
    14,892,670     U.S. Treasury Inflation Indexed Note, 1.63%, due 01/15/15 (a) (b)      15,078,829    
    Total U.S. Government     24,870,675    
    TOTAL DEBT OBLIGATIONS (COST $40,377,700)     39,817,595    
        OPTIONS PURCHASED — 0.2%  
        Currency Options — 0.2%  
JPY     758,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     152,904    
JPY     750,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     151,282    
      304,186    
    TOTAL OPTIONS PURCHASED (COST $460,078)     304,186    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 69.1%  
        Affiliated Issuers — 69.1%  
    472,648     GMO Emerging Country Debt Fund, Class III     4,509,058    
    2,522,998     GMO Short-Duration Collateral Fund     59,340,916    
    28,918     GMO Special Purpose Holding Fund (c) (d)      21,110    
    1,004,496     GMO World Opportunity Overlay Fund     26,558,868    
    TOTAL MUTUAL FUNDS (COST $91,873,823)     90,429,952    
        SHORT-TERM INVESTMENTS — 1.0%  
        Money Market Funds — 1.0%  
    1,238,337     State Street Institutional Liquid Cash Reserves Fund-Institutional Class     1,238,337    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,238,337)     1,238,337    
          TOTAL INVESTMENTS — 100.8%
(Cost $133,949,938)
    131,790,070    
          Other Assets and Liabilities (net) — (0.8%)     (1,004,976 )  
    TOTAL NET ASSETS — 100.0%   $ 130,785,094    

 

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, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
9/09/08   AUD     7,100,000     $ 6,091,535     $ (688,965 )  
9/16/08   CAD     1,600,000       1,506,564       (24,244 )  
10/07/08   CHF     1,500,000       1,362,761       (16,561 )  
10/07/08   CHF     1,500,000       1,362,761       (801 )  
10/21/08   EUR     8,400,000       12,291,699       (617,169 )  
10/21/08   EUR     1,600,000       2,341,276       (30,468 )  
9/23/08   GBP     2,100,000       3,822,149       (365,251 )  
10/28/08   JPY     200,000,000       1,843,525       13,163    
10/14/08   NZD     2,400,000       1,669,278       (40,722 )  
    $ 32,291,548     $ (1,771,018 )  
Sales  
9/09/08   AUD     500,000     $ 428,981     $ 54,319    
9/09/08   AUD     6,900,000       5,919,943       43,669    
9/09/08   AUD     1,800,000       1,544,333       17,329    
9/16/08   CAD     6,300,000       5,932,095       305,467    
9/16/08   CAD     2,100,000       1,977,365       32,588    
10/07/08   CHF     800,000       726,806       41,686    
9/23/08   GBP     1,100,000       2,002,078       105,663    
9/23/08   GBP     1,600,000       2,912,114       57,766    
10/28/08   JPY     1,264,800,000       11,658,453       (16,332 )  
10/28/08   JPY     120,000,000       1,106,115       2,809    
9/02/08   NOK     372,330       68,661       461    
    $ 34,276,944     $ 645,425    

 

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, 2008 (Unaudited)

Forward Cross Currency Contracts


Settlement
Date
 

Deliver/Units of Currency
 

Receive/In Exchange For
  Net Unrealized
Appreciation
(Depreciation)
 
9/02/08   EUR     3,800,000     NOK     30,468,330     $ 43,823    
9/30/08   EUR     8,500,000     SEK     79,999,098       (72,414 )  
11/04/08   EUR     3,800,000     NOK     30,180,360       (25,129 )  
9/02/08   NOK     30,096,000     EUR     3,800,000       24,838    
    $ (28,882 )  

 

Futures Contracts

Number of
Contracts
  Type   Expiration Date   Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  3     Canadian Government Bond 10 Yr.   December 2008   $ 337,521     $ 37    
  36     Euro BOBL   September 2008     5,713,925       34,801    
  76     Euro Bund   September 2008     12,728,361       149,014    
  28     U.S. Long Bond (CBT)   December 2008     3,284,750       (17,365 )  
  27     U.S. Treasury Note 5 Yr. (CBT)   December 2008     3,022,312       (236 )  
                $ 25,086,869     $ 166,251    
Sales      
  39     Australian Government Bond 10 Yr.   September 2008   $ 3,419,595     $ (45,943 )  
  43     Australian Government Bond 3 Yr.   September 2008     3,728,124       (18,164 )  
  2     Japanese Government Bond 10 Yr. (TSE)   September 2008     2,542,982       (8,028 )  
  11     U.S. Treasury Note 10 Yr.   December 2008     1,270,500       2,803    
  27     U.S. Treasury Note 2 Yr. (CBT)   December 2008     5,731,594       (1,347 )  
  79     UK Gilt Long Bond   December 2008     16,118,496       (38,651 )  
                $ 32,811,291     $ (109,330 )  

 

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, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

    Principal
Amount
  Expiration
Date
 
Description
 
Premiums
  Market
Value
 
  JPY     758,000,000     01/21/2009   JPY Call/USD Put Currency Option,
Strike 95.00
  $ (72,998 )   $ (29,441 )  
  JPY     750,000,000     01/21/2009   JPY Call/USD Put Currency Option,
Strike 95.00
    (68,118 )     (29,122 )  
        $ (141,116 )   $ (58,563 )  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  2,000,000     SEK   9/17/2013   JP Morgan Chase Bank   Receive     4.40 %   3 month    
   
                                SEK STIBOR   $ (8,145 )  
  6,800,000     CHF   9/17/2013   Deutsche Bank AG   Receive     2.90 %   6 month
CHF LIBOR
    (62,090 )  
  9,900,000     CHF   9/17/2013   JP Morgan Chase Bank   Receive     2.90 %   6 month
CHF LIBOR
    (90,396 )  
  1,400,000     AUD   3/19/2018   JP Morgan Chase Bank   Receive     7.07 %   6 month
AUD BBSW
    252,132    
    Premiums to (Pay) Receive   $ 131,808     $ 91,501    

 

Total Return Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Pay   Receive   Market
Value
 
  92,472,136     USD   11/14/2008   Barclays   2.32% to   Barclays  
 
            Bank PLC   maturity   TIPS Index  
 
                    Total Return   $ 373,266    
                Premiums to (Pay) Receive   $     $ 373,266    

 

As of August 31, 2008, for the futures and/or swap 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.


6



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

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

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2008, 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)  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)  Underlying investment represents interests in defaulted securities.

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.


7




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $42,076,115) (Note 2)   $ 41,360,118    
Investments in affiliated issuers, at value (cost $91,873,823) (Notes 2 and 8)     90,429,952    
Interest receivable     141,766    
Unrealized appreciation on open forward currency contracts (Note 2)     743,581    
Receivable for variation margin on open futures contracts (Note 2)     293,506    
Receivable for open swap contracts (Note 2)     625,398    
Receivable for expenses reimbursed by Manager (Note 3)     14,358    
Total assets     133,608,679    
Liabilities:  
Written options outstanding, at value (premiums $141,116) (Note 2)     58,563    
Payable to broker for closed futures contracts     325,504    
Payable to affiliate for (Note 3):  
Management fee     27,976    
Shareholder service fee     11,070    
Trustees and Chief Compliance Officer of GMO Trust fees     287    
Unrealized depreciation on open forward currency contracts (Note 2)     1,898,056    
Interest payable for open swap contracts     222,277    
Payable for open swap contracts (Note 2)     160,631    
Accrued expenses     119,221    
Total liabilities     2,823,585    
Net assets   $ 130,785,094    

 

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, 2008 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 416,184,378    
Distributions in excess of net investment income     (132,203,141 )  
Accumulated net realized loss     (150,631,775 )  
Net unrealized depreciation     (2,564,368 )  
    $ 130,785,094    
Net assets attributable to:  
Class III shares   $ 60,471,122    
Class VI shares   $ 70,313,972    
Shares outstanding:  
Class III     2,669,874    
Class VI     3,103,552    
Net asset value per share:  
Class III   $ 22.65    
Class VI   $ 22.66    

 

See accompanying notes to the financial statements.


9



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2008 (Unaudited)

Investment Income:  
Interest   $ 1,875,653    
Dividends from affiliated issuers (Note 8)     421,629    
Dividends     38,509    
Total investment income     2,335,791    
Expenses:  
Management fee (Note 3)     173,936    
Shareholder service fee – Class III (Note 3)     49,780    
Shareholder service fee – Class VI (Note 3)     20,013    
Custodian, fund accounting agent and transfer agent fees     44,988    
Audit and tax fees     32,568    
Legal fees     4,416    
Trustees fees and related expenses (Note 3)     2,806    
Registration fees     1,748    
Miscellaneous     1,474    
Total expenses     331,729    
Fees and expenses reimbursed by Manager (Note 3)     (82,156 )  
Expense reductions (Note 2)     (3,411 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (10,072 )  
Shareholder service fee waived (Note 3)     (3,550 )  
Net expenses     232,540    
Net investment income (loss)     2,103,251    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     548,873    
Investments in affiliated issuers     (1,440,274 )  
Realized gains distributions from affiliated issuers (Note 8)     163,196    
Closed futures contracts     1,197,675    
Closed swap contracts     3,284,770    
Foreign currency, forward contracts and foreign currency related transactions     (1,001,452 )  
Net realized gain (loss)     2,752,788    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (2,266,084 )  
Investments in affiliated issuers     246,584    
Open futures contracts     500,328    
Open swap contracts     (3,825,028 )  
Written options     82,553    
Foreign currency, forward contracts and foreign currency related transactions     515,879    
Net unrealized gain (loss)     (4,745,768 )  
Net realized and unrealized gain (loss)     (1,992,980 )  
Net increase (decrease) in net assets resulting from operations   $ 110,271    

 

See accompanying notes to the financial statements.


10



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,103,251     $ 150,978,933    
Net realized gain (loss)     2,752,788       (10,341,661 )  
Change in net unrealized appreciation (depreciation)     (4,745,768 )     (30,465,632 )  
Net increase (decrease) in net assets from operations     110,271       110,171,640    
Distributions to shareholders from:  
Net investment income  
Class III     (4,824,310 )     (26,975,972 )  
Class IV           (14,948,171 )  
Class VI     (3,176,389 )     (347,623,757 )  
Total distributions from net investment income     (8,000,699 )     (389,547,900 )  
Net realized gains  
Class III           (643,125 )  
Class IV           (654,425 )  
Class VI           (7,445,282 )  
Total distributions from net realized gains           (8,742,832 )  
      (8,000,699 )     (398,290,732 )  
Net share transactions (Note 7):  
Class III     (72,352,664 )     (103,779,537 )  
Class IV           (83,542,832 )  
Class VI     (16,823,611 )     (1,526,536,264 )  
Increase (decrease) in net assets resulting from net share
transactions
    (89,176,275 )     (1,713,858,633 )  
Total increase (decrease) in net assets     (97,066,703 )     (2,001,977,725 )  
Net assets:  
Beginning of period     227,851,797       2,229,829,522    
End of period (including distributions in excess of net investment
income of $132,203,141 and $126,305,693, respectively)
  $ 130,785,094     $ 227,851,797    

 

See accompanying notes to the financial statements.


11




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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 23.52     $ 25.47     $ 24.96    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.33       1.13       0.75    
Net realized and unrealized gain (loss)     (0.37 )     (0.21 )     0.68    
Total from investment operations     (0.04 )     0.92       1.43    
Less distributions to shareholders:  
From net investment income     (0.83 )     (2.81 )     (0.87 )  
From net realized gains           (0.06 )     (0.05 )  
Total distributions     (0.83 )     (2.87 )     (0.92 )  
Net asset value, end of period   $ 22.65     $ 23.52     $ 25.47    
Total Return(c)      (0.21 )%**      3.95 %     5.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 60,471     $ 137,492     $ 260,205    
Net operating expenses to average daily net assets(d)      0.39 %(e)*      0.37 %(e)      0.39 %*   
Interest expense to average daily net assets           0.07 %        
Total net expenses to average daily net assets     0.39 %(e)*      0.44 %(e)      0.39 %*   
Net investment income to average daily net assets(b)      2.91 %*      4.51 %     4.37 %*   
Portfolio turnover rate     9 %**      131 %     37 %††   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:
    0.14 %*      0.06 %     0.06 %*   

 

(a)  Period from June 29, 2006 (commencement of operations) through February 28, 2007.

(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.

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

(e)  The net expense ratio does not include the effect of expense reductions.

†  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.


12



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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007(a)   
Net asset value, beginning of period   $ 23.51     $ 25.48     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.36       1.38       0.83    
Net realized and unrealized gain (loss)     (0.38 )     (0.45 )     0.60    
Total from investment operations     (0.02 )     0.93       1.43    
Less distributions to shareholders:  
From net investment income     (0.83 )     (2.84 )     (0.90 )  
From net realized gains           (0.06 )     (0.05 )  
Total distributions     (0.83 )     (2.90 )     (0.95 )  
Net asset value, end of period   $ 22.66     $ 23.51     $ 25.48    
Total Return(c)      (0.12 )%**      4.00 %     5.75 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 70,314     $ 90,360     $ 1,874,841    
Net operating expenses to average daily net assets(d)      0.29 %(e)*      0.29 %(e)      0.29 %*   
Interest expense to average daily net assets           0.07 %        
Total net expenses to average daily net assets     0.29 %(e)*      0.36 %(e)      0.29 %*   
Net investment income to average daily net assets(b)      3.12 %*      5.48 %     4.33 %*   
Portfolio turnover rate     9 %**      131 %     37 %**   
Fees and expenses reimbursed and/or waived by the Manager
to average daily net assets:
    0.14 %*      0.06 %     0.06 %*   

 

(a)  Period from May 31, 2006 (commencement of operations) through February 28, 2007.

(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.

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

(e)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


13




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 seeking to exploit differences in global interest rates and currency and emerging country debt markets. The Fund may invest a substantial portion of its assets in shares of GMO 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 GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO 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, 2008, 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, 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in


14



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 11.43% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset backed-securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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


15



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

period ended August 31, 2008, the Fund received $65,489 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 4,509,058     $ 186,655    
Level 2 - Other Significant Observable Inputs     127,259,902       1,368,979    
Level 3 - Significant Unobservable Inputs     21,110          
Total   $ 131,790,070     $ 1,555,634    

 

*  Other financial instruments include forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (129,734 )  
Level 2 - Other Significant Observable Inputs           (2,117,250 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (2,246,984 )  

 

**  Other financial instruments include foreign currency, forward currency contracts, futures contracts, swap agreements and written options.


16



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 36,437     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     50,020          
Realized gain distributions paid     (65,489 )        
Change in unrealized appreciation/depreciation     142          
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 21,110     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the


17



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


18



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

For the period ended August 31, 2008, 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   $     $           $    
Options written               JPY (1,508,000,000 )     (141,116 )  
Options exercised                          
Options expired                          
Options sold                          
Outstanding, end of period   $     $     JPY (1,508,000,000 )   $ (141,116 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Loan agreements

The Fund may invest in loans to corporate, governmental, or other borrowers. 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, (i) 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 participation in the loan agreement and only upon receipt by the lender of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower of the terms of the loan agreement. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that has sold the participation in the loan


19



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. The Fund had no loan agreements outstanding at the end of the period.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them are based upon the


20



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 exposes the Fund, to varying degrees, to 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 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 brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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


21



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, 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 has adopted a tax year-end of December 31. Unless otherwise indicated, all applicable tax disclosures reflect tax adjusted balances as of December 31, 2007. The Fund intends to distribute substantially all of its net investment income and all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of December 31, 2007, the Fund elected to defer to January 1, 2008 post-October capital and currency losses of $11,560,236 and $27,059,368, respectively.

As of December 31, 2007, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

 12/31/2015   $ (33,561,953 )  
 Total   $ (33,561,953 )  

 


22



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 139,701,321     $ 781,630     $ (8,692,881 )   $ (7,911,251 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).


23



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issues accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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 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' shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for Fund expenses through at least June 30, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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 th e 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Expenses) and


24



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

(b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Exluded 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 underlying funds. For the period ended August 31, 2008, 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
 
  0.016 %     0.005 %     0.011 %     0.032 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $2,714 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

For the period ended August 31, 2008, 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   $ 2,324,635     $ 15,762,741    
Investments (non-U.S. Government securities)     9,979,415       84,325,000    

 

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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.


25



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2008, 95.10% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.17% of the Fund's shares were held by senior management of the Manager and GMO Trust officers.

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     3,103     $ 70,984       7,753,239     $ 195,318,795    
Shares issued to shareholders
in reinvestment of distributions
    208,927       4,759,352       1,015,942       24,078,255    
Shares repurchased     (3,388,161 )     (77,183,000 )     (13,137,888 )     (323,176,587 )  
Net increase (decrease)     (3,176,131 )   $ (72,352,664 )     (4,368,707 )   $ (103,779,537 )  
    Six Months Ended
August 31, 2008
(Unaudited)
  Period Ended
February 13, 2008*
 
Class IV:   Shares   Amount   Shares   Amount  
Shares sold         $       7,496,338     $ 190,386,804    
Shares issued to shareholders
in reinvestment of distributions
                637,724       15,178,849    
Shares repurchased                 (11,854,634 )     (289,108,485 )  
Net increase (decrease)         $       (3,720,572 )   $ (83,542,832 )  

 


26



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class VI:   Shares   Amount   Shares   Amount  
Shares sold         $       81,536,209     $ 2,064,407,172    
Shares issued to shareholders
in reinvestment of distributions
    139,498       3,176,389       14,977,254       355,069,039    
Shares repurchased     (879,127 )     (20,000,000 )     (166,263,657 )     (3,946,012,475 )  
Net increase (decrease)     (739,629 )   $ (16,823,611 )     (69,750,194 )   $ (1,526,536,264 )  

 

*  Effective February 13, 2008, all shareholders redeemed or exchanged out of Class IV.

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the securities of affiliated issuers during the period ended August 31, 2008 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
  $ 6,756,250     $ 122,582     $ 2,100,000     $ 24,875     $ 97,707     $ 4,509,058    
GMO Short-Duration
Collateral Fund
    114,960,626       7,496,754       61,500,000       396,754             59,340,916    
GMO Special Purpose
Holding Fund
    36,437                         65,489       21,110    
GMO World Opportunity
Overlay Fund
    44,675,992       1,900,000       20,725,000                   26,558,868    
Totals   $ 166,429,305     $ 9,519,336     $ 84,325,000     $ 421,629     $ 163,196     $ 90,429,952    

 

9.  Subsequent event

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.67% of the amount redeemed. Effective October 9, 2008, the fee on cash redemptions was changed to 0.91% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


27




GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 those services to have similar objectives. In evaluating the Fund's advisory fee arrangement, the Trustees also took into account the sophistication of


28



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements an d 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 wit h the Fund, the Manager effectively reimburses the Fund for advisory fees, shareholder fees and most other expenses 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management


29



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


30



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.42 %   $ 1,000.00     $ 997.90     $ 2.12    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class VI      
1) Actual     0.32 %   $ 1,000.00     $ 998.80     $ 1.61    
2) Hypothetical     0.32 %   $ 1,000.00     $ 1,023.59     $ 1.63    

 

*  Expenses are calculated using each Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


31




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO International Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Bond Fund

(A Series of GMO Trust)
Investments Concentration Summary
August
31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     97.8 %  
Short-Term Investments     6.5    
Options Purchased     1.2    
Futures     1.0    
Swaps     0.3    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.3 )  
Written Options     (0.5 )  
Forward Currency Contracts     (4.1 )  
Other     (2.2 )  
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region***     45.3 %  
Japan     28.8    
United States     18.2    
Switzerland     7.3    
Emerging     2.7    
Canada     2.3    
Sweden     0.6    
United Kingdom     (1.8 )  
Australia     (3.4 )  
      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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


1




GMO International Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Par Value /
Principal Amount
  Description   Value ($)  
        DEBT OBLIGATIONS — 2.5%  
        Australia — 0.1%  
        Asset-Backed Securities  
USD     409,787     Medallion Trust, Series 03-1G, Class A,
Variable Rate, 3 mo. LIBOR + .19%, 2.99%, due 12/21/33
    383,229    
        Canada — 0.5%  
        Foreign Government Obligations  
CAD     2,000,000     Province of British Columbia, 7.88%, due 11/30/23     2,525,485    
        United States — 1.9%  
        U.S. Government  
USD     4,000,000     U.S. Treasury Note, 3.13%, due 09/15/08 (a)      4,001,875    
USD     5,000,000     U.S. Treasury Note, 2.38%, due 08/31/10     5,001,563    
    Total United States     9,003,438    
    TOTAL DEBT OBLIGATIONS (COST $10,951,653)     11,912,152    
        OPTIONS PURCHASED — 0.3%  
        Currency Options — 0.3%  
JPY     2,867,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     578,331    
JPY     2,834,000,000     JPY Call/USD Put, Expires 07/21/09, Strike 100.50     571,646    
    Total Currency Options     1,149,977    
    TOTAL OPTIONS PURCHASED (COST $1,739,335)     1,149,977    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 101.0%  
        United States — 101.0%  
        Affiliated Issuers  
    1,605,435     GMO Emerging Country Debt Fund, Class III     15,315,849    
    15,411,425     GMO Short-Duration Collateral Fund     362,476,708    
    37,466     GMO Special Purpose Holding Fund (b) (c)      27,350    
    3,672,485     GMO World Opportunity Overlay Fund     97,100,515    
    Total United States     474,920,422    
    TOTAL MUTUAL FUNDS (COST $497,954,525)     474,920,422    
        SHORT-TERM INVESTMENTS — 0.3%  
        Money Market Funds — 0.3%  
    1,259,518     State Street Institutional Liquid Cash Reserves Fund - Institutional Class     1,259,518    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,259,518)     1,259,518    
          TOTAL INVESTMENTS — 104.1%
(Cost $511,905,031)
    489,242,069    
          Other Assets and Liabilities (net) — (4.1%)     (19,222,948 )  
    TOTAL NET ASSETS — 100.0%   $ 470,019,121    

 

See accompanying notes to the financial statements.


3



GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Forward Currency Contracts

Settlement
Date
  Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)
 
Buys  
9/09/08   AUD     29,400,000     $ 25,224,103     $ (2,852,897 )  
9/16/08   CAD     3,900,000       3,672,249       (59,094 )  
10/07/08   CHF     6,400,000       5,814,449       (70,663 )  
10/07/08   CHF     5,300,000       4,815,090       (2,829 )  
10/21/08   EUR     187,400,000       274,221,951       (13,768,747 )  
10/21/08   EUR     6,200,000       9,072,444       (118,064 )  
9/23/08   GBP     27,800,000       50,597,976       (4,835,224 )  
10/28/08   JPY     16,296,200,000       150,212,276       210,435    
10/28/08   JPY     620,000,000       5,714,928       40,806    
10/14/08   NZD     9,500,000       6,607,558       (161,192 )  
    $ 535,953,024     $ (21,617,469 )  
Sales  
9/09/08   AUD     1,900,000     $ 1,630,129     $ 206,411    
9/09/08   AUD     25,300,000       21,706,456       160,122    
9/09/08   AUD     5,600,000       4,804,591       53,913    
9/16/08   CAD     13,700,000       12,899,953       664,269    
9/16/08   CAD     7,200,000       6,779,537       146,103    
10/07/08   CHF     2,900,000       2,634,672       151,111    
9/23/08   GBP     3,800,000       6,916,270       387,178    
9/23/08   GBP     5,200,000       9,464,370       191,310    
10/28/08   JPY     850,000,000       7,834,982       19,897    
9/02/08   NOK     1,367,335       252,148       1,695    
    $ 74,923,108     $ 1,982,009    

 

See accompanying notes to the financial statements.


4



GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Forward Cross Currency Contracts

Settlement
Date
  Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)
 
9/02/08   EUR 14,200,000     NOK 113,831,335     $ 159,331    
9/30/08   EUR 34,400,000     SEK 323,996,417       (256,644 )  
9/02/08   NOK 112,464,000     EUR 14,200,000       92,817    
11/04/08   EUR 14,200,000     NOK 112,779,240       (93,903 )  
    $ (98,399 )  

 

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  83     Canadian Government Bond 10 Yr.   December 2008   $ 9,338,086     $ 1,239    
  540     Euro BOBL   September 2008     85,708,875       657,341    
  1,069     Euro Bund   September 2008     179,034,440       2,496,768    
  1,800     Federal Fund 30 day   September 2008     734,946,291       (2,709 )  
  134
  Japanese Government Bond
10 Yr. (TSE)
 
September 2008
   
170,379,784
      1,994,762    
  101     U.S. Long Bond (CBT)   December 2008     11,848,563       (62,638 )  
  98     U.S. Treasury Note 5 Yr. (CBT)   December 2008     10,969,875       (856 )  
                $ 1,202,225,914     $ 5,083,907    
Sales      
  159     Australian Government Bond 10 Yr.   September 2008   $ 13,941,424     $ (206,950 )  
  144     Australian Government Bond 3 Yr.   September 2008     12,484,881       (60,248 )  
  31     U.S. Treasury Note 10 Yr.   December 2008     3,580,500       7,899    
  210     U.S. Treasury Note 2 Yr. (CBT)   December 2008     44,579,062       (10,473 )  
  43     UK Gilt Long Bond   December 2008     8,773,359       (21,038 )  
                $ 83,359,226     $ (290,810 )  

 

See accompanying notes to the financial statements.


5



GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Written Options

A summary of open written option contracts for the Fund at August 31, 2008 is as follows:

Currency Options

Principal
Amount
  Expiration
Date
  Description   Premiums   Market
Value
 
JPY     2,867,000,000     01/21/2009   JPY Call/USD Put Currency      
 
            Option, Strike 95.00   $ (276,101 )   $ (111,355 )  
JPY     2,834,000,000     01/21/2009   JPY Call/USD Put Currency
Option, Strike 95.00
    (257,396 )     (110,044 )  
        $(533,497)   $(221,399)  

 

Swap Agreements

Interest Rate Swaps

Notional
Amount
  Expiration
Date
  Counterparty   Receive
(Pay)
  Fixed
Rate
  Variable Rate   Market
Value
 
  37,500,000     SEK   9/17/2013   JP Morgan Chase Bank   Receive     4.40 %   3 month    
   
                                SEK STIBOR   $ (152,717 )  
  34,700,000     CHF   9/17/2013   Deutsche Bank AG   Receive     2.90 %   6 month CHF LIBOR     (316,841 )  
  29,200,000     CHF   9/17/2013   JP Morgan Chase Bank   Receive     2.90 %   6 month CHF LIBOR     (266,621 )  
  8,300,000     AUD   3/19/2018   JP Morgan Chase Bank   Receive     7.07 %   6 month AUD BBSW     224,948    
  5,000,000     EUR   3/21/2030   UBS Warburg   Receive     5.90 %   3 month Floating Rate
EUR LIBOR
    1,138,255    
    Premiums to (Pay) Receive   $ 894,725     $ 627,024    

 

As of August 31, 2008, for the futures and/or swap 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.


6



GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2008 (Unaudited)

Notes to Schedule of Investments:

BBSW - Bank Bill Swap Reference Rate

LIBOR - London Interbank Offered Rate

STIBOR - Stockholm Interbank Offered Rate

Variable rate - The rates shown on variable rate notes are the current interest rates at August 31, 2008, 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)  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)  Underlying investment represents interests in defaulted securities.

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.


7




GMO International Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $13,950,506) (Note 2)   $ 14,321,647    
Investments in affiliated issuers, at value (cost $497,954,525) (Notes 2 and 8)     474,920,422    
Foreign currency, at value (cost $43,125) (Note 2)     49,618    
Receivable for investments sold     5,048,853    
Interest receivable     176,563    
Unrealized appreciation on open forward currency contracts (Note 2)     2,485,398    
Interest receivable for open swap contracts     55,620    
Receivable for open swap contracts (Note 2)     1,363,203    
Receivable for expenses reimbursed by Manager (Note 3)     29,566    
Other expense reimbursement from Manager (Note 2)     830,768    
Total assets     499,281,658    
Liabilities:  
Payable for investments purchased     4,998,312    
Written options outstanding, at value (premiums $533,497) (Note 2)     221,399    
Payable to affiliate for (Note 3):  
Management fee     101,660    
Shareholder service fee     60,996    
Trustees and Chief Compliance Officer of GMO Trust fees     994    
Unrealized depreciation on open forward currency contracts (Note 2)     22,219,257    
Payable for open swap contracts (Note 2)     736,179    
Payable for variation margin on open futures contracts (Note 2)     5,152    
Accrued expenses     918,588    
Total liabilities     29,262,537    
Net assets   $ 470,019,121    
Net assets consist of:  
Paid-in capital   $ 552,552,253    
Distributions in excess of net investment income     (35,600,726 )  
Accumulated net realized loss     (11,176,255 )  
Net unrealized depreciation     (35,756,151 )  
    $ 470,019,121    
Net assets attributable to:  
Class III shares   $ 470,019,121    
Shares outstanding:  
Class III     56,573,129    
Net asset value per share:  
Class III   $ 8.31    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,536,658    
Interest     153,863    
Dividends     22,924    
Total investment income     2,713,445    
Expenses:  
Management fee (Note 3)     634,842    
Shareholder service fee – Class III (Note 3)     380,905    
Custodian, fund accounting agent and transfer agent fees     94,760    
Audit and tax fees     32,568    
Legal fees     6,992    
Trustees fees and related expenses (Note 3)     2,607    
Registration fees     1,656    
Miscellaneous     3,129    
Total expenses     1,157,459    
Fees and expenses reimbursed by Manager (Note 3)     (136,436 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (33,372 )  
Shareholder service fee waived (Note 3)     (11,761 )  
Net expenses     975,890    
Net investment income (loss)     1,737,555    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     706,950    
Investments in affiliated issuers     (6,342,803 )  
Realized gains distributions from affiliated issuers (Note 8)     416,726    
Closed futures contracts     (2,236,532 )  
Closed swap contracts     1,157,706    
Foreign currency, forward contracts and foreign currency related transactions     18,796,789    
Net realized gain (loss)     12,498,836    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (1,582,324 )  
Investments in affiliated issuers     1,183,177    
Open futures contracts     (1,996,487 )  
Open swap contracts     14,654    
Written options     312,098    
Foreign currency, forward contracts and foreign currency related transactions     (41,068,721 )  
Net unrealized gain (loss)     (43,137,603 )  
Net realized and unrealized gain (loss)     (30,638,767 )  
Net increase (decrease) in net assets resulting from operations   $ (28,901,212 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,737,555     $ 21,814,702    
Net realized gain (loss)     12,498,836       12,166,724    
Change in net unrealized appreciation (depreciation)     (43,137,603 )     4,962,721    
Net increase (decrease) in net assets from operations     (28,901,212 )     38,944,147    
Distributions to shareholders from:  
Net investment income  
Class III     (37,537,522 )     (48,502,819 )  
Net share transactions (Note 7):  
Class III     21,887,356       74,650,906    
Total increase (decrease) in net assets     (44,551,378 )     65,092,234    
Net assets:  
Beginning of period     514,570,499       449,478,265    
End of period (including distributions in excess of net investment
income of $35,600,726 and accumulated undistributed
net investment income of $199,241, respectively)
  $ 470,019,121     $ 514,570,499    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 9.51     $ 9.73     $ 9.57     $ 10.61     $ 10.38     $ 9.94    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.03       0.41       0.41       0.21       0.17       0.20    
Net realized and unrealized gain
(loss)
    (0.52 )     0.31       0.38       (0.93 )     1.02       1.94    
Total from investment
operations
    (0.49 )     0.72       0.79       (0.72 )     1.19       2.14    
Less distributions to shareholders:  
From net investment income     (0.71 )     (0.94 )     (0.54 )     (0.31 )     (0.91 )     (0.71 )  
From net realized gains                 (0.09 )     (0.01 )     (0.05 )     (0.99 )  
Total distributions     (0.71 )     (0.94 )     (0.63 )     (0.32 )     (0.96 )     (1.70 )  
Net asset value, end of period   $ 8.31     $ 9.51     $ 9.73     $ 9.57     $ 10.61     $ 10.38    
Total Return(b)      (5.70 )%**      8.09 %     8.32 %     (6.83 )%     11.81 %     23.17 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 470,019     $ 514,570     $ 449,478     $ 422,528     $ 438,365     $ 271,015    
Net expenses to average daily
net assets(c) 
    0.38 %*      0.38 %(d)      0.39 %     0.39 %     0.39 %     0.39 %  
Net investment income to average
daily net assets(a) 
    0.68 %*      4.26 %     4.17 %     2.13 %     1.65 %     1.98 %  
Portfolio turnover rate     22 %**      51 %     32 %     36 %     51 %     26 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:
    0.07 %*      0.07 %     0.26 %††      0.08 %     0.09 %     0.12 %  

 

(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)  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)  The net expense ratio does not include the effect of expense reductions.

†  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, 2008 (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 bonds included in the JPMorgan Non-U.S. Government Bond Index and in securities and instruments with similar characteristics. The Fund seeks additional returns by seeking to exploit differences in global interest rates and currency and emerging country debt markets. The Fund may invest a substantial portion of its total assets in shares of GMO 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 a gencies (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 GMO 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 (also known as "junk bonds")), primarily through investment in shares of GMO 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.


12



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 36.39% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset- backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

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, 2008, the Fund received $84,846 through SPHF in conjunction with settlement agreements related to the default of those securities.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


13



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 24,319,287     $ 5,207,627    
Level 2 - Other Significant Observable Inputs     464,895,432       3,848,601    
Level 3 - Significant Unobservable Inputs     27,350          
Total   $ 489,242,069     $ 9,056,228    

 

*  Other financial instruments include foreign currency, forward currency contracts, futures contracts and swap agreements.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments**
 
Level 1 - Quoted Prices   $     $ (364,912 )  
Level 2 - Other Significant Observable Inputs           (23,176,835 )  
Level 3 - Significant Unobservable Inputs              
Total   $     $ (23,541,747 )  

 

**  Other financial instruments include forward currency contracts, futures contracts, swap agreements and written options.


14



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 47,207     $    
Accrued discounts/premiums              
Realized gain (loss)              
Realized gain distributions received     64,805          
Realized gain distributions paid     (84,846 )        
Change in unrealized appreciation/depreciation     184          
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 27,350     $    

 

Foreign currency translation

The market values of foreign securities, currency holdings and related 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 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. They expose the Fund to risk of unfavorable


15



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. 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 cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 (i.e., sell) call and put options. Writing options alters 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 that expire are treated as realized gains. Premiums received from writing options that 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 w hether 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 substantial losses if the price of the underlying instrument increases during the term of the option. Options expose the Fund to 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.


16



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

For the period ended August 31, 2008, 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   $     $     $     $    
Options written                 (5,701,000,000 )     (533,497 )  
Options exercised                          
Options expired                          
Options bought                            
Outstanding, end of period   $     $     $ (5,701,000,000 )   $ (533,497 )  

 

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 for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Premiums paid for purchasing options that 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. P urchased options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund values exchange traded options 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. The Fund values options traded over-the-counter using prices supplied by a primary pricing source chosen by the Manager.

Indexed securities

The Fund may invest in indexed securities. Indexed securities are 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 investing through conventional securities is difficult. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. The Fund had no indexed securities outstanding at the end of the period.


17



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segre gate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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 them 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 exposes the Fund, to varying degrees, to elements of credit, legal, market and documentation risk in excess of the amounts recognized in the Stat ement of Assets and Liabilities. Such risks involve the possibility 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.


18



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements with banks and brokers whereby the Fund sells portfolio assets subject to 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 expose the Fund to 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. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, if any, after


19



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $4,962,396.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

  2/28/2015     $ (23,687,952 )  
  2/29/2016       (507,910 )  
  Total     $ (24,195,862 )  

 

As of August 31, 2008, 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)
 
$ 531,880,258     $ 3,004,179     $ (45,642,368 )   $ (42,638,189 )  

 

On October 12, 2006, the Fund paid a dividend under Code Section 860 of $0.09229 per share to shareholders of record as of October 11, 2006. It is anticipated the Fund will be required to make a


20



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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.

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.


21



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Expenses include 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


22



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2009 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Expenses) and (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded 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, 2008, 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 %     0.010 %     0.030 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $2,423 and $1,380, 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, 2008, 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   $ 19,097,344     $ 10,061,914    
Investments (non-U.S. Government securities)     99,907,873       97,953,120    

 


23



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 56.87% of the outstanding shares of the Fund were held by four shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 1.30% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 57.98% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     232,529     $ 2,276,916       17,938,459     $ 170,818,174    
Shares issued to shareholders
in reinvestment of distributions
    4,088,026       36,424,314       5,136,298       46,494,576    
Shares repurchased     (1,829,596 )     (16,813,874 )     (15,192,711 )     (142,661,844 )  
Net increase (decrease)     2,490,959     $ 21,887,356       7,882,046     $ 74,650,906    

 


24



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (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, 2008 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
  $ 15,711,607     $ 416,373     $     $ 84,493     $ 331,880     $ 15,315,849    
GMO Short-Duration
Collateral Fund
    362,492,061       88,252,165       80,800,000       2,452,165             362,476,708    
GMO Special Purpose
Holding Fund
    47,207                         84,846       27,350    
GMO World Opportunity
Overlay Fund
    99,460,635       9,500,000       15,000,000                   97,100,515    
Totals   $ 477,711,510     $ 98,168,538     $ 95,800,000     $ 2,536,658     $ 416,726     $ 474,920,422    

 

9.  Subsequent events

Subsequent to August 31, 2008, the Fund received redemption requests in the amount of $175,258,906.

Effective October 8, 2008, the Fund instituted a fee on cash redemptions of 0.97% of the amount redeemed. Effective October 21, 2008, the fee on cash redemptions was changed to 2.00% of the amount redeemed. For a complete discussion of this fee please refer to the GMO Trust prospectus, which can be obtained at www.gmo.com.


25




GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August
31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those services to have similar objectives. In


26



GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 respe ct to all other underlying funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager effectively reimburses the Fund for advisory fees, shareholder fees and most other expenses 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.


27



GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


28



GMO International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.41 %   $ 1,000.00     $ 943.00     $ 2.01    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


29




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     56.2 %  
Debt Obligations     32.0    
Cash and Cash Equivalents     30.7    
Short-Term Investments     10.6    
Options Purchased     0.3    
Forward Currency Contracts     0.2    
Loan Participations     0.1    
Loan Assignments     0.0    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.1 )  
Reverse Repurchase Agreements     (0.2 )  
Futures     (14.0 )  
Swaps     (17.5 )  
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 Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Country / Region Summary**   % of Investments  
United States     111.7 %  
Brazil     0.3    
Mexico     0.3    
Russia     0.3    
Turkey     0.3    
Argentina     0.2    
Canada     0.2    
Colombia     0.2    
Philippines     0.2    
Switzerland     0.2    
Ukraine     0.2    
Uruguay     0.2    
Venezuela     0.2    
Hong Kong     (0.3 )  
Sweden     (0.5 )  
Australia     (1.1 )  
Japan     (3.4 )  
United Kingdom     (3.9 )  
Euro Region***     (5.3 )  
      100.0 %  

 

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

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


2




GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    57,127,568     GMO Alpha Only Fund, Class IV     571,846,957    
    751,593     GMO Alternative Asset Opportunity Fund     22,983,724    
    3,367,241     GMO Emerging Country Debt Fund, Class IV     32,123,480    
    3,770,638     GMO Special Situations Fund, Class VI     81,898,266    
    20,414,349     GMO Strategic Fixed Income Fund, Class VI     463,814,020    
    235     GMO U.S. Core Equity Fund, Class VI     2,772    
    19,726,164     GMO U.S. Quality Equity Fund, Class VI     398,073,988    
    TOTAL MUTUAL FUNDS (COST $1,637,684,423)     1,570,743,207    
        SHORT-TERM INVESTMENTS — 0.0%  
    42,007     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     42,007    
    TOTAL SHORT-TERM INVESTMENTS (COST $42,007)     42,007    
          TOTAL INVESTMENTS — 100.0%
(Cost $1,637,726,430)
    1,570,785,214    
          Other Assets and Liabilities (net) — (0.0%)     (47,986 )  
    TOTAL NET ASSETS — 100.0%   $ 1,570,737,228    

 

Notes to Schedule of Investments:

As of August 31, 2008, 13.96% 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $42,007) (Note 2)   $ 42,007    
Investments in affiliated issuers, at value (cost $1,637,684,423) (Notes 2 and 8)     1,570,743,207    
Receivable for investments sold     8,200,000    
Receivable for expenses reimbursed by Manager (Note 3)     11,036    
Total assets     1,578,996,250    
Liabilities:  
Payable for Fund shares repurchased     8,200,000    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     3,228    
Accrued expenses     55,794    
Total liabilities     8,259,022    
Net assets   $ 1,570,737,228    
Net assets consist of:  
Paid-in capital   $ 1,625,456,398    
Distributions in excess of net investment income     (6,420,985 )  
Accumulated net realized gain     18,643,031    
Net unrealized depreciation     (66,941,216 )  
    $ 1,570,737,228    
Net assets attributable to:  
Class III shares   $ 1,570,737,228    
Shares outstanding:  
Class III     65,304,233    
Net asset value per share:  
Class III   $ 24.05    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 7,834,874    
Interest     163    
Total investment income     7,835,037    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     24,472    
Audit and tax fees     15,272    
Legal fees     18,124    
Chief Compliance Officer (Note 3)     4,416    
Trustees fees and related expenses (Note 3)     8,657    
Registration fees     736    
Miscellaneous     5,428    
Total expenses     77,105    
Fees and expenses reimbursed by Manager (Note 3)     (64,032 )  
Expense reductions (Note 2)     (64 )  
Net expenses     13,009    
Net investment income (loss)     7,822,028    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (55,363,761 )  
Realized gains distributions from affiliated issuers (Note 8)     69,832,323    
Net realized gain (loss)     14,468,562    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (62,227,049 )  
Net realized and unrealized gain (loss)     (47,758,487 )  
Net increase (decrease) in net assets resulting from operations   $ (39,936,459 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,822,028     $ 62,933,065    
Net realized gain (loss)     14,468,562       145,547,623    
Change in net unrealized appreciation (depreciation)     (62,227,049 )     (101,039,835 )  
Net increase (decrease) in net assets from operations     (39,936,459 )     107,440,853    
Distributions to shareholders from:  
Net investment income  
Class III     (19,927,246 )     (64,024,461 )  
Net realized gains  
Class III     (19,690,626 )     (155,574,713 )  
      (39,617,872 )     (219,599,174 )  
Net share transactions (Note 7):  
Class III     40,179,191       425,678,284    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     46,136       149,820    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    40,225,327       425,828,104    
Total increase (decrease) in net assets     (39,329,004 )     313,669,783    
Net assets:  
Beginning of period     1,610,066,232       1,296,396,449    
End of period (including distributions in excess of net investment
income of $6,420,985 and accumulated undistributed
net investment income of $5,684,233, respectively)
  $ 1,570,737,228     $ 1,610,066,232    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004(a)   
Net asset value,
beginning of period
  $ 25.30     $ 26.92     $ 27.76     $ 26.50     $ 24.28     $ 20.00    
Income (loss) from
investment operations:
 
Net investment
income (loss)(b) 
    0.12       1.19       0.80       1.26       0.98       0.61    
Net realized and
unrealized gain (loss)
    (0.75 )     1.18       1.63       2.93       3.00       4.53    
Total from investment
operations
    (0.63 )     2.37       2.43       4.19       3.98       5.14    
Less distributions to
shareholders:
 
From net investment income     (0.31 )     (1.12 )     (1.16 )     (1.51 )     (0.99 )     (0.75 )  
From net realized gains     (0.31 )     (2.87 )     (2.11 )     (1.42 )     (0.77 )     (0.11 )  
Total distributions     (0.62 )     (3.99 )     (3.27 )     (2.93 )     (1.76 )     (0.86 )  
Net asset value,
end of period
  $ 24.05     $ 25.30     $ 26.92     $ 27.76     $ 26.50     $ 24.28    
Total Return(c)      (2.48 )%**      8.60 %     9.31 %     16.50 %     16.74 %     25.92 %**   
Ratios/Supplemental Data:  
Net assets,
end of period (000's)
  $ 1,570,737     $ 1,610,066     $ 1,296,396     $ 1,207,625     $ 1,068,099     $ 287,490    
Net expenses to average
daily net assets(d)(e) 
    0.00 %(f)*      0.00 %(f)      0.00 %     0.00 %     0.00 %     0.00 %*   
Net investment income to
average daily net assets(b) 
    0.97 %*      4.30 %     2.94 %     4.64 %     3.92 %     5.05 %*   
Portfolio turnover rate     17 %**      57 %     45 %     47 %     50 %     24 %**   
Fees and expenses
reimbursed and/or waived
by the Manager to average
daily net assets:
    0.01 %*      0.01 %     0.01 %     0.01 %     0.02 %     0.07 %*   
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 0.07     $ 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 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)  The net expense ratio does not include the effect of expense reductions.

(g)  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, 2008 (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, GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, and GMO Special Situations Fund. The Fund is not restricted in its exposure to any particular asset class, and at times may be subst antially invested in underlying funds that primarily invest in a single asset class (e.g., Fixed Income Funds). In addition, the Fund is not restricted in its exposure to any particular market. While the Fund generally will have exposure to both emerging countries and developed countries, including the U.S., at times, it may have substantial exposure to a particular country or type of country (e.g., emerging countries).

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). Shares of GMO Special Situations 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.


8



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 10.32% of net assets.

The Fund indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.


9



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 1,465,903,224     $    
Level 2 - Other Significant Observable Inputs     104,881,990          
Level 3 - Significant Unobservable Inputs              
Total   $ 1,570,785,214     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an


10



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. The Fund had no repurchase agreements outstanding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 1,647,866,872     $ 10,190,522     $ (87,272,180 )   $ (77,081,658 )  

 

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


11



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchase and redemption of Fund shares

As of August 31, 2008, the premium on cash purchases of Fund shares was 0.13% of the amount invested. In the case of cash redemptions, the fee is currently 0.12% of the amount redeemed. 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, 2008. 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 Manager may wai ve the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a


12



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 gen erally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. Additionally, 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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 the Fund an advisory fee or shareholder service fee, but it 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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


13



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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, 2008, 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
 
  0.426 %     0.070 %     0.008 %     0.504 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $7,737 and $4,416, respectively. The compensation and expenses of the CCO are included 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, 2008 aggregated $352,930,200 and $274,672,676, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 22.74% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.


14



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 1.15% of the Fund's shares were held senior management of the Manager and GMO Trust officers, and 97.15% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,055,943     $ 26,210,183       9,819,038     $ 279,628,825    
Shares issued to shareholders
in reinvestment of distributions
    1,582,022       37,889,444       7,959,463       209,394,517    
Shares repurchased     (971,040 )     (23,920,436 )     (2,301,160 )     (63,345,058 )  
Purchase premiums           4,463             7,597    
Redemption fees           41,673             142,223    
Net increase (decrease)     1,666,925     $ 40,225,327       15,477,341     $ 425,828,104    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of affiliated issuers during the period ended August 31, 2008 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
  $ 407,035,363     $ 207,727,027     $ 2,139,095     $ 4,177,325     $ 40,261,738     $ 571,846,957    
GMO Alternative
Asset Opportunity
Fund
    24,885,255                               22,983,724    
GMO Emerging
Country Debt Fund,
Class IV
    32,949,175       877,444             181,450       695,994       32,123,480    
GMO Emerging
Markets Fund,
Class VI
    285,823,205       26,667,056       262,258,886             26,667,056          

 


15



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Affiliate   Value,
beginning of
period
  Purchases   Sales
Proceeds
  Dividend
Income
  Distributions
of Realized
Gains
  Value,
end of
period
 
GMO Special
Situations Fund,
Class VI
  $ 80,727,015     $     $ 300,000     $     $     $ 81,898,266    
GMO Strategic Fixed
Income Fund,
Class VI
    488,748,982       250,442       7,586,629       111,129             463,814,020    
GMO U.S. Core Equity
Fund, Class VI
    2,807       23             23             2,772    
GMO U.S. Quality
Equity Fund,
Class VI
    289,904,690       117,408,208       2,388,066       3,364,947       2,207,535       398,073,988    
Totals   $ 1,610,076,492     $ 352,930,200     $ 274,672,676     $ 7,834,874     $ 69,832,323     $ 1,570,743,207    

 

9.  Subsequent event

Effective September 30, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.01% of the amount invested or redeemed. Effective October 8, 2008, the fee on cash redemptions was changed to 0.30% of the amount redeemed. Effective October 21, 2008, the premium on cash purchases was changed to 0.10% of the amount invested and the fee on cash redemptions was changed to 0.72% of the amount redeemed.


16




GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 the Fund's 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 t he 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


17



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


18



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


19



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.51 %   $ 1,000.00     $ 975.20     $ 2.54    
2) Hypothetical     0.51 %   $ 1,000.00     $ 1,022.63     $ 2.60    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


20




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     61.2 %  
Debt Obligations     26.5    
Cash and Cash Equivalents     17.1    
Short-Term Investments     10.7    
Preferred Stocks     0.8    
Options Purchased     0.2    
Forward Currency Contracts     0.1    
Private Equity Securities     0.0    
Loan Participations     0.0    
Investment Funds     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Promissory Notes     0.0    
Reverse Repurchase Agreements     (0.1 )  
Written Options     (0.1 )  
Futures     (7.9 )  
Swaps     (9.7 )  
Other     1.2    
      100.0 %  

 

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


1



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Country / Region Summary**   % of Investments  
United States     74.2 %  
Euro Region***     6.5    
Japan     4.4    
United Kingdom     3.3    
Switzerland     2.3    
Brazil     1.3    
Korea     1.2    
Canada     0.9    
Taiwan     0.7    
Singapore     0.7    
Russia     0.7    
Turkey     0.5    
Thailand     0.4    
South Africa     0.4    
China     0.4    
Australia     0.4    
Norway     0.3    
Hong Kong     0.3    
Denmark     0.3    
Sweden     0.1    
Poland     0.1    
Philippines     0.1    
Mexico     0.1    
Malaysia     0.1    
Israel     0.1    
India     0.1    
Hungary     0.1    
      100.0 %  

 

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

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


2




GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    64,626,953     GMO Alpha Only Fund, Class IV     646,915,795    
    4,139,018     GMO Core Plus Bond Fund, Class IV     36,878,654    
    36,563,558     GMO Domestic Bond Fund, Class VI     336,384,733    
    1,101,820     GMO Emerging Country Debt Fund, Class IV     10,511,359    
    11,534,436     GMO Emerging Markets Fund, Class VI     164,135,029    
    2,168,536     GMO International Bond Fund, Class III     18,020,535    
    10,021,423     GMO International Core Equity Fund, Class VI     336,719,824    
    5,853,228     GMO International Growth Equity Fund, Class IV     140,887,203    
    5,467,582     GMO International Intrinsic Value Fund, Class IV     139,532,693    
    360,006     GMO Short-Duration Investment Fund, Class III     3,013,254    
    8,704,655     GMO Special Situations Fund, Class VI     189,065,100    
    20,979,334     GMO Strategic Fixed Income Fund, Class VI     476,650,458    
    4,777,208     GMO U.S. Core Equity Fund, Class VI     56,227,741    
    31,621,144     GMO U.S. Quality Equity Fund, Class VI     638,114,682    
    TOTAL MUTUAL FUNDS (COST $3,530,570,193)     3,193,057,060    
        SHORT-TERM INVESTMENTS — 0.0%  
    22,292     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     22,292    
    TOTAL SHORT-TERM INVESTMENTS (COST $22,292)     22,292    
          TOTAL INVESTMENTS — 100.0%
(Cost $3,530,592,485)
    3,193,079,352    
          Other Assets and Liabilities (net) — (0.0%)     (89,871 )  
    TOTAL NET ASSETS — 100.0%   $ 3,192,989,481    

 

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, 2008 (Unaudited)

Notes to Schedule of Investments:

As of August 31, 2008, 28.45% of the Net Assets of the Fund, through investments in the underlying funds, were valued using fair values 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $22,292) (Note 2)   $ 22,292    
Investments in affiliated issuers, at value (cost $3,530,570,193) (Notes 2 and 8)     3,193,057,060    
Receivable for investments sold     4,123,015    
Receivable for Fund shares sold     987    
Receivable for expenses reimbursed by Manager (Note 3)     14,632    
Total assets     3,197,217,986    
Liabilities:  
Payable for Fund shares repurchased     4,124,000    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     7,100    
Accrued expenses     97,405    
Total liabilities     4,228,505    
Net assets   $ 3,192,989,481    
Net assets consist of:  
Paid-in capital   $ 3,488,715,116    
Accumulated undistributed net investment income     12,331,959    
Accumulated net realized gain     29,455,539    
Net unrealized depreciation     (337,513,133 )  
    $ 3,192,989,481    
Net assets attributable to:  
Class III shares   $ 3,192,989,481    
Shares outstanding:  
Class III     304,841,991    
Net asset value per share:  
Class III   $ 10.47    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 25,642,771    
Interest     680    
Total investment income     25,643,451    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     24,288    
Audit and tax fees     16,008    
Legal fees     39,652    
Chief Compliance Officer (Note 3)     9,660    
Trustees fees and related expenses (Note 3)     19,025    
Registration fees     1,840    
Miscellaneous     11,684    
Total expenses     122,157    
Fees and expenses reimbursed by Manager (Note 3)     (93,472 )  
Expense reductions (Note 2)     (21,462 )  
Net expenses     7,223    
Net investment income (loss)     25,636,228    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (87,634,871 )  
Realized gains distributions from affiliated issuers (Note 8)     122,577,351    
Net realized gain (loss)     34,942,480    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (185,626,116 )  
Net realized and unrealized gain (loss)     (150,683,636 )  
Net increase (decrease) in net assets resulting from operations   $ (125,047,408 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 25,636,228     $ 138,520,227    
Net realized gain (loss)     34,942,480       256,198,017    
Change in net unrealized appreciation (depreciation)     (185,626,116 )     (284,868,880 )  
Net increase (decrease) in net assets from operations     (125,047,408 )     109,849,364    
Distributions to shareholders from:  
Net investment income  
Class III     (31,960,804 )     (163,753,134 )  
Net realized gains  
Class III     (107,528,647 )     (185,650,495 )  
      (139,489,451 )     (349,403,629 )  
Net share transactions (Note 7):  
Class III     92,408,696       524,385,283    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     262,658       860,204    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    92,671,354       525,245,487    
Total increase (decrease) in net assets     (171,865,505 )     285,691,222    
Net assets:  
Beginning of period     3,364,854,986       3,079,163,764    
End of period (including accumulated undistributed net
investment income of $12,331,959 and $18,656,535,
respectively)
  $ 3,192,989,481     $ 3,364,854,986    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 11.37     $ 12.01     $ 11.76     $ 11.33     $ 10.74     $ 8.13    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)      0.09       0.48       0.39       0.36       0.27       0.18    
Net realized and unrealized
gain (loss)
    (0.52 )     0.05       0.66       0.86       0.90       2.68    
Total from investment
operations
    (0.43 )     0.53       1.05       1.22       1.17       2.86    
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.53 )     (0.43 )     (0.37 )     (0.32 )     (0.23 )  
From net realized gains     (0.36 )     (0.64 )     (0.37 )     (0.42 )     (0.26 )     (0.02 )  
Total distributions     (0.47 )     (1.17 )     (0.80 )     (0.79 )     (0.58 )     (0.25 )  
Net asset value, end of period   $ 10.47     $ 11.37     $ 12.01     $ 11.76     $ 11.33     $ 10.74    
Total Return(b)(c)      (3.79 )%**      4.10 %     9.22 %     11.05 %     11.07 %     35.53 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,192,989     $ 3,364,855     $ 3,079,164     $ 1,812,191     $ 1,030,238     $ 453,807    
Net expenses to average daily
net assets(d)(e) 
    0.00 %(f)*      0.00 %(f)      0.00 %     0.00 %     0.00 %     0.00 %  
Net investment income to
average daily net assets(a) 
    1.54 %*      3.89 %     3.28 %     3.17 %     2.53 %     2.19 %  
Portfolio turnover rate     18 %**      76 %     23 %     16 %     10 %     59 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.01 %*      0.01 %     0.01 %     0.01 %     0.02 %     0.03 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts: 
  $ 0.00 (g)    $ 0.00 (g)    $ 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)  The net expense ratio does not include the effect of expense reductions.

(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.


8




GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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 GMO Global Balanced Index is a composite index computed by GMO consisting of: (i) the MSCI ACWI (All Country World Index) Index and (ii) the Lehman Brothers U.S. Aggregate Index in the following proportions: 65% (MSCI ACWI (All Country World Index) Index) and 35% (Lehman Brothers U.S. Aggregate 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, GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, and GMO Special Situations Fund. The Fund typically exposes at least 25% of its assets to fixed income investments and at least 25% of its assets to equity investments.

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 Situations Fund are not publicly available for direct purchase.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. Securities listed on a securities exchange for which market quotations are readily available are valued at the last sale price or official closing price


9



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be mater ial. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

Typically the Fund and the underlying funds value debt instruments based on prices supplied by a primary pricing source chosen by the Manager. The Manager evaluates primary pricing sources on an ongoing basis and may change a pricing source should the Manager deem it appropriate. If it deems it appropriate, the Manager, at its discretion, may override a price supplied by a primary source by using a price provided by another source. The prices provided by primary pricing sources may differ from the value that would be realized if the securities were sold, and the differences could be material.

Certain securities held by the Fund and the underlying funds are valued on the basis of prices provided by a single source. The prices provided may differ from the value that would be realized if the securities were sold, and the differences could be material. As of August 31, 2008, the total value of these securities represented 9.17% of net assets.

The Fund directly and indirectly (through underlying funds) invests in securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, delinquencies and/or defaults, and may be adversely affected by changes in interest rates and shifts in the market's perception of the securities' market values.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


10



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments in
Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 3,004,014,252     $    
Level 2 - Other Significant Observable Inputs     189,065,100          
Level 3 - Significant Unobservable Inputs              
Total   $ 3,193,079,352     $    
Liability Valuation Inputs   Investments in
Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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


11



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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. The Fund had no repurchase agreements outstanding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Utilization of the capital loss carryforwards could be subject to limitations imposed by the Code related to share ownership activity. Such losses expire as follows:

  2/28/2010     $ (1,276 )  
  Total     $ (1,276 )  

 


12



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

As of August 31, 2008, 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)
 
$ 3,567,498,967     $ 16,850,553     $ (391,270,168 )   $ (374,419,615 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.


13



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash 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, 2008. 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 t hat portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.


14



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 fee or shareholder service fee to the Fund, but it 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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, 2008, 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
 
  0.416 %     0.068 %     0.002 %     0.486 %  

 

The Fund's portion of the fees paid by the Trust to Trust's independent Trustees and CCO during the period ended August 31, 2008 was $16,725 and $9,660, respectively. The compensation and expenses of the CCO are included 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, 2008 aggregated $705,553,515 and $603,976,779, respectively.


15



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 14.25% of the outstanding shares of the Fund were held by one shareholder. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investment into) the Fund by or on behalf of this large shareholder may have a material effect on the Fund.

As of August 31, 2008, 0.07% of the Fund's shares were held senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had 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, 2008
(Unaudited)
 
Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     12,184,192     $ 134,333,553       71,503,366     $ 884,679,303    
Shares issued to shareholders
in reinvestment of distributions
    12,999,744       137,277,292       28,319,819       339,998,843    
Shares repurchased     (16,230,001 )     (179,202,149 )     (60,342,225 )     (700,292,863 )  
Purchase premiums           113,806             770,412    
Redemption fees           148,852             89,792    
Net increase (decrease)     8,953,935     $ 92,671,354       39,480,960     $ 525,245,487    

 


16



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 535,974,748     $ 174,004,783     $ 8,537,228     $ 5,528,877     $ 53,288,228     $ 646,915,795    
GMO Core Plus Bond
Fund, Class IV
    49,187,750       1,622,218       11,598,063       1,622,218             36,878,654    
GMO Domestic Bond
Fund, Class VI
    47,058,826       310,606,124       22,516,981       740,134       561,986       336,384,733    
GMO Emerging
Countries Fund,
Class III
    24,700,654       3,011,181       22,291,876             3,011,181          
GMO Emerging Country
Debt Fund, Class IV
    10,781,541       287,115             59,374       227,741       10,511,359    
GMO Emerging Markets
Fund, Class VI
    325,787,540       48,996,824       115,852,134             44,996,824       164,135,029    
GMO International Bond
Fund, Class III
    19,794,069       1,445,618       682,000       1,445,618             18,020,535    
GMO International Core
Equity Fund, Class VI
    353,485,226       27,328,965       8,250,777       4,753,341       2,825,624       336,719,824    
GMO International
Growth Equity Fund,
Class IV
    178,541,031       10,423,853       26,896,929       3,234,311       5,589,542       140,887,203    
GMO International
Intrinsic Value Fund,
Class IV
    177,101,792       12,836,303       26,692,834       2,513,015       8,723,288       139,532,693    
GMO Short-Duration
Investment Fund,
Class III
    3,034,068       7,940             7,940             3,013,254    
GMO Special Situations
Fund, Class VI
    183,337,321       2,350,000                         189,065,100    
GMO Strategic Fixed
Income Fund, Class VI
    825,676,074       8,658,196       329,839,943       115,087             476,650,458    
GMO U.S. Core Equity
Fund, Class VI
    83,499,236       1,784,237       28,174,197       599,717             56,227,741    
GMO U.S. Quality Equity
Fund, Class VI
    546,781,435       102,190,158       2,643,817       5,023,139       3,352,937       638,114,682    
Totals   $ 3,364,741,311     $ 705,553,515     $ 603,976,779     $ 25,642,771     $ 122,577,351     $ 3,193,057,060    

 


17



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

9.  Subsequent event

Effective September 30, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.04% of the amount invested or redeemed. Effective October 8, 2008, the premium on cash purchases was changed to 0.05% of the amount invested and the fee on cash redemptions was changed to 0.31% of the amount redeemed. Effective October 21, 2008, the premium on cash purchases was changed to 0.09% of the amount invested and the fee on cash redemptions was changed to 0.64% of the amount redeemed.


18




GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 substanti ally different 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


19



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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 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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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


20



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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.

Following their review, on June 16, 2008, 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, 2008.


21



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 962.10     $ 2.42    
2) Hypothetical     0.49 %   $ 1,000.00     $ 1,022.74     $ 2.50    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


22




Subsequent Event (continued) -

As described more fully below, and in light of current extraordinary market conditions:

•  The Fixed Income Funds will honor nearly all redemptions in-kind during this period.

•  The Fixed Income Funds will, if deemed prudent by GMO, take temporary defensive measures (until GMO has determined that normal conditions have returned or that it is otherwise prudent to resume investing in accordance with a Fund's normal investment strategies) and may not achieve their respective investment objectives during this period.

* * * * * * *

As described elsewhere in the Prospectus, each of the Fixed Income Funds makes extensive use of derivatives to achieve its exposures to the fixed income markets and to pursue strategies intended to obtain returns in excess of its performance benchmark. Each of those Funds also invests a substantial portion of its assets in the GMO Short-Duration Collateral Fund ("SDCF") and/or the GMO World Opportunity Overlay Fund ("WOOF"). The principal risks of pursuing the Fixed Income Funds' strategies in this manner, including the risks of using derivatives, are discussed in greater detail in the Prospectus under the heading "Description of Principal Risks."

Very recent changes in the credit markets have reduced the liquidity for all types of fixed income securities, including the asset-backed securities held by all of the Fixed Income Funds either directly or indirectly through SDCF and WOOF. Contemporaneously, each Fixed Income Fund has also had a greater need for cash to provide margin for large swings in the mark-to-market obligations arising under the derivatives used by the Funds. In order to deal equitably with the demands for liquidity, on October 23, 2008 and October 27, 2008, SDCF declared and paid to all shareholders (including the Fixed Income Funds) a dividend in an aggregate amount equal to substantially all of the cash on hand in SDCF. Substantially all subsequent cash flows into SDCF from portfolio investments (and proceeds of dispositions by SDCF) are likewise expected to be declared and paid as dividends as practicable. All redemptions from SDCF and WOOF by other Fixed Income Funds (and any other shareholders) will be honored in-kind until further notice, using for this purpose (and to the extent practicable) securities deemed by GMO to be representative of the portfolio of SDCF and/or WOOF.

Each of the Fixed Income Funds uses its cash balance to meet its derivative collateral obligations and for other purposes. There is no assurance that a Fund's cash balance will be sufficient to meet that Fund's collateral obligations and, if it is not, the Fund would be required to liquidate other positions. That may include redeeming shares of SDCF and/or WOOF, in which case, as noted above, the Fixed Income Fund would receive redemption proceeds in-kind from SDCF and/or WOOF and would then be required to dispose of those assets (mostly asset-backed securities) in the current adverse market conditions.

To manage each Fixed Income Fund's cash collateral needs in these extraordinary market conditions, GMO reserves the right to reduce or eliminate the Fund's derivative exposures, including those that are intended to cause a Fixed Income Fund to track its benchmark more closely. To the extent that a Fixed Income Fund reduces those exposures, it will tend to cause the performance of that Fund to track its benchmark less closely and make the Fund's performance more dependent on the performance of the asset-backed securities it holds directly or indirectly.

To address in part the management issues described above, nearly all redemptions from the Fixed Income Funds are expected to be in-kind for the foreseeable future. If redeeming shareholders from a Fixed Income Fund choose to dispose of assets received in-kind immediately, those dispositions will occur in the current extraordinary market conditions. To the extent that the Fixed Income Funds honor redemptions in cash, redeeming shareholders will bear the redemption fees described in more detail below. The Manager may impose a new purchase premium and/or redemption fee for any Fund at any time. The Manager also may modify or eliminate an existing purchase premium or redemption fee for any Fund at any time.




GMO International Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO International Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     91.6 %  
Short-Term Investments     4.5    
Preferred Stocks     2.6    
Forward Currency Contracts     0.2    
Private Equity Securities     0.1    
Investment Funds     0.1    
Debt Obligations     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Futures     (0.2 )  
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 International Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2008 (Unaudited)

Country / Region Summary**   % of Investments  
Euro Region***     25.8 %  
Japan     18.8    
United Kingdom     17.4    
Switzerland     7.4    
Canada     4.0    
Brazil     3.5    
Australia     3.2    
Korea     3.1    
Singapore     2.2    
Hong Kong     2.0    
Taiwan     2.0    
Russia     1.7    
Denmark     1.2    
Turkey     1.2    
China     1.1    
Thailand     1.0    
South Africa     0.9    
Sweden     0.8    
Hungary     0.5    
Norway     0.5    
Malaysia     0.4    
India     0.3    
Israel     0.2    
Poland     0.2    
Mexico     0.2    
Philippines     0.2    
Indonesia     0.1    
Argentina     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.

***  The "Euro Region" is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.


2




GMO International Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    8,857,587     GMO Emerging Markets Fund, Class VI     126,043,467    
    12,453,178     GMO International Growth Equity Fund, Class IV     299,747,983    
    11,710,401     GMO International Intrinsic Value Fund, Class IV     298,849,433    
    TOTAL MUTUAL FUNDS (COST $830,982,830)     724,640,883    
        SHORT-TERM INVESTMENTS — 0.0%  
    21,719     State Street Eurodollar Time Deposit, 1.00%, due 09/02/08     21,719    
    TOTAL SHORT-TERM INVESTMENTS (COST $21,719)     21,719    
            TOTAL INVESTMENTS — 100.0%
(Cost $831,004,549)
    724,662,602    
            Other Assets and Liabilities (net) — (0.0%)     (34,661 )  
    TOTAL NET ASSETS — 100.0%   $ 724,627,941    

 

Notes to Schedule of Investments:

As of August 31, 2008, 83.89% 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, 2008 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $21,719) (Note 2)   $ 21,719    
Investments in affiliated issuers, at value (cost $830,982,830) (Notes 2 and 8)     724,640,883    
Receivable for Fund shares sold     314,900    
Receivable for expenses reimbursed by Manager (Note 3)     9,548    
Total assets     724,987,050    
Liabilities:  
Payable for investments purchased     314,900    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,641    
Accrued expenses     42,568    
Total liabilities     359,109    
Net assets   $ 724,627,941    
Net assets consist of:  
Paid-in capital   $ 753,196,502    
Accumulated undistributed net investment income     10,664,626    
Accumulated net realized gain     67,108,760    
Net unrealized depreciation     (106,341,947 )  
    $ 724,627,941    
Net assets attributable to:  
Class III shares   $ 724,627,941    
Shares outstanding:  
Class III     56,272,248    
Net asset value per share:  
Class III   $ 12.88    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 10,669,468    
Interest     252    
Total investment income     10,669,720    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,460    
Audit and tax fees     16,008    
Legal fees     9,292    
Trustees fees and related expenses (Note 3)     4,343    
Registration fees     2,300    
Miscellaneous     5,061    
Total expenses     60,464    
Fees and expenses reimbursed by Manager (Note 3)     (53,912 )  
Expense reductions (Note 2)     (1,458 )  
Net expenses     5,094    
Net investment income (loss)     10,664,626    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     15,849,721    
Realized gains distributions from affiliated issuers (Note 8)     51,269,324    
Net realized gain (loss)     67,119,045    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     (161,792,372 )  
Net realized and unrealized gain (loss)     (94,673,327 )  
Net increase (decrease) in net assets resulting from operations   $ (84,008,701 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 10,664,626     $ 13,683,208    
Net realized gain (loss)     67,119,045       164,601,980    
Change in net unrealized appreciation (depreciation)     (161,792,372 )     (115,404,606 )  
Net increase (decrease) in net assets from operations     (84,008,701 )     62,880,582    
Distributions to shareholders from:  
Net investment income  
Class III           (42,033,244 )  
Net realized gains  
Class III     (97,263,754 )     (90,134,712 )  
      (97,263,754 )     (132,167,956 )  
Net share transactions (Note 7):  
Class III     150,038,222       65,994,952    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     320,149       77,341    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees
    150,358,371       66,072,293    
Total increase (decrease) in net assets     (30,914,084 )     (3,215,081 )  
Net assets:  
Beginning of period     755,542,025       758,757,106    
End of period (including accumulated undistributed net investment
income of $10,664,626 and $0, respectively)
  $ 724,627,941     $ 755,542,025    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 16.45     $ 17.96     $ 17.13     $ 15.19     $ 12.83     $ 8.23    
Income (loss) from investment
operations:
 
Net investment income (loss)(a)†      0.21       0.31       0.33       0.18       0.29       0.25    
Net realized and unrealized
gain (loss)
    (1.75 )     1.32       2.85       2.90       2.65       4.60    
Total from investment operations     (1.54 )     1.63       3.18       3.08       2.94       4.85    
Less distributions to shareholders:  
From net investment income           (1.00 )     (0.83 )     (0.47 )     (0.42 )     (0.25 )  
From net realized gains     (2.03 )     (2.14 )     (1.52 )     (0.67 )     (0.16 )        
Total distributions     (2.03 )     (3.14 )     (2.35 )     (1.14 )     (0.58 )     (0.25 )  
Net asset value, end of period   $ 12.88     $ 16.45     $ 17.96     $ 17.13     $ 15.19     $ 12.83    
Total Return(b)(c)      (9.98 )%**      7.81 %     19.33 %     21.15 %     23.25 %     60.41 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 724,628     $ 755,542     $ 758,757     $ 659,520     $ 489,026     $ 256,277    
Net expenses to average daily
net assets(d)(e) 
    0.00 %(f)*      0.00 %(f)      0.00 %     0.00 %     0.00 %     0.00 %  
Net investment income to average
daily net assets(a) 
    2.68 %*      1.66 %     1.87 %     1.15 %     2.18 %     2.35 %  
Portfolio turnover rate     16 %**      9 %     4 %     7 %     15 %     43 %  
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: 
  $ 0.01     $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 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)  The net expense ratio does not include the effect of expense reductions.

(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 International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2008 (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, GMO Flexible Equities 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 followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

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. 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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Securities for which quotations are not


8



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material. 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 do not reflect the events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign equity securities using fair value prices supplied by a third party vendor based on models to the extent that these fair value prices are available.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 724,662,602     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $ 724,662,602     $    

 


9



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

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 all of its net realized short-term and long-term capital gain, 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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and


10



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of August 31, 2008, 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)
 
$ 831,089,703     $     $ (106,427,101 )   $ (106,427,101 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Security transactions and related investment income

Security transactions are accounted for on the 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 asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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 also incurs 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).


11



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2008, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.17% 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 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, 2008. 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 t hat portion. In addition, the Manager may waive the purchase premium or redemption fee 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. The Manager will waive the purchase premium relating to the in-kind portion of a purchase transaction except for 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 charge a redemption fee based on estimated or known transaction costs. The Fund charges 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.


12



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 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 it 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, 2009 (excluding "Excluded Expenses", as defined below). Excluded Expenses include 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, 2008, 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  
  0.617 %     0.085 %     0.702 %  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $3,883 and $2,208, 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 International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 aggregated $237,418,092 and $122,392,589, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 24.47% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and none of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

    Six Months Ended
August 31, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     8,794,695     $ 138,387,813       25,844     $ 478,479    
Shares issued to shareholders
in reinvestment of distributions
    6,891,903       93,523,131       6,819,633       126,019,627    
Shares repurchased     (5,351,040 )     (81,872,722 )     (3,144,468 )     (60,503,154 )  
Purchase premiums           223,845             742    
Redemption fees           96,304             76,599    
Net increase (decrease)     10,335,558     $ 150,358,371       3,701,009     $ 66,072,293    

 


14



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008 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
  $ 24,331,147     $ 2,177,207     $ 22,240,591     $     $ 2,177,207     $    
GMO Emerging
Markets Fund,
Class VI
    165,596,573       45,799,351       33,830,911             22,440,568       126,043,467    
GMO International
Growth Equity Fund,
Class IV
    283,913,374       91,032,024       32,976,034       5,957,847       10,296,359       299,747,983    
GMO International
Intrinsic Value Fund,
Class IV
    281,716,937       98,409,510       33,345,053       4,711,621       16,355,190       298,849,433    
Totals   $ 755,558,031     $ 237,418,092     $ 122,392,589     $ 10,669,468     $ 51,269,324     $ 724,640,883    

 

9.  Subsequent event

Effective September 30, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.14% of the amount invested or redeemed. Effective October 21, 2008, the premium on cash purchases and fee on cash redemptions were each changed to 0.18% of the amount invested or redeemed.


15




GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 those 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.


17



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (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.

Following their review, on June 16, 2008, 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, 2008.


18



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     0.70 %   $ 1,000.00     $ 900.20     $ 3.35    
2) Hypothetical     0.70 %   $ 1,000.00     $ 1,021.68     $ 3.57    

 

*  Expenses are calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


19




GMO Real Estate Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO Real Estate Fund

(A Series of GMO Trust)
Investments Concentration Summary
August
31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Real Estate Investments     96.5 %  
Short-Term Investments     3.6    
Other     (0.1 )  
      100.0 %  
Industry Sector Summary   % of REIT Investments  
Shopping Centers     14.1 %  
Apartments     13.5    
Health Care     11.7    
Regional Malls     9.7    
Industrial     8.8    
Diversified     8.8    
Office Suburban     8.4    
Office Central Business District     8.2    
Storage     6.9    
Hotels     5.0    
Triple Net     3.4    
Manufactured Housing     1.0    
Outlets     0.5    
      100.0 %  

 


1




GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2008 (Unaudited)

Shares   Description   Value ($)  
        REAL ESTATE INVESTMENTS — 96.5%        
        REAL ESTATE INVESTMENT TRUSTS — 96.5%        
        Apartments — 13.0%        
  5,500     American Campus Communities, Inc.     166,760    
  2,774     Apartment Investment & Management Co.-Class A     98,308    
  5,300     Avalonbay Communities, Inc.     530,000    
  2,700     BRE Properties, Inc.-Class A     130,221    
  3,900     Camden Property Trust     190,359    
  4,500     Education Realty Trust, Inc.     49,320    
  16,500     Equity Residential Properties Trust     696,300    
  1,720     Essex Property Trust, Inc.     201,842    
  3,400     Home Properties of NY, Inc.     179,350    
  3,800     Investors Real Estate Trust     39,254    
  2,300     Mid-America Apartment Communities, Inc.     115,368    
  5,300     Post Properties, Inc.     166,685    
  5,300     UDR, Inc.     131,334    
    Total Apartments     2,695,101    
        Diversified — 8.4%        
  400     Alexander's, Inc. *      153,640    
  2,700     Colonial Properties Trust     51,057    
  1,300     DuPont Fabros Technology, Inc.     22,828    
  10,100     Franklin Street Properties Corp.     128,573    
  2,525     Gramercy Capital Corp.     16,892    
  1,000     Pennsylvania Real Estate Investment Trust     19,850    
  12,500     Vornado Realty Trust     1,243,250    
  3,000     Washington Real Estate Investment Trust     106,050    
    Total Diversified     1,742,140    
        Health Care — 11.3%        
  16,500     HCP, Inc.     597,630    
  7,900     Health Care, Inc.     409,773    
  1,200     LTC Properties, Inc.     32,244    
  5,000     Medical Properties Trust, Inc.     55,200    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued        
  2,200     National Health Investors, Inc.     71,940    
  8,100     Nationwide Health Properties     278,802    
  5,900     Omega Healthcare Investors, Inc.     105,256    
  9,500     Senior Housing Properties Trust     205,960    
  800     Universal Health Realty Income Trust     29,352    
  11,900     Ventas, Inc.     540,498    
    Total Health Care     2,326,655    
        Hotels — 4.9%        
  4,900     DiamondRock Hospitality Co.     45,129    
  8,500     Hospitality Properties Trust     192,780    
  49,400     Host Hotels & Resorts, Inc.     706,420    
  1,100     Lasalle Hotel Properties     28,677    
  2,300     Sunstone Hotel Investors, Inc.     32,614    
    Total Hotels     1,005,620    
        Industrial — 8.5%        
  9,600     AMB Property Corp.     435,744    
  2,500     DCT Industrial Trust, Inc.     18,650    
  3,800     Digital Realty Trust, Inc.     174,306    
  1,100     Eastgroup Properties, Inc.     48,906    
  25,138     ProLogis     1,082,442    
    Total Industrial     1,760,048    
        Manufactured Housing — 1.0%        
  2,900     Equity Lifestyle Properties, Inc.     144,072    
  2,900     Sun Communities, Inc.     55,999    
    Total Manufactured Housing     200,071    
        Office Central Business District — 7.9%        
  7,900     BioMed Realty Trust, Inc.     211,562    
  10,800     Boston Properties, Inc.     1,106,676    
  5,000     Douglas Emmett, Inc.     118,350    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Office Central Business District — continued        
  700     Maguire Properties, Inc.     7,924    
  2,223     SL Green Realty Corp.     191,178    
    Total Office Central Business District     1,635,690    
        Office Suburban — 8.1%        
  3,200     Alexandria Real Estate Equity, Inc.     344,672    
  1,389     Brandywine Realty Trust     24,169    
  800     Corporate Office Properties Trust     31,280    
  10,900     Duke Realty Investments     272,827    
  3,000     Highwoods Properties, Inc.     108,810    
  23,700     HRPT Properties Trust     179,646    
  2,000     Kilroy Realty Corp.     100,100    
  9,200     Liberty Property Trust     347,392    
  6,100     Mack-Cali Realty Corp.     246,562    
  400     PS Business Parks, Inc.     21,532    
    Total Office Suburban     1,676,990    
        Outlets — 0.5%        
  2,500     Tanger Factory Outlet Centers, Inc.     100,300    
        Regional Malls — 9.3%        
  6,200     CBL & Associates Properties, Inc.     134,478    
  4,900     General Growth Properties     127,057    
  2,000     Macerich Co.     123,860    
  14,600     Simon Property Group, Inc.     1,385,248    
  3,100     Taubman Centers, Inc.     150,474    
    Total Regional Malls     1,921,117    
        Shopping Centers — 13.6%        
  2,200     Acadia Realty Trust     52,250    
  2,900     Cedar Shopping Centers, Inc.     37,990    
  10,800     Developers Diversified Realty Corp.     361,908    
  6,600     Equity One, Inc.     138,534    
  5,300     Federal Realty Investment Trust     402,164    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Shopping Centers — continued        
  5,700     Inland Real Estate Corp.     85,728    
  24,158     Kimco Realty Corp.     897,228    
  2,000     Kite Realty Group Trust     24,380    
  6,500     Regency Centers Corp.     402,805    
  1,800     Saul Centers, Inc.     82,296    
  3,200     Urstadt Biddle Properties, Inc.     54,496    
  8,300     Weingarten Realty Investors     274,315    
    Total Shopping Centers     2,814,094    
        Storage — 6.7%        
  4,100     Extra Space Storage, Inc.     64,575    
  14,114     Public Storage, Inc.     1,246,549    
  1,700     Sovran Self Storage     65,450    
    Total Storage     1,376,574    
        Triple Net — 3.3%        
  2,400     Entertainment Properties Trust     130,248    
  3,000     Getty Realty Corp.     62,790    
  5,500     Lexington Corporate Properties Trust     82,005    
  7,200     National Retail Properties, Inc.     163,368    
  9,500     Realty Income Corp.     243,960    
    Total Triple Net     682,371    
        TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $22,089,128)     19,936,771    
    TOTAL REAL ESTATE INVESTMENTS (COST $22,089,128)     19,936,771    

 

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, 2008 (Unaudited)

Shares /
Par Value ($)
  Description   Value ($)  
    SHORT-TERM INVESTMENTS — 3.6%        
    Money Market Funds — 1.7%        
  345,564     State Street Institutional Treasury Money Market Fund-Institutional Class     345,564    
    Other Short-Term Investments — 1.9%        
  400,000     U.S. Treasury Bill, 1.70%, due 01/22/09 (a)      397,342    
    TOTAL SHORT-TERM INVESTMENTS (COST $742,704)     742,906    
    TOTAL INVESTMENTS — 100.1%
(Cost $22,831,832)
    20,679,677    
    Other Assets and Liabilities (net) — (0.1%)     (28,961 )  
    TOTAL NET ASSETS — 100.0%   $ 20,650,716    

 

Notes to Schedule of Investments:

*  Non-income producing security.

(a)  Rate shown represents yield-to-maturity.

See accompanying notes to the financial statements.


6




GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2008 (Unaudited)

Assets:  
Investments, at value (cost $22,831,832) (Note 2)   $ 20,679,677    
Dividends and interest receivable     13,990    
Receivable for expenses reimbursed by Manager (Note 3)     6,076    
Total assets     20,699,743    
Liabilities:  
Payable for investments purchased     5,983    
Payable to affiliate for (Note 3):  
Management fee     5,765    
Shareholder service fee     2,620    
Trustees and Chief Compliance Officer of GMO Trust fees     59    
Accrued expenses     34,600    
Total liabilities     49,027    
Net assets   $ 20,650,716    
Net assets consist of:  
Paid-in capital   $ 23,093,803    
Accumulated undistributed net investment income     437,783    
Distributions in excess of net realized gain     (728,715 )  
Net unrealized depreciation     (2,152,155 )  
    $ 20,650,716    
Net assets attributable to:  
Class III shares   $ 20,650,716    
Shares outstanding:  
Class III     2,554,383    
Net asset value per share:  
Class III   $ 8.08    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends   $ 490,926    
Interest     4,196    
Total investment income     495,122    
Expenses:  
Management fee (Note 3)     34,871    
Shareholder service fee – Class III (Note 3)     15,850    
Custodian, fund accounting agent and transfer agent fees     5,612    
Audit and tax fees     27,509    
Legal fees     184    
Trustees fees and related expenses (Note 3)     117    
Registration fees     1,012    
Miscellaneous     184    
Total expenses     85,339    
Fees and expenses reimbursed by Manager (Note 3)     (34,500 )  
Expense reductions (Note 2)     (6 )  
Net expenses     50,833    
Net investment income (loss)     444,289    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (477,239 )  
Change in net unrealized appreciation (depreciation) on investments     1,329,043    
Net realized and unrealized gain (loss)     851,804    
Net increase (decrease) in net assets resulting from operations   $ 1,296,093    

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 444,289     $ 1,085,345    
Net realized gain (loss)     (477,239 )     2,263,639    
Change in net unrealized appreciation (depreciation)     1,329,043       (11,549,632 )  
Net increase (decrease) in net assets from operations     1,296,093       (8,200,648 )  
Distributions to shareholders from:  
Net investment income  
Class III     (325,570 )     (360,012 )  
Net realized gains  
Class III     (320,811 )     (5,263,497 )  
      (646,381 )     (5,623,509 )  
Net share transactions (Note 7):  
Class III     535,719       (4,360,814 )  
Total increase (decrease) in net assets     1,185,431       (18,184,971 )  
Net assets:  
Beginning of period     19,465,285       37,650,256    
End of period (including accumulated undistributed net
investment income of $437,783 and $319,064, respectively)
  $ 20,650,716     $ 19,465,285    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning of
period
  $ 7.85     $ 12.87     $ 12.27     $ 14.54     $ 14.65     $ 10.49    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.18       0.40       0.38       0.61       0.59       0.58    
Net realized and unrealized gain (loss)     0.31       (3.29 )     2.72       3.24       1.55       4.01    
Total from investment operations     0.49       (2.89 )     3.10       3.85       2.14       4.59    
Less distributions to shareholders:  
From net investment income     (0.13 )     (0.14 )     (0.31 )     (0.40 )     (0.87 )     (0.43 )  
From net realized gains     (0.13 )     (1.99 )     (2.19 )     (5.72 )     (1.38 )        
Total distributions     (0.26 )     (2.13 )     (2.50 )     (6.12 )     (2.25 )     (0.43 )  
Net asset value, end of period   $ 8.08     $ 7.85     $ 12.87     $ 12.27     $ 14.54     $ 14.65    
Total Return(a)      6.65 %**      (24.04 )%     29.76 %     28.89 %     16.01 %     44.56 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 20,651     $ 19,465     $ 37,650     $ 41,391     $ 235,837     $ 191,458    
Net expenses to average daily net assets     0.48 %(b)*      0.48 %     0.48 %     0.48 %     0.48 %     0.52 %  
Net investment income to average
daily net assets
    4.20 %*      3.78 %     3.24 %     3.91 %     4.13 %     4.61 %  
Portfolio turnover rate     12 %**      49 %     43 %     52 %     134 %     56 %  
Fees and expenses reimbursed and/or
waived by the Manager to average
daily net assets:
    0.33 %*      0.22 %     0.28 %     0.25 %     0.25 %     0.24 %  

 

(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.

(b)  The net expense ratio does not include the effect of expense reductions.

†  Calculated using average shares outstanding throughout the period.

*  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, 2008 (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 in companies with similar characteristics.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it


11



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $ 20,334,113     $    
Level 2 - Other Significant Observable Inputs     345,564          
Level 3 - Significant Unobservable Inputs              
Total   $ 20,679,677     $    
Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The Fund held no investments or other financial instruments at either February 29, 2008 or August 31, 2008, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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


12



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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. The Fund had no futures contracts outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, if any, after


13



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $98,433.

As of August 31, 2008, 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)
 
$ 22,992,923     $ 847,378     $ (3,160,624 )   $ (2,313,246 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


14



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset 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 dist ributions 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 Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

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 pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The


15



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Expenses include 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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $117 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, 2008 aggregated $2,672,904 and $2,301,340, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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


16



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August
31, 2008 (Unaudited)

can be no assurance that in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 86.30% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund by or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.50% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 72.24% 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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold     26,350     $ 200,000       12,826     $ 100,698    
Shares issued to shareholders
in reinvestment of distributions
    51,098       364,841       514,775       4,830,216    
Shares repurchased     (3,461 )     (29,122 )     (973,250 )     (9,291,728 )  
Net increase (decrease)     73,987     $ 535,719       (445,649 )   $ (4,360,814 )  

 


17




GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August
31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 t he 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 those 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. 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


18



GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August
31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund groups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


19



GMO Real Estate Fund

(A Series of GMO Trust)

Fund Expenses
August
31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 1,066.50     $ 2.50    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


20




GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2008



For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect), visit GMO's 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 GMO's 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 has a policy with respect to disclosure of portfolio holdings under which it may also make available on GMO's website at www.gmo.com a complete schedule of portfolio holdings.

This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.




GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2008 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.4 %  
Short-Term Investments     3.4    
Futures     0.1    
Rights and Warrants     0.0    
Other     0.1    
      100.0 %  
Industry Sector Summary   % of Equity Investments  
Energy     25.5 %  
Health Care     19.3    
Financials     15.5    
Consumer Staples     13.4    
Information Technology     9.4    
Consumer Discretionary     8.1    
Industrials     7.1    
Materials     0.9    
Telecommunication Services     0.7    
Utilities     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, 2008 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.4%  
        Consumer Discretionary — 7.8%  
    500     Abercrombie & Fitch Co.-Class A     26,225    
    300     Advance Auto Parts, Inc.     12,912    
    500     American Eagle Outfitters, Inc.     7,525    
    300     Apollo Group, Inc.-Class A *      19,104    
    2,400     AutoNation, Inc. *      27,240    
    200     AutoZone, Inc. *      27,446    
    1,500     Bed Bath & Beyond, Inc. *      45,990    
    300     Best Buy Co., Inc.     13,431    
    200     Black & Decker Corp.     12,650    
    400     BorgWarner, Inc.     16,540    
    700     Brunswick Corp.     9,653    
    1,000     Career Education Corp. *      18,750    
    900     Centex Corp.     14,598    
    900     Coach, Inc. *      26,091    
    1,700     D.R. Horton, Inc.     21,182    
    500     Discovery Holding Co.-Class A *      10,115    
    800     Dollar Tree, Inc. *      30,688    
    900     Family Dollar Stores, Inc.     22,428    
    3,000     Gannett Co., Inc.     53,370    
    2,200     Gap (The), Inc.     42,790    
    2,300     General Motors Corp.     23,000    
    600     Harley-Davidson, Inc.     23,868    
    21,900     Home Depot, Inc.     593,928    
    300     ITT Educational Services, Inc. *      26,673    
    1,100     Johnson Controls, Inc.     34,012    
    600     KB Home     12,480    
    1,400     Kohl's Corp. *      68,838    
    1,300     Lennar Corp.-Class A     17,095    
    1,100     Liz Claiborne, Inc.     17,831    
    11,200     Lowe's Cos., Inc.     275,968    
    700     McDonald's Corp.     43,435    
    431     MDC Holdings, Inc.     17,865    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Discretionary — continued  
    200     Mohawk Industries, Inc. *      13,810    
    400     Nike, Inc.-Class B     24,244    
    800     Office Depot, Inc. *      5,632    
    1,000     O'Reilly Automotive, Inc.*      29,120    
    800     Penske Auto Group, Inc.     10,600    
    700     Pulte Homes, Inc.     10,157    
    4,300     Staples, Inc.     104,060    
    2,900     Target Corp.     153,758    
    900     Toll Brothers, Inc. *      22,392    
    Total Consumer Discretionary     1,987,494    
        Consumer Staples — 12.9%  
    400     Alberto-Culver Co.     10,464    
    9,600     Altria Group, Inc.     201,888    
    1,900     Archer-Daniels-Midland Co.     48,374    
    300     Avon Products, Inc.     12,849    
    300     BJ's Wholesale Club, Inc. *      11,409    
    9,700     Coca-Cola Co. (The)     505,079    
    1,500     Coca-Cola Enterprises, Inc.     25,605    
    900     Colgate-Palmolive Co.     68,427    
    1,200     Costco Wholesale Corp.     80,472    
    1,200     CVS Caremark Corp.     43,920    
    300     Energizer Holdings, Inc. *      25,482    
    300     Estee Lauder Cos. (The), Inc.-Class A     14,931    
    500     General Mills, Inc.     33,090    
    200     HJ Heinz Co.     10,064    
    200     Kellogg Co.     10,888    
    800     Kimberly-Clark Corp.     49,344    
    1,107     Kraft Foods, Inc.     34,882    
    300     Pepsi Bottling Group (The), Inc.     8,874    
    600     PepsiAmericas, Inc.     14,058    
    5,700     PepsiCo, Inc.     390,336    
    2,700     Philip Morris International, Inc.     144,990    
    6,900     Procter & Gamble Co. (The)     481,413    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Consumer Staples — continued  
    875     Supervalu, Inc.     20,291    
    824     Tyson Foods, Inc.-Class A     11,964    
    200     UST, Inc.     10,718    
    4,800     Walgreen Co.     174,864    
    14,200     Wal-Mart Stores, Inc.     838,794    
    200     WM Wrigley Jr. Co.     15,896    
    Total Consumer Staples     3,299,366    
        Energy — 24.6%  
    1,900     Anadarko Petroleum Corp.     117,287    
    2,410     Apache Corp.     275,656    
    100     Baker Hughes, Inc.     8,001    
    1,400     BJ Services Co.     37,590    
    1,600     Chesapeake Energy Corp.     77,440    
    16,300     Chevron Corp.     1,407,016    
    300     Cimarex Energy Co.     16,662    
    12,229     ConocoPhillips     1,009,015    
    1,700     Devon Energy Corp.     173,485    
    200     Encore Acquisition Co. *      10,312    
    730     EOG Resources, Inc.     76,227    
    25,500     Exxon Mobil Corp.     2,040,255    
    300     Forest Oil Corp. *      17,076    
    300     Helix Energy Solutions Group, Inc. *      9,231    
    400     Helmerich & Payne, Inc.     22,848    
    1,000     Hess Corp.     104,710    
    700     Murphy Oil Corp.     54,971    
    900     Nabors Industries Ltd. *      32,067    
    200     Newfield Exploration Co. *      9,044    
    200     Noble Corp.     10,058    
    400     Noble Energy, Inc.     28,692    
    5,100     Occidental Petroleum Corp.     404,736    
    1,300     Patterson-UTI Energy, Inc.     36,946    
    200     Plains Exploration & Production Co. *      10,780    
    300     St. Mary Land & Exploration Co.     12,666    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    500     Sunoco, Inc.     22,190    
    200     Transocean, Inc. *      25,440    
    300     Unit Corp. *      20,319    
    4,000     Valero Energy Corp.     139,040    
    200     W&T Offshore, Inc.     7,032    
    900     Weatherford International Ltd. *      34,722    
    100     Whiting Petroleum Corp. *      9,624    
    Total Energy     6,261,138    
        Financials — 15.0%  
    800     ACE Ltd.     42,088    
    1,200     Aflac, Inc.     68,040    
    7,500     Allstate Corp. (The)     338,475    
    400     American Financial Group, Inc.     11,412    
    13,700     American International Group, Inc.     294,413    
    1,500     Annaly Capital Management, Inc.     22,440    
    500     AON Corp.     23,745    
    200     Arch Capital Group Ltd. *      13,952    
    700     Associated Banc Corp.     12,250    
    400     Assurant, Inc.     23,372    
    300     Axis Capital Holdings Ltd.     10,029    
    16,267     Bank of America Corp.     506,554    
    2,800     BB&T Corp.     84,000    
    270     BlackRock, Inc.     58,658    
    200     Boston Properties, Inc. REIT     20,494    
    600     Capital One Financial Corp.     26,484    
    4,200     Chubb Corp.     201,642    
    25,500     Citigroup, Inc.     484,245    
    1,300     Comerica, Inc.     36,517    
    300     Endurance Specialty Holdings Ltd.     9,786    
    600     Equity Residential REIT     25,320    
    100     Essex Property Trust, Inc. REIT     11,735    
    300     Everest Re Group Ltd.     24,639    
    6,400     Fannie Mae     43,776    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    1,000     Fifth Third Bancorp     15,780    
    800     First American Corp.     20,216    
    1,200     First Horizon National Corp.     13,476    
    600     Freddie Mac     2,706    
    100     Goldman Sachs Group, Inc.     16,397    
    1,500     Hartford Financial Services Group (The), Inc.     94,620    
    900     HCC Insurance Holdings, Inc.     22,662    
    300     HCP, Inc. REIT     10,866    
    300     Health Care REIT, Inc.     15,561    
    2,700     Hudson City Bancorp, Inc.     49,788    
    400     JPMorgan Chase & Co.     15,396    
    500     KeyCorp     6,005    
    700     Leucadia National Corp.     32,403    
    1,200     Marshall & Ilsley Corp.     18,480    
    1,600     MBIA, Inc.     25,952    
    500     MetLife, Inc.     27,100    
    900     MGIC Investment Corp.     7,569    
    800     Morgan Stanley     32,664    
    300     Nasdaq OMX Group (The), Inc. *      9,807    
    2,575     Old Republic International Corp.     28,145    
    200     PartnerRe Ltd.     13,782    
    1,600     Popular, Inc.     13,040    
    4,400     Progressive Corp. (The)     81,268    
    800     Protective Life Corp.     29,032    
    200     Public Storage     17,664    
    300     Reinsurance Group of America, Inc.     14,448    
    500     Safeco Corp.     33,800    
    600     SLM Corp. *      9,906    
    200     StanCorp Financial Group, Inc.     9,802    
    200     State Street Corp.     13,534    
    300     Suntrust Banks, Inc.     12,567    
    1,300     Synovus Financial Corp.     11,960    
    200     T. Rowe Price Group, Inc.     11,872    
    700     Torchmark Corp.     41,818    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Financials — continued  
    7,000     Travelers Cos. (The), Inc.     309,120    
    600     UnionBanCal Corp.     44,208    
    800     Unum Group     20,328    
    4,300     US Bancorp     136,998    
    1,700     W.R. Berkley Corp.     40,052    
    2,100     Wachovia Corp.     33,369    
    4,500     Washington Mutual, Inc.     18,225    
    500     Wells Fargo & Co.     15,135    
    600     XL Capital Ltd.-Class A     12,060    
    400     Zions Bancorporation     10,736    
    Total Financials     3,814,383    
        Health Care — 18.6%  
    1,900     Abbott Laboratories     109,117    
    400     Aetna, Inc.     17,256    
    2,400     AmerisourceBergen Corp.     98,424    
    2,100     Amgen, Inc. *      131,985    
    300     Applied Biosystems, Inc.     10,947    
    1,900     Biogen Idec, Inc. *      96,767    
    100     Bristol-Myers Squibb Co.     2,134    
    2,400     Cardinal Health, Inc.     131,952    
    200     Charles River Laboratories International, Inc. *      13,122    
    2,100     Coventry Health Care, Inc. *      73,542    
    2,900     Eli Lilly & Co.     135,285    
    500     Endo Pharmaceuticals Holdings, Inc. *      11,360    
    1,100     Express Scripts, Inc. *      80,751    
    2,300     Forest Laboratories, Inc. *      82,087    
    600     Genzyme Corp. *      46,980    
    2,200     Gilead Sciences, Inc. *      115,896    
    500     Health Net, Inc. *      13,825    
    700     Invitrogen Corp. *      29,722    
    12,400     Johnson & Johnson     873,332    
    1,900     King Pharmaceuticals, Inc. *      21,736    
    400     Lincare Holdings, Inc. *      13,200    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    4,500     McKesson Corp.     260,010    
    600     Medco Health Solutions, Inc. *      28,110    
    1,900     Medtronic, Inc.     103,740    
    2,400     Merck & Co., Inc.     85,608    
    400     Patterson Cos., Inc. *      13,016    
    200     Pediatrix Medical Group, Inc. *      11,390    
    40,100     Pfizer, Inc.     766,311    
    600     Quest Diagnostics, Inc.     32,430    
    1,300     Stryker Corp.     87,347    
    21,167     UnitedHealth Group, Inc.     644,535    
    5,500     WellPoint, Inc. *      290,345    
    2,200     Wyeth     95,216    
    3,000     Zimmer Holdings, Inc. *      217,170    
    Total Health Care     4,744,648    
        Industrials — 6.8%  
    1,300     3M Co.     93,080    
    200     AGCO Corp. *      12,326    
    1,700     Avis Budget Group, Inc. *      12,954    
    320     Burlington Northern Santa Fe Corp.     34,368    
    500     CH Robinson Worldwide, Inc.     26,055    
    600     Copart, Inc. *      26,406    
    700     CSX Corp.     45,276    
    1,400     Danaher Corp.     114,198    
    2,000     Deere & Co.     141,140    
    200     Emerson Electric Co.     9,360    
    100     FedEx Corp.     8,282    
    100     Flowserve Corp.     13,212    
    2,400     General Dynamics Corp.     221,520    
    13,500     General Electric Co.     379,350    
    292     Ingersoll-Rand     10,784    
    400     Kennametal, Inc.     14,092    
    800     L-3 Communications Holdings, Inc.     83,152    
    200     Manpower, Inc.     9,612    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Industrials — continued  
    1,200     Masco Corp.     22,872    
    200     Norfolk Southern Corp.     14,706    
    300     Northrop Grumman Corp.     20,655    
    700     Paccar, Inc.     30,142    
    1,050     Parker-Hannifin Corp.     67,274    
    500     Raytheon Co.     29,995    
    200     Rockwell Collins, Inc.     10,518    
    200     Ryder Systems, Inc.     12,904    
    100     SPX Corp.     11,925    
    2,175     Tyco International Ltd.     93,264    
    500     United Parcel Service, Inc.-Class B     32,060    
    1,800     United Technologies Corp.     118,062    
    200     URS Corp. *      9,592    
    700     YRC Worldwide, Inc. *      12,670    
    Total Industrials     1,741,806    
        Information Technology — 9.0%  
    200     Affiliated Computer Services, Inc.-Class A *      10,648    
    13,200     Cisco Systems, Inc. *      317,460    
    300     Citrix Systems, Inc. *      9,081    
    400     Cypress Semiconductor Corp. *      12,968    
    3,100     Dell, Inc. *      67,363    
    4,400     eBay, Inc. *      109,692    
    1,500     EMC Corp. *      22,920    
    200     Factset Research Systems, Inc.     12,542    
    900     Fiserv, Inc. *      46,674    
    300     Global Payments, Inc.     14,463    
    170     Google, Inc.-Class A *      78,759    
    300     Hewitt Associates, Inc.-Class A *      12,063    
    1,300     Hewlett-Packard Co.     60,996    
    1,700     Ingram Micro, Inc.-Class A *      32,147    
    1,200     Intel Corp.     27,444    
    910     International Business Machines Corp.     110,774    
    1,200     Juniper Networks, Inc. *      30,840    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        Information Technology — continued  
    300     Lam Research Corp. *      11,028    
    800     Lexmark International, Inc. *      28,776    
    20,300     Microsoft Corp.     553,987    
    13,600     Oracle Corp. *      298,248    
    700     QLogic Corp. *      13,076    
    6,200     Qualcomm, Inc.     326,430    
    400     Sybase, Inc. *      13,764    
    700     Tech Data Corp. *      23,898    
    200     VeriSign, Inc. *      6,394    
    1,800     Western Digital Corp. *      49,068    
    Total Information Technology     2,301,503    
        Materials — 0.9%  
    300     Air Products & Chemicals, Inc.     27,555    
    600     Cabot Corp.     16,602    
    300     Commercial Metals Co.     7,809    
    600     Dow Chemical Co. (The)     20,478    
    400     FMC Corp.     29,416    
    600     Newmont Mining Corp.     27,060    
    1,100     Nucor Corp.     57,750    
    200     Reliance Steel & Aluminum Co.     11,402    
    400     Sigma-Aldrich Corp.     22,704    
    Total Materials     220,776    
        Telecommunication Services — 0.7%  
    2,258     AT&T, Inc.     72,233    
    2,952     Verizon Communications, Inc.     103,674    
    Total Telecommunication Services     175,907    
        Utilities — 0.1%  
    300     FirstEnergy Corp.     21,792    
    TOTAL COMMON STOCKS (COST $28,343,789)     24,568,813    

 

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, 2008 (Unaudited)

Shares   Description   Value ($)  
        RIGHTS AND WARRANTS — 0.0%  
        Information Technology — 0.0%  
    800     Seagate Technology, Inc. Rights * (a)      8    
    TOTAL RIGHTS AND WARRANTS (COST $0)     8    
        SHORT-TERM INVESTMENTS — 3.4%  
        Money Market Funds — 3.4%  
    870,626     State Street Institutional Treasury Money Market Fund-Institutional Class     870,626    
    TOTAL SHORT-TERM INVESTMENTS (COST $870,626)     870,626    
        TOTAL INVESTMENTS — 99.8%
(Cost $29,214,415)
    25,439,447    
        Other Assets and Liabilities (net) — 0.2%     44,307    
    TOTAL NET ASSETS — 100.0%   $ 25,483,754    

 

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, 2008 (Unaudited)

A summary of outstanding financial instruments at August 31, 2008 is as follows:

Futures Contracts

Number of
Contracts
  Type   Expiration
Date
  Contract
Value
  Net Unrealized
Appreciation
(Depreciation)
 
Buys      
  8     S&P 500 E-Mini   September 2008   $ 513,040     $ 11,823    

 

As of August 31, 2008, 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)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust.

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, 2008 (Unaudited)

Assets:  
Investments, at value (cost $29,214,415) (Note 2)   $ 25,439,447    
Dividends and interest receivable     67,835    
Receivable for collateral on open futures contracts (Note 2)     28,800    
Receivable for expenses reimbursed by Manager (Note 3)     7,378    
Total assets     25,543,460    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     6,683    
Shareholder service fee     3,233    
Trustees and Chief Compliance Officer of GMO Trust fees     64    
Payable for variation margin on open futures contracts (Note 2)     6,200    
Accrued expenses     43,526    
Total liabilities     59,706    
Net assets   $ 25,483,754    
Net assets consist of:  
Paid-in capital   $ 32,172,889    
Accumulated undistributed net investment income     71,950    
Accumulated net realized loss     (2,997,940 )  
Net unrealized depreciation     (3,763,145 )  
    $ 25,483,754    
Net assets attributable to:  
Class III shares   $ 25,483,754    
Shares outstanding:  
Class III     3,435,983    
Net asset value per share:  
Class III   $ 7.42    

 

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, 2008 (Unaudited)

Investment Income:  
Dividends   $ 304,148    
Interest     2,932    
Total investment income     307,080    
Expenses:  
Management fee (Note 3)     42,761    
Shareholder service fee – Class III (Note 3)     20,691    
Custodian, fund accounting agent and transfer agent fees     15,548    
Audit and tax fees     27,508    
Legal fees     368    
Trustees fees and related expenses (Note 3)     126    
Miscellaneous     368    
Total expenses     107,370    
Fees and expenses reimbursed by Manager (Note 3)     (43,700 )  
Expense reductions (Note 2)     (95 )  
Net expenses     63,575    
Net investment income (loss)     243,505    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (1,230,875 )  
Closed futures contracts     (69,522 )  
Net realized gain (loss)     (1,300,397 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     (277,528 )  
Open futures contracts     56,760    
Net unrealized gain (loss)     (220,768 )  
Net realized and unrealized gain (loss)     (1,521,165 )  
Net increase (decrease) in net assets resulting from operations   $ (1,277,660 )  

 

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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 243,505     $ 662,983    
Net realized gain (loss)     (1,300,397 )     606,964    
Change in net unrealized appreciation (depreciation)     (220,768 )     (5,075,041 )  
Net increase (decrease) in net assets from operations     (1,277,660 )     (3,805,094 )  
Distributions to shareholders from:  
Net investment income  
Class III     (221,102 )     (613,306 )  
Net realized gains  
Class III           (2,010,274 )  
      (221,102 )     (2,623,580 )  
Net share transactions (Note 7):  
Class III     (2,375,502 )     60,351    
Total increase (decrease) in net assets     (3,874,264 )     (6,368,323 )  
Net assets:  
Beginning of period     29,358,018       35,726,341    
End of period (including accumulated undistributed net
investment income of $71,950 and $49,547, respectively)
  $ 25,483,754     $ 29,358,018    

 

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, 2008
  Year Ended February 28/29,  
    (Unaudited)   2008   2007   2006   2005   2004  
Net asset value, beginning
of period
  $ 7.86     $ 9.68     $ 10.78     $ 11.71     $ 11.36     $ 8.05    
Income (loss) from investment
operations:
 
Net investment income (loss)      0.07       0.18       0.21       0.26       0.20       0.17    
Net realized and unrealized
gain (loss)
    (0.45 )     (1.23 )     0.80       0.58       0.86       3.31    
Total from investment
operations
    (0.38 )     (1.05 )     1.01       0.84       1.06       3.48    
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.18 )     (0.23 )     (0.28 )     (0.19 )     (0.17 )  
From net realized gains           (0.59 )     (1.88 )     (1.49 )     (0.52 )        
Total distributions     (0.06 )     (0.77 )     (2.11 )     (1.77 )     (0.71 )     (0.17 )  
Net asset value, end of period   $ 7.42     $ 7.86     $ 9.68     $ 10.78     $ 11.71     $ 11.36    
Total Return(a)      (4.81 )%**      (11.88 )%     9.80 %     7.73 %     9.59 %     43.68 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 25,484     $ 29,358     $ 35,726     $ 95,605     $ 112,411     $ 71,931    
Net expenses to average daily
net assets
    0.46 %(b)*      0.46 %     0.46 %     0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets
    1.77 %*      1.93 %     1.91 %     2.31 %     1.79 %     1.77 %  
Portfolio turnover rate     27 %**      75 %     72 %     62 %     60 %     65 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:
    0.32 %*      0.23 %     0.13 %     0.12 %     0.10 %     0.14 %  

 

(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 net expense ratio does not include the effect of expense reductions.

†  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, 2008 (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 in companies with similar market capitalizations.

2.  Significant accounting policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently followed by the Fund in preparing 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. The accounting records of the Fund are maintained in U.S. dollars.

Portfolio valuation

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. Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates fair value. Shares of investment 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 persons acting at their direction pursuant to procedures approved by the Trustees. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and may not reflect the value that would be realized if the security were sold. The difference between a fair value price and the value realized upon a sale could be material.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 is effective for the Fund's current fiscal period. While the adoption of SFAS 157 does not have an effect on the Fund's net asset value, it does require additional disclosures about fair value measurements. SFAS 157 establishes a three-level


17



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the reliability of inputs to the valuation of the Fund's investments. The three levels are defined as follows:

Level 1 – Valuations based on quoted prices for identical securities in active markets.

Level 2 – Prices determined using other significant observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of August 31, 2008 in valuing the Fund's investments at value:

Asset Valuation Inputs   Investments
in Securities
  Other Financial
Instruments*
 
Level 1 - Quoted Prices   $ 24,568,813     $ 11,823    
Level 2 - Other Significant Observable Inputs     870,626          
Level 3 - Significant Unobservable Inputs     8          
Total   $ 25,439,447     $ 11,823    

 

*  Other financial instruments include futures contracts.

Liability Valuation Inputs   Investments
in Securities
  Other Financial
Instruments
 
Level 1 - Quoted Prices   $     $    
Level 2 - Other Significant Observable Inputs              
Level 3 - Significant Unobservable Inputs              
Total   $     $    

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

    Investments
in Securities
  Other Financial
Instruments
 
Balance as of February 29, 2008   $ 8     $    
Accrued discounts/premiums              
Realized gain (loss)              
Change in unrealized appreciation/depreciation              
Net purchases (sales)              
Net transfers in and/or out of Level 3              
Balance as of August 31, 2008   $ 8     $    

 


18



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations, or other liquid assets with the futures clearing broker 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 L iabilities. 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 to 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 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. Variance swap agreements involve commitments to pay or receive a settlement amount calculated as the difference between the annualized realized variance of returns on the underlying price and a fixed quantity, also known as the variance strike, over a period of time. The Fund may segregate securities or cash in the name of the counterparty or the counterparty may post cash or securities to the Fund as collateral in accordance with the terms of the agreement.

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


19



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 them 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 exposes the Fund, to varying degrees, to 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 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. The Fund had no swap agreements outstanding at the end of the period.

Repurchase agreements

The Fund may enter into repurchase agreements with banks and brokers 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. The Fund had no repurchase agreements outsta nding at the end of the period.

Securities lending

The Fund may lend its securities to qualified brokers. 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 August 31, 2008, 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 all of its net realized short-term and long-term capital gain, if any, after


20



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 gain, 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 and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

As of February 29, 2008, the Fund elected to defer to March 1, 2008 post-October capital losses of $1,341,682.

As of August 31, 2008, 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)
 
$ 29,701,806     $ 816,970     $ (5,079,329 )   $ (4,262,359 )  

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN 48 sets forth a minimum threshold for financial statement recognition of a tax position taken or expected to be taken in a tax return that could affect the Fund's financial statements. The Fund did not have any unrecognized tax benefits or liabilities at August 31, 2008, nor were there any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination based on the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


21



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the 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. Principal on inflation indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or loss. Income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund determines the cost of securities on the identified cost basis.

Expenses

The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses that 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.

State Street Bank and Trust Company ("State Street") serves as custodian, fund accounting agent and transfer agent of the Fund. State Street's fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains with State Street. In addition, Goldman Sachs Agency Lending, the Fund's securities lending agent, has agreed to reimburse the Fund for certain transactional expenses related to securities lending activity. Credit balances or expense reimbursements used to reduce fees, if any, are reported as a reduction of expenses in the Statement of Operations.

Recently issued accounting pronouncement

In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. The Manager is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

3.  Fees and other transactions with affiliates

GMO receives a management fee for investment management services provided to the Fund that is 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, 2009 to the extent the Fund's total annual operating expenses (excluding "Excluded Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Expenses include shareholder


22



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (Unaudited)

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 (including taxes).

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2008 was $126 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, 2008 aggregated $7,071,548 and $9,333,781, 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 that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it 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 in the future such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2008, 99.27% of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares. On that date, no other shareholder owned more than 10% of the outstanding shares of the Fund. Redemptions from (or investments into) the Fund or on behalf of these large shareholders may have a material effect on the Fund.

As of August 31, 2008, 0.09% of the Fund's shares were held by senior management of the Manager and GMO Trust officers, and 0.15% of the Fund's shares were held by accounts for which the Manager has investment discretion.


23



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2008 (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, 2008
(Unaudited)
  Year Ended
February 29, 2008
 
Class III:   Shares   Amount   Shares   Amount  
Shares sold         $       183,699     $ 1,585,009    
Shares issued to shareholders
in reinvestment of distributions
    28,529       213,467       279,714       2,550,763    
Shares repurchased     (327,217 )     (2,588,969 )     (421,121 )     (4,075,421 )  
Net increase (decrease)     (298,688 )   $ (2,375,502 )     42,292     $ 60,351    

 


24




GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2008 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2008, 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 15, 2008 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 16, 2008.

The Trustees met over the course of the year with the Manager'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 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 ove rall 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 those 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


25



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2008 (Unaudited)

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, for example, by attracting new clients, entering into sub-advisory relationships with other fund gro ups, and expanding existing client 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 legal counsel had advised that, in their experience, the standard of care set forth in the investment management agreement was typical for 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.

Following their review, on June 16, 2008, 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, 2008.


26



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2008 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2008.

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, 2008 through August 31, 2008.

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     $ 951.90     $ 2.26    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2008, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


27




 

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 E. Eston

 

 

Scott E. Eston, Chief Executive Officer

 

 

 

 

 

Date:

  November 3, 2008

 

 

 

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 E. Eston

 

 

Scott E. Eston, Principal Executive Officer

 

 

 

 

 

Date:

 

  November 3, 2008

 

 

 

By (Signature and Title):

/s/ Sheppard N. Burnett

 

 

Sheppard N. Burnett, Principal Financial Officer

 

 

 

 

 

Date:

  November 3, 2008

 

 


EX-99.CERT 2 a08-23962_1ex99dcert.htm EX-99.CERT

EX-99.CERT

 

CERTIFICATION PURSUANT TO SECTION 30(a)-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002:

 

I, Scott E. 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 3, 2008

 

 

 

/s/ Scott E. Eston

 

Scott E. Eston, Principal Executive Officer

 



 

CERTIFICATION PURSUANT TO SECTION 30(a)-2(a) UNDER THE 1940 ACT AND 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 3, 2008

 

 

 

/s/ Sheppard N. Burnett

 

Sheppard N. Burnett, Principal Financial Officer

 


EX-99.906CERT 3 a08-23962_1ex99d906cert.htm EX-99.906CERT

EX-99.906 CERT

 

CERTIFICATION PURSUANT TO RULE 30(a)-2(b) UNDER THE 1940 ACT AND SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Scott E. 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, 2008 (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 E. Eston

 

 

Scott E. Eston

 

Principal Executive Officer

 

 

 

Date:

 November 3, 2008

 

 

 

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 RULE 30(a)-2(b) UNDER THE 1940 ACT AND 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, 2008 (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 3, 2008

 

 

 

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.

 


-----END PRIVACY-ENHANCED MESSAGE-----